Amendment of Law.

Part of Orders of the Day — Ways and Means. – in the House of Commons on 22nd April 1936.

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Photo of Sir Archibald Sinclair Sir Archibald Sinclair , Caithness and Sutherland

For my own part, I share to the full the gloomy apprehensions which have been expressed by the hon. Member for East Edinburgh (Mr. Pethick-Lawrence) in his interesting speech. The Chancellor of the Exchequer in his Budget statement yesterday and in his broadcast address to the nation last night made an almost disarming reference to the disappointment that he himself felt at this culmination of the series of five Budgets which he has opened. He started in 1932 by reducing expenditure. He went on to make amends to the taxpayers and wage earners upon whom the sacrifices had been imposed in the financial crisis of 1931. Further than that, he made some remission of taxation, and now he finds himself like a man lost in some financial Sahara, wandering round in a circle and returning, in expenditure and taxation, to the point from which he started. It would not be generous or even fair to criticise his financial policy without recognising that he is to a considerable extent the victim of circumstances over many of which as Chancellor he has little control, even if they are not out of the control of the Government of which he is one of the most powerful Members, and of some circumstances which are outside the control even of the Government. In listening to the extraordinarily interesting speech of the hon. Member for East Edinburgh I could not help thinking that he made rather less than adequate allowances for these circumstances, but I do not flatter myself that before I sit down the Chancellor of the Exchequer will not have the same opinion of the speech I am about to deliver.

So I was almost disarmed by the Chancellor's plea that it was the world situation which was responsible for his difficulties and disappointments—almost, but not quite, disarmed, for I then reflected that a like plea did not save Lord Snowden and the Labour Government from the Chancellor's bitter criticism. As the political turmoil abroad is ruining the financial plans of this Chan- cellor, so the world slump wrecked Lord Snowden's plan, but that did not save him from, or even temper, Tory criticism. Indeed, the forces which produced the economic catastrophe of 1929–32 were far less susceptible to the influences of British policy than those which have produced the grave international situation to-day. I am far from wishing to defend the policy of the Government which was presided over by the Lord President of the Council—to whom we all wish a happy and complete recovery and a speedy return to our debates—but at least it could not he said of that Government as it can be said of this Government that by their economic policy they have done much to provoke, and, by their feeble and vacillating foreign policy, to aggravate the international situation upon which they now seek to throw the blame for swollen expenditure and increased taxation.

Let us see, then, how far the Chancellor has strayed from the path of economy since 1932–33. In his statement opening the Budget in April, 1933, the Chancellor used these words: In view of certain criticisms which have been made on the subject of expenditure, I am going to ask the Committee to contrast that figure with the position which existed two years ago. At that time when the Estimates were presented in April, 1931, our ordinary expenditure, leaving out interest on the American debt for purposes of comparison, were set down at £724,000,000. We were then borrowing for unemployment at the rate of £1,000,000 a week, and we were making provision to borrow £9,000,000 for the roads. So that our total ordinary expenditure then was at the rate of £785,000,000. This year the estimate is £697,000,000—a reduction of £88,000,000. He went on to say that that was not all, and showed that he had also provided for certain automatic increases in expenditure on the social services and in certain other directions. Then he added: So that the position is that not only have we actually saved in expenditure £88,000,000, but we have also absorbed another £25,000,000 which otherwise would have meant an increase in our expenditure. In other words the real saving to-day as compared with the estimated position of two years ago amounts to £113,000,000."— [OFFICIAL REPORT, 25th April, 1933; col. 41, Vol. 277.] To-day, nearly three years later, the Chancellor's economy policy lies in ruins. To paraphrase the Chancellor's statement so as to bring it accurately up to date, whereas our total ordinary expenditure in April, 1931, including all sums borrowed in respect of roads and unemployment, was £785,000,000, our estimate for the current year is £798,000,000, which compares with £697,000,000 in 1933, an increase of £100,000,000, in three years, which wipes out the result of the policy of 1931 and restores our expenditure to the crisis level of that year. This level of expenditure is not only a crushing burden for the taxpayers of this country in time of peace, but it also, as I shall presently argue, a precarious basis for the Government defence plan. Time was, only five years ago, when the Chancellor protested in the most vehement language against such a level of expenditure under the Government of which the Lord President was the head. There had been some public comment at that time upon the poor attendance of Conservative Members at a Debate on a private Member's Motion on public economy, and the present Chancellor wrote a letter to the "Times," in which he roundly declared: I, for one, would not enter a Government that was not pledged to reduce national expenditure, nor would I remain a member of one which did not carry out such a pledge during its first year of office. He may claim to have observed the letter of that pledge, but the fact that he has remained not merely a member of a Government but the Chancellor of the Exchequer in a Government, is responsible for the finances of the country, which within five years restores the expenditure of the country to the level against which he inveighed in that letter, seems difficult to reconcile with its spirit. The Chancellor may retort that whereas the revenue was contracting in 1931, it is now expanding. But what are the causes of that expansion? In introducing his Budget last year, the Chancellor, after a glowing description of the progress of economic recovery, declared: It is not without significance that this forward movement has followed upon a succession of balanced budgets."—[OFFICIAL REPORT, 15th April, 1935; col. 1618, Vol. 300.] It is not without its grim significance for the future of this country and for the prospects of further revenue expansion that the Chancellor now invites the Committee to contemplate a succession of unbalanced budgets. Another vital factor in that expansion of the revenue is, of course, cheap money. How long can the level of interest be prevented from rising when national expenditure is mounting and when no provision is made for the sinking fund? I referred to the question of the sinking fund yesterday, and since I spoke I have looked up the Chancellor's Budget statement in 1934, when I found he used these words: The question I had to ask myself was, has the time now arrived when we ought to begin the scaling up of the fixed debt charge to a normal figure? It is a nice point. But on the whole, bearing in mind that there must be a lag before the improvement in the conditions of the country translates itself fully into an increase in the revenue, I came to the conclusion that it would not be unreasonable to proceed on the old lines for one more year.… I hope that the Committee will note my warning that assuredly a larger provision would have to be made in future financial periods."—[OFFICIAL REPORT, 17th April, 1934; col. 910, Vol. 288.] Last year the right hon. Gentleman repeated that warning, and now, far from providing a Sinking Fund, he proposes large new borrowings. The provision for reduction of debt, far from being increased, is being reduced, and the financial outlook, far from improving as he suggested it might in 1934, is now darker.

The third factor in the expansion of the revenue is, of course, the trade cycle, which is now on its upward grade. The Unemployment Insurance Statutory Committee, which reported two months ago, after consultation with the Economic Advisory Committee, estimated that the favourable tendency in trade would probably continue for another two years, but they pointed out that their estimate depended upon variable hypotheses, and particularly upon the economic policy pursued by the Government of this and other countries. The effect of this Budget, and still more of future Budgets, in which fresh borrowing will be substituted for a Sinking Fund, must tend to bring nearer, rather than to postpone, the next downward turn in the trade cycle.

There remains a fourth factor in the economic and financial situation, and one in regard to the importance of which there will be no disagreement between the Chancellor and myself: the economic policy of the Government, the policy of tariffs, quotas and subsidies to favoured interests and to industries and to areas which have been devastated by Protection, subsidies which are unsound in principle, unfair in their capriciousness and burdensome to the revenue which the taxpayer has to supply. The Government embarked on this economic policy, and in particular on the policy of protection, with four mutually inconsistent objects in view. The first was to obtain revenue. The Chancellor has to confess that not even yet, with improving trade, have the duties levied under the Import Duties Act reached the level which he estimated they would reach in 1932. Together, the Import Duties Act duties and the Ottawa Duties yield just over £30,000,000, about the equivalent of the yield of 6d. on the Income Tax. If, instead of committing themselves at Ottawa to a policy of economic Imperialism, and torpedoing the World Economic Conference, the Government had devoted their energies to co-operating with other countries in restoring overseas trade, even to the level of 1929, which is no great criterion of prosperity, the yield of normal taxation on that trade would have far exceeded the yield of these protective duties. In short, protective duties destroy more revenue than they create. The second object was to protect home industries, a policy which has brought prosperity to Birmingham at the expense of Liverpool, Glasgow, the depressed areas and our great export and maritime industries.

The third professed object of the tariff was to obtain a weapon with which to beat down foreign tariffs. A sufficient illustration of the futility of the tariff as a bargaining weapon is provided by the figures of our exports to the 16 countries with which we have concluded trade agreements as compared with those countries with which we have no agreements. In 1931 our exports to the 16 countries with which we have agreements totaled £109,000,000, and in 1935 they totaled £110,000,000, an increase of £1,000,000. In 1931 our exports to foreign countries with which we have no agreements totalled £110,000,000, and in 1935 £111,000,000. So there has been a total increase of £2,000,000 in the exports to foreign countries, £1,000,000 of which has gone to countries with which we have agreements and £1,000,000 to the countries with which we have no agreements. So much for the value of this Governments trading agreements and for the tariff as a bargaining weapon.

The fourth object of the Government's policy was to divers trade from foreign countries to Empire countries, and in that object it has, of course, been successful. Nobody doubted, certainly no Free Trader, that you can divert trade by tariffs. But there is the economic cost, seen in exports reduced by a half, or nearly a half, as compared with 1929, the failure of the World Economic Conference, the continuance of unemployment and impoverishment. There is the political cost of the declaration of this country that it was abandoning the policy of keeping an open door in its Colonial Empire for the merchants and traders of all nations. In the words of Mr. Bennett, who was the chairman of the Ottawa Conference, and ought to know what the Ottawa Agreements meant: In future nobody will be able to trade with the British Empire, except on payment of tribute. The cost of Ottawa, therefore, we are now paying in swollen Estimates for the Defence Services and in increased risk of war. Looking, therefore, at all those factors to which the Government attribute the expansion of the revenue—their economic policy, cheap money, the trade cycle, and balanced Budgets—we must be appalled at the precariousness of the foundations upon which they pile burdens of progressively swelling expenditure, increased taxation, and substantial additions to the debt.

Let me now come to a few of the main features of the Chancellor's statement. There is the increased Tea Duty, about which I said something yesterday and on which we shall have further debate on the specific Resolution, so I will say no more about it now. Then there is the Road Fund. I join with the hon. Member for East Edinburgh in his congratulations to the Chancellor of the Exchequer upon the careful wording of his Election statement about the five-year road programme, but what we shall be more concerned about in the near future is the proposal which he makes for depriving the Road Fund of its financial independence. I watched the right hon. Gentleman the Member for Epping (Mr. Churchill) when this announcement was made yesterday. He had to put up with many gibes at his heterodoxy when he raided the Road Fund, and I thought I detected a glint of envy in his eye when he saw the pundit of financial orthodoxy not content with an occasional egg, but running off with the whole goose. We shall have a great deal more to say about that when the definite proposals come before us.

Next I should like to say something about a matter which was not in the Budget statement and that is the Unemployment Assistance Regulations. We have been promised those Regulations in the spring. There is a great deal of impatience, not only among hon. Members on this side of the House but in all parts of the House, to see those Regulations. That impatience was expressed by the right hon. Member for Epping in a recent speech. There is not only impatience to see them as a matter of curiosity, but there is a general feeling that the household means test ought not to be allowed to continue in its present form. If it is not to continue in its present form will not that throw an additional burden on the Budget, and has any provision been made to meet that demand? I ask the Financial Secretary to be good enough to answer that point when he comes to reply.

I am glad to have the opportunity of welcoming the proposals which the Chancellor has made for special credit facilities for small businesses. While it is true, as the hon. Member for East Edinburgh said, that it is not a very big matter, after all it is an advance, an advance which, in the opinion of men who have studied the question, is likely to be helpful to small industries and to small people, people with energy and individual enterprise, the ones whom we want to encourage. I think it is a healthy proposal and one to which I wish well. But the Chancellor spoke as if it were confined to the Special Areas. Certainly the Special Areas ought to be given a preference, but why should this scheme be confined to them? At any rate, let the other gravely depressed areas share in the benefits of the scheme. I refer to areas like Lancashire, Middlesbrough, and the Northern and Eastern districts of Scotland, which are all in the depths of depression. I am reminded by an hon. Member that there is also West Yorkshire. I referred to the North and the East of Scotland, and he will no doubt speak for West Yorkshire. Perhaps the Committee will pardon me if I say a few words on the subject of Northern and Eastern Scotland, which I know best, because the Government's Special Commissioner for Scotland, when he acted as their official investigator and furnished a report on unemployment in Scotland, expressed grave doubts as to whether the Northern and Eastern districts of Scotland ought not then to be included in the Special Areas. Since then the situation has grown worse in those districts. In considering whether or not this scheme should be extended to these other districts I would ask the Chancellor to consider the precedent of the arrangement made for giving priority in contracts for public works to certain depressed areas outside the Special Areas. I hope the Financial Secretary will find it possible to reply on this point and say whether the Government will not at least follow that precedent and give to those areas, as well as to the Special Areas, the benefits of the new scheme.

Yesterday I welcomed the Chancellor's scheme for giving relief to certain classes of the small Income Tax payers. Let me ask the Chancellor to remember that he is still in their debt. He has restored the allowance for a child to £60, the level at which it stood before the special sacrifices were imposed in 1931.