Amendment of Law.

Part of Orders of the Day — Ways and Means. – in the House of Commons at on 20 April 1932.

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Photo of Hon. John Stourton Hon. John Stourton , Salford South

In rising to address the Committee for the first time, I would, as is customary, ask the indulgence of hon. Members. I should like, first, to refer to indirect taxation, which falls very heavily on the working-class. Take the Entertainments Duty, the Tobacco Duty and particularly the tax upon beer. Beer at the present price is quite out of the reach of the unskilled working-man, and, although I quite understand that in the position of national finances no reduction could be made in this Budget, I hope the Chancellor of the Exchequer will take the first opportunity when trade recovers to make some reduction in the Beer Duty. If indirect taxation is a burden to the working-class, direct taxation is most extortionate and confiscatory at the present rate and hits the employing and the working-classes alike. The employers pay their direct tax in cash and the workers in short time, unemployment, and low wages. I believe we are to-day living on our fat—on capital and on fortunes which were accumulated in better times, in days of cheap labour, long hours and low wages. Take the Death Duties, for example. There can be no doubt that they are paid exclusively from capital, and, therefore, are a great burden upon industry. Again the Surtax, which rises to the incredible height of 9s. 3d. in the pound on big fortunes, is largely a tax upon capital, and Income Tax has to be paid on top of that at the rate of 5s. in the pound. I should like to point to what M. Siegfried, the able and friendly French critic, said, that in France the National Budget was always on the wrong side but every private house was in credit, while in Great Britain exactly the reverse is the case. That statement is uncommonly true. We balance our Budget, but we do so by bankrupting the individual and handicapping industry all round. This burden cannot be supported indefinitely, any more than a man can be expected to swim the Channel with a brick tied round his neck. Fortunes are being squandered and cannot be replaced as easily as before, because, for the reasons I have stated, money is more difficult to accumulate than in the past. High taxation and a continual deflationary process are rapidly bringing about an increasing depression which will ultimately bring ruin to the nation if it continues. Primary producers can no longer sell their products at a profit. The same applies to the manufacturer—there is no one who can buy his goods—and our overseas investments are depreciated so it is a gloomy picture that I must draw of the national finances.

The question is: what is the remedy. Economy seems to loom out as one possibility. The national income is computed at £3,000,000,000. It is a dreadful thought that the Budget totals something like 25 per cent. of that income. I believe that one means of restoring the country to prosperity would be for the Government to make up their minds that the national expenditure must be heavily curtailed. I would suggest that they might fix on a maximum sum of £600,000,000 as their budgetary estimate and that they might appoint a commission to explore how best that desirable objective can be brought about. Members of the Government declare from time to time that a lot of the expenditure is statutory and is very difficult to reduce. We are here with a large majority, and I suggest that we should take such steps as are necessary to repeal legislation that has been passed in order to bring about a drastic reduction of expenditure.

May I make one or two comments on the National Debt? This stands at the staggering figure of £7,420,000,000, and the Debt Service alone is £276,000,000, pretty nearly 40 per cent. of the total national burden. This is an intolerable load on industry and must be coped with. Unlike commercial debt, it is utterly unrepresented by assets. It was incurred largely for munitions, which were blown into the air, and there is nothing to show for it except the interest to be paid on it. The difference between it and a commercial debt is that a commercial debt is usually incurred with the object of expanding industry, and the interest and the money to fund the debt are raised from the profits from the expansion of the business. I believe tariffs may be of some service in restoring the balance of trade and putting some of our men hack to work.

I notice that the Chancellor is inclined to see consolation in the circumstance that, if things are not too good here, they are very much worse in many foreign countries. That is poor consolation. It must be remembered that many foreign countries have been undergoing long periods of prosperity whereas we have been wallowing in unemployment and high taxation ever since the War. It rather reminds me of the attitude of the man who went to see a friend whom he found lying in bed suffering great physical pain and tried to comfort him by suggesting that he at any rate was suffering very little because a neighbour of his across the road was expected to die that night. Economy and conversion might do a great deal towards re-establishing our financial position, but these measures are not enough to meet the enormous liabilities of debt service, social services and Government services which have to be met.

How, then, are we to deal with the problem apart from debt conversion and reduction of taxation? In facing the matter we have three alternatives. The first is to continue, as at present, with a falling revenue and bad trade, and taxation becoming an increasing burden, with a deflationary process. The second alternative seems to be the repudiation of some of our liabilities. I do not think that hon. Members on any side of the Committee would support any such policy if it could possibly be avoided. The third alternative—and it is the one which appeals to me most—is the suggestion that prices should be raised, and thus check the vast deflationary movement. I calculate that if this were done the effect would be, first of all, to restore some hope to the agricultural industry, which is nigh bankruptcy. As soon as the price level was raised, it is obvious that the purchasing power and employing capacity of the country districts would be increased, which in turn would create a demand for manufactured goods. As the employment figures improved, and proportionately as the price level was raised, the burden of debt would correspondingly be reduced, and, incidentally, as the price level was raised, we should also reap the advantage abroad of being able to export our manufactured goods on more advantageous terms.

These, I maintain, are very weighty considerations. Some hon. Members may shudder at the thought of the course which I propose. They may say that it is nothing more or less than inflation. I contest such a theory. I would define inflation as the wholesale printing of currency regardless of the corresponding increase in production. That, of course, would simply mean that there would be a violent rise in the price level, causing a demand for increased wages, and then you would have the dreadful process of wages chasing prices until the nation was bankrupt. I propose a different thing altogether. I would describe it as reflation, which I would define as controlled expansion of the note issue to keep pace with increased production. As soon as it was made clear that the price level was to be raised artificially, countries which have their currency based on sterling would proceed to lay in stocks of goods against a rise in prices. That would set the ball rolling, and we should then see an increase of production followed by judicious expansion of the currency, which would continue until such time as the unemployment figures were very much better than they are now. I believe that the ultimate result of such a policy would be to abolish unemployment altogether, or as nearly so as possible. As production increases, the simple process is to increase the note issue in a corresponding degree.

I will deal with some of the arguments against such a policy. It is contended that if currency were expanded ahead of production it would cause a sharp rise in the cost of living which would be undesirable. I entirely agree with that theory. It is utterly unnecessary for the price level suddenly to be raised so as to cause a sharp rise in the cost of living. The answer is simply that if it was found that too much currency was in circulation and that it got ahead of production, it would simply be a question of curtailing currency until production had caught up and gone ahead again. The principal argument against reflation is possibly that there would be a rise in the price level which would cause an increase in the cost of living, and in turn a rise in wages which would negative any benefit that might accrue. I contest that argument wholly. If the price level were considerably raised, the situation, as I see it, would be that the primary products which we import would be increased in price to us considerably, but against that we should be doing a greatly increased home trade, and the fact that the primary products had gone up considerably to us would not affect the cost of manufactured goods to any great extent, for the simple reason that the cost of primary products is a fractional part of the cost of manufactured goods.

For example, take the loaf. Although the wheat from Canada might cost us a good deal more to import, wheat is only about a one-tenth part of the cost of the loaf. If you take wool from Australia, by the time it is brought over here it would cost us considerably more if we raised the price level, but it must be remembered that wool is a very small portion of the cost of the production of a suit. Under a system of reflation the increased demand for bread and various commodities and manufactured goods in this country would be so great that I do not believe that it would have the effect of increasing the cost of living to a great extent, for the reason that you would get full production. Full production decreases overhead charges and enables manufacturers to manufacture goods more cheaply. That largely counters the argument that the increase of cost of primary products caused by increasing the price level would put tip the cost of living. It must be remembered that there is a great lag in the fall in the price of manufactured goods as compared with raw materials, and therefore the price of raw materials can afford to rise very considerably without any need for a rise in the price of manufactured goods. Take the case of rubber. Rubber, as a commodity, has fallen to under 2d. a pound, but the fact remains that the price of the motor tyre has fallen very little compared with what it was 18 months ago. Therefore, one could afford to raise the price level very considerably before tyres need cost the consumer any more.

Again, there is an important point to be recollected in that the wages level in this country is based on a figure when the price level was something from 30 per cent. to 50 per cent. higher than at present. It is an extraordinary thing that the economists of the nineteenth century should have been worrying about how they could increase production sufficiently rapidly to keep pace with the population. To-day, only 100 years on, we are much perturbed because we find what we call over-production. Personally, I do not believe in this so-called disability of over-production. I think it is purely a question of currency and maldistribution.

I do not wish to detain the Committee any longer, but I should like, in conclusion, to emphasise that if we do not do something on the lines I have suggested, sooner or later we shall be faced with a position in which we shall have to repudiate some of our obligations or at least to take some drastic measures which would amount to repudiation. If we fail to take action on the lines I have indicated, this country will sink slowly into the morass of stagnation, and we shall see the beginning of the decline of industry and production in this country and ultimately of Western civilisation. Before I sit down, I would like to ask the Chancellor of the Exchequer three questions. Is it the policy of the Government to wait upon events and leave things as they are? If that is done, the situation is fraught with peril. Again, I ask: dare I hope that the Government will adopt some policy for the restoration of the prosperity of this country on the lines of the remedies I have suggested? Finally, I ask: has the right hon. Gentleman any alternative suggestions to make by which this desirable position can be brought about?