Orders of the Day — Defence Loans.

– in the House of Commons at on 20 February 1939.

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3.44 p.m.

Photo of Mr John Tinker Mr John Tinker , Leigh

On a point of Order, Sir Dennis. There are three Amendments to the Resolution on the Order Paper, and I should be obliged if you would give me guidance as to whether you intend to call all three Amendments or not.

Photo of Lieut-General Edward Fitzroy Lieut-General Edward Fitzroy , Daventry

I think the hon. Member had better ask that question again after the Resolution has been put from the Chair. Such a Resolution in Committee of Ways and Means does not require notice, and might be moved in a different form from that on the Order Paper: therefore, before I can give a Ruling on the Amendments on the Paper, I must have the Resolution moved.

Photo of Mr Joseph Batey Mr Joseph Batey , Spennymoor

Are we to understand that when the Chancellor of the Exchequer has delivered his speech and the Resolution has been put, we may raise the question again?

Photo of Lieut-General Edward Fitzroy Lieut-General Edward Fitzroy , Daventry

When that time comes, I should be glad to give the hon. Member the information he wants on the subject.

3.45 p.m.

Photo of Mr John Simon Mr John Simon , Spen Valley

I beg to move: That it is expedient to amend the Defence Loans Act, 1937, so as—

  1. (1) to increase to eight hundred million pounds the limit on the aggregate amount of the sums which may be issued out of the Consolidated Fund under Sub-section (1) of Section one; and
  2. (2) to include in the expression 'defence services' the following civil services, namely, Air-raid Precautionary Services and grants- in-aid of the Essential Commodities Re serves Fund."
It will be seen that the Resolution I have moved closely follows the lines of the announcement which I made to the House last Wednesday, when the White Paper was issued. I seek authority in this Resolution for a Bill to amend the Defence Loans Act, 1937, in two respects: first, to increase the borrowing powers authorised by that Act from £400,000,000 to £800,000,000, and secondly, to expand the scope of the Defence Services in respect of which those borrowing powers may be used, so as to cover Air-Raid Precautionary Services and grants-in-aid of the Essential Commodities Reserves Fund, in addition to the three services already covered.

I will begin by taking the second of those purposes first, and disposing of it. The Committee will recall that the 1937 Act authorises the raising of loans to be applied only as Appropriations-in-Aid of the Votes for the Navy, the Army and the Air Services. All those monies, up to the present, have been so applied. According to the Defence Loans Act, the term "Defence Services" does not include Air-Raid Precautions or food storage, and according to the present nomenclature, Estimates for Air-Raid Precautions and food or other storage are described as Civil Service Estimates and are sharply contrasted with Defence Estimates. For the purpose in hand, that is surely a quite unreal distinction, since Civil Defence is more and more clearly seen to be an essential part of Defence as a whole, and moreover, the Vote for Air-Raid Precautionary Services for example, is now assuming very large proportions, and the expenditure is chiefly of a non-recurring kind.

A still plainer case for an extension of the limits laid down in the 1938 Act is provided by expenditure on the acquisition of stores of food and the like. Any necessary expenditure upon the acquisition of stores of food and the like in connection with the safety of this country in an emergency is obviously an appropriate subject for the use of capital, for that expenditure at least is non-recurrent, and the stores that are so acquired, although they may, of course, be turned over from time to time, have a permanent capital value. As I have pointed out, up to the present, out of these five Services, three only are Services in aid of which Defence Loans may be used, and in respect of the other two, they may not be used. I feel, and I think the Committee will feel, that it is appropriate, and certainly would be convenient in the presentation of the Budget, to allow necessary borrowings to be appropriately spread over all five of these Services connected with Defence and not only the three primary arms which are already covered. Accordingly, I propose, if the Committee give me leave, to insert in the Bill a new definition of Defence Services which will include, along with the Army, Navy and Air Services, Air-Raid Precautionary Services, and grants for the purchase of food reserves. I do not think the Committee will wish to hear more about that aspect of the matter since no new principle is involved and the fresh borrowing to be authorised by the Bill will cover these additional civil services.

Now I return to the main matter with which the Resolution deals, namely, the proposal to double the present borrowing powers. I do not propose to occupy time in arguing this matter of borrowing as though it were a fresh matter of principle. Parliament has already decided the principle. It has been decided that, in the circumstances, there are sufficient grounds of justification for resorting to a measure of borrowing in connection with the rearmament programme. I will, however, briefly state the chief considerations which I think are widely appreciated and generally allowed to be of weight. First, the rearmament programme is for the purpose of, among other things, filling up gaps and making good deficiencies which are matters of the past and is not concerned with the normal expenditure of the year. We are not merely engaged in maintaining a given level of defence equipment. We are making very large but essential additions which are greater than could be made out of the revenue of the day.

I would ask the attention of hon. Members to this commonsense distinction which may, perhaps, be thought to have some appeal. In normal times, if one compares the total of the Defence Estimates for one year with the corresponding total in the following or preceding year, the variation is not likely to be very large. There may be a trend, over a series of years, either to a reduction or to an increase, but if one plots the figures year by year one gets a curve which is comparatively flat. As long as that is so, as long as the gradient is not too steep, even though you have to climb up the gradient the engine of revenue is capable of hauling you along. The gradient is not too steep for the engine. It is only when the gradient becomes too steep to be mounted by the unaided effort of the engine of revenue that it is necessary to call in aid some additional force to surmount the high peaks and ranges which have to be covered. When the day comes when one returns to more normal levels, then the engine of revenue takes up its task again. I think it is widely and generally recognised that the financial strain involved in the reorganising of our defences is greater than could fairly be met, solely out of revenue.

Next, I would remind the Committee that we are not carrying out these plans for ourselves alone. We are carrying them out as speedily as possible and we are involving ourselves in these immediate years in enormous outlay. They are designed to reach their completion in a limited period of five years or more. But it is an effort which is going to provide the main basis of our defence for years ahead and inasmuch as the programme has to be carried through in the shortest possible time, and the initial cost has to be met here and now, I think the knowledge that the protection so provided is for the future as well as for the present, affords further justification which is widely recognised in this House and out of it for a measure of recourse to borrowing. I would say that it would be inequitable that the whole cost of this vast programme should be debited to the few years in which it is incurred and that it is expedient, it is necessary and it is just that we should make use of the two resources, revenue and borrowing, rather than one.

I agree entirely that very strict conditions should be applied to this loan. We must show ourselves ready to bear, year by year, our proper share. I shall return to that painful subject in a few moments. We must also ensure that whatever is spent out of borrowed money shall be expressly authorised by the deliberate vote and decision of this House. That is why whatever is borrowed appears as an appropriation-in-aid on each particular Vote affected when it comes before this House, in order that it may be approved by the House. Again, definite provision must be made, before the borrowing takes place, for repayment, with a period, with interest and with a definite series of annual instalments to amortise the loan. I notice that the right hon. Gentleman the Member for East Edinburgh (Mr. Pethick-Lawrence) is smiling and I think I can understand the reason for his smile. A few uninstructed persons have sought to draw some parallel between the borrowing which took place for the Unemployment Fund in 1931 and the borrowing which is now being authorised. There is no sort of parallel between the two things, for one reason because objection was then taken, in a famous Treasury Memorandum of that day, to State borrowing without adequate provision for repayment. The argument was that it was necessary to have a scheme according to which the money in respect of which the State became indebted, should, under the provisions of the scheme, be repaid. Indeed, since then the Unemployment Fund has, as we know, been put upon that basis.

The provision in connection with this borrowing is as follows: This borrowing is not merged in dead-weight debt at all. When a Defence Department has received some duly authorised issue of loan money, then interest at the rate of 3 per cent. is charged against that Department to the end of the five-year period. Thereafter sums have to be repaid to the Exchequer with interest in the form of 30 annual instalments and that series of repayments is chargeable upon the future Votes of the Department. That is not a mere form. It is designed, deliberately, for the purpose of showing us all that if money is borrowed the day will come when it will have to be provided for. The object of the scheme is to spread the burden as it ought to be spread over a longer period, but we are not to imagine that we have only to borrow the money and afterwards forget all about it.

I have said that the principle of borrowing for this purpose is established and accepted and what I have to do, I conceive, is to show the Committee why I propose that the figure should now be £800,000,000. How is that to be judged? It seems to me that one must judge the validity of this enormous total, first, in its association with the scale of our total rearmament expenditure, of which it will form a part. Secondly, it must be judged in comparison with the provision that we are making year by year out of revenue. I propose to offer two observations on those two matters.

I would remind the Committee, on the first head, that the White Paper of two years ago, February, 1937, stated that, taking the programme as it then stood, it was imprudent to contemplate a total expenditure on defence during the next five years of much less than £1,500,000,000. That is on average £300,000,000 a year. The Prime Minister, my predecessor at the Treasury, added this warning. He said that the cost of such a programme could not be fixed beforehand, that the conditions might change and further provision might be required, and he said it might be in the end that even £1,500,000,000 would not represent the total amount that this country had been compelled to spend in its defence. A year later, in March of last year, the White Paper stated: It must, therefore, be expected that the total expenditure on Defence for the five years 1937–41 will exceed the sum of £1,500,000,000. We have all to face it. Indeed it is by this time plain to all who follow the subject that undoubtedly the total of £1,500,000,000 of two years ago is not going to be sufficient for the purpose. The expectation that it would be exceeded is really now a certainty, unless indeed some very rapid change for the better takes place in the international field.

If hon. Members will look at the White Paper they will see certain figures in paragraph 9. For this purpose I am confining myself to the three Defence Departments without bringing in Civil Defence. The three figures are £262,000,000, £388, 000,000 and £523,000,000, making a total for the first three years of this quinquennium of £1,173,000,000. If we include Civil Defence the figure would be about £1,250,000,000. That is the amount in round figures for three years, and it does not need much argument to show that it is prudent to expect that there will be more than £1,500,000,000 in five years. It would be a mistake to argue by yearly averages. Those figures that I have given would suggest a yearly average of something like £400,000,000 a year. Any estimate based on an average obviously contains a very serious element of unreality, because it ignores the rising trend of expenditure on defence for the last three or four years. What is happening is that we have been building up a rapidly increasing productive capacity and we have now reached a stage of production of munitions of war on a very large scale, a scale never before touched by this country when we were at peace. I do not think it is useful at this moment to speculate on what precise figure should be substituted for the £1,500,000,000, for the answer to that question depends on the answer to another one. Before you can give any real answer you must form a judgment as to this: How long will it be necessary to continue at full blast with the production of armaments at the rate now attained or in sight?

So much for the relation of borrowing powers to the gross total. We must keep in our minds, in judging whether this extension of borrowing powers is right, the relation between the revenue contribution year by year and the expenditure out of loan. I shall mention some figures which are certainly very grave and impressive figures and I think help to throw a light on that comparison. The original estimate was an estimate of £1,500,000,000 in five years, of which £400,000,000 were to be borrowed. If stated in level annual terms, that would be £220,000,000 from revenue and £80,000,000 from loan each year. What happened in fact? If we take the first year—for the purpose I will include air-raid precautions and food storage; it is better to include them on both sides in order to get the comparison right—in the fiscal year 1937–38 the expenditure was of this sort: £200,000,000 for Defence Services paid out of revenue; £65,000,000 contributed from loan; a total of £265,000,000. That was the situation in the first year of the five. Take the second year, the year just finishing. For the year 1938–39 the figures, as far as I can report them to-day, are £274,000,000 from revenue; £132,000,000 from loan; a total of £406,000,000 in the year now closing. I am sure no Member of the House has failed to observe the figures for 1939–40 in paragraph 12 of the White Paper: £265,000,000 in the first year, £406,000,000 in the second year, and £580,000,000 is the estimate of total defence expenditure in the coming financial year, including expenditure on civil defence and Supplementary Estimates which are already quite clearly marked out.

Those are tremendous figures, and I am sure there is no one here who does not feel that the gap between them, the enormous rise that they show, is very impressive. The explanation is to be found in the necessary character of rearmament development. The first year was largely a year of preparation for this bigger outlay—necessarily so. That is shown very clearly. Although only £65,000,000 was spent out of loan money in that first year, the authority which Parliament gave to spend loan money amounted to £80,000,000. Why was not £80,000,000 spent? The answer is that it takes time for the machine to get under way, and the contribution of revenue was taken first, the contribution from loan afterwards. The second year, the present year, I should describe as a year of rapidly increasing production, due to the completion and putting into work of an immense number of new installations of different kinds. A mass of shadow factories have been erected, equipped with machine tools, jigs and gauges. A vast provision, both human and mechanical, necessary for the purpose has been made.

Now we are coming to this third year in which, as the White Paper informs us, a larger total of expenditure is to be incurred. It is a year in which there will be the full blast of production. Anyone who has studied the White Paper must be impressed both by the immensity of some of the results which are being secured and by the enormous variety of the efforts which the document records. Whatever criticisms there may be, there can be no question that this year is marked down as a year of the most substantial progress in the production of Defence materials of all kinds. Without any intention of making a catalogue of the contents of the White Paper, I might mention a few facts which can be traced to their proper paragraphs here and there.

Take the Navy. The tonnage building for the Royal Navy on 1st January, 1937, was 375,000 tons. On 31st March next it is expected that the tonnage that will be building for the Royal Navy will be 660,000 tons. The programme for the four years 1936–39 includes no less than nine capital ships. The personnel of the Fleet in the six years 1933–38 has been increased by 32,000, or 36 per cent. A very great development is indicated there.

Take the Army. The re-equipment of the Army and the accumulation of war reserves, we may fairly say is now proceeding apace. When my right hon. Friend the Secretary of State for War presents his Estimates, I have no doubt he will be able to give a good account of the greatly increased inflow of recruits into the Regular Army, and as for the Territorials, hon. Members will have noticed in the White Paper that 77,000 recruits joined this year, compared with 45,000 in the previous year.

Let us take a survey as regards the Air Force. There is no doubt at all—indeed, the White Paper makes it very clear— that the Royal Air Force has been very greatly strengthened during the year, both by the recruitment of many thousands of recruits of high quality, officers, men, and boys, and by the addition of large numbers of up-to-date aircraft. Many important steps have been taken still further to augment our sources of production. There has been an extension of the existing factories, of course, but, perhaps more significant, there has been the enlistment of new large organisations with expert managerial staffs which have considerable skilled labour available. Subcontracting—and my right hon. Friend the Secretary of State has, I know, given very special attention to this—has been undertaken on a large scale, and there has been a steady addition to the labour forces engaged in the aircraft industry, and in the result aircraft production is increasing month by month.

The White Paper also, and I think almost for the first time, deals in considerable detail with plans for the organisation of civil defence in many directions. I am not proposing to refer members of the Committee to the paragraphs in the White Paper dealing with this subject, but these questions, the questions of the progress of civil defence in its different departments, are questions for the consideration of which in detail there will be found other and very early opportunities in the near future. It may be convenient if I state, with the authority of the Prime Minister, that next week we propose to bring before the House Supplementary Estimates for the Privy Seal Office, for Air-Raid Precautions, and for National Service.

The Committee will have been giving its attention to the figure of £580,000,000 —that is what is immediately in front of us—and they will be wondering how far that figure of £580,000,000 can be provided out of one source and how far out of the other. I am not, of course, in a position at the present time to lay before the Committee the exact estimate of the available revenue for next year, 1940, on the present basis, neither am I as yet able to make any statement on the nature of any new proposals that I might have to make for the forthcoming year. But it has seemed to me that it would be desirable to make one statement now about this £580,000,000, and the more so because, in the course of a few days, there will be issued the detailed Estimates of the Navy, the War Office, the Air Ministry, and the other Estimates, in which will be found Appropriations-in-Aid from this Defence loans pool. Therefore, as I desire to deal with the Committee candidly and in a business-like way I make this statement now.

For the purpose of these Defence Estimates, which, of course, have already been before me and will be published very shortly, I have made the assumption that £230,000,000, approximately, will be available out of Revenue, however it is raised, and that will leave, as the Committee sees, about £350,000,000 to be met from loan account. It seems to me that I should be best serving the Committee and enabling the proposals to be discussed in an atmosphere of reality if I were to state this distribution which, after much reflection, I have been led to make. I will only venture to add this one observation. I would add a warning that no one should draw any further conclusion from this figure than what I have stated. I venture to think that in this situation the need for obtaining further borrowing powers is made out, for, as the Committee knows, we have already made use of about half of our existing borrowing powers—about £200,000,000—and it will be manifest that we need more than the remaining £200,000,000 if we are going to deal with this very big and difficult sum next year.

Photo of Colonel Harry Nathan Colonel Harry Nathan , Wandsworth Central

In dealing with the distribution or allocation of the £230,000,000, the right hon. Gentleman referred to the Committee having before them the Estimates for the three Defence Departments. Will he say whether he restricted himself to those three Departments or also included the Estimates for air-raid precautions, food storage, and the like?

Photo of Mr John Simon Mr John Simon , Spen Valley

I am much obliged to the hon. and gallant Gentleman. His question was quite justified. Throughout now I am speaking of the Defence Services in the larger sense, and it is the case, assuming that the Committee passes this Resolution and that we carry our Bill, that we shall propose also to assist the Civil Defence Departments by the same means. When I mentioned the £230,000,000 and the £350,000,000, and when I mentioned the total of £580,000,000, all of them were with the larger view of what the Defence Services are, and not the narrower view. I hope I have made that quite clear.

Now we ought, before we pass from the arithmetic, just to look at the three years together, and perhaps the Committee will allow me just to take these two or three figures now. Hon. Members will see that if we take these three years together, last year, the present year, and the year that is just going to begin, out of about £1,250,000,000 for defence, about £700,000,000 will be met from Revenue. That will be the effect of taking those three years together. I think I have made plain to the Committee why it is that, as we pass forward from the beginning, the proportion in which the Estimates have been helped from borrowing necessarily becomes larger. As to the future, I do not believe it is possible to speak with more precision. I feel that the figures which are set out in the White Paper for all to study, and the additional statement that I have made just now, furnish the materials on which we must legislate, estimate, and decide to act. It is of the essence of the programme of rearmament that it is flexible, that it is capable of acceleration, as indeed we have shown during recent months, and that it is capable also of curtailment. It is enough to say that the' anticipated expenditure on defence next year is unprecedented, and hence the amount that is required from loan certainly is very large.

I have these two observations to make in conclusion. First, let us consider for a minute, Has the taxpayer been fulfilling his fair and proper part? I am not looking at the future in this connection; I am looking back. As you look back, especially if you get away from the immediate details and look some way back, this is the way in which the matter presents itself to me. In 1930 there were heavy increases of taxation, which were estimated to provide something like £50,000,000 per annum. In 1931, a year of economic difficulties, there were further burdens, due to an effort to get rid of those difficulties, and estimated to produce a further £80,000,000. We are deal- ing with such large sums now that £50,000,000 and £80,000,000 sound very small, but in fact they are enormous figures. In the period from 1932 to 1935 the country saw a restoration towards prosperity, and that enabled a remission of a large part, not all, of the burdens that had been imposed in 1931, but there has been no removal of the burdens imposed in 1930. Now I come to the last three years. In the last three years we have had three successive increases of Income Tax, altogether adding up to 18. in the £; we have had a new temporary tax, the National Defence Contribution, which is coming into full yield in the year that is now approaching; and we have had taxes on petrol, taxes on tea, and other things. I must say, looking over those years, that I think we are entitled to claim, as the Prime Minister said some years ago, that the present generation is playing its part and that we shall neither suffer loss of credit in the present, nor shall we incur the reproaches of our successors hereafter, for the course that we have been compelled to pursue.

The only other observation that I want to make is this. As I have said, I do not think it is possible to make a useful and confident prophecy as to future years. We all know how formidable these figures are, and we all have some appreciation of what a heavy burden they mean. They are incurred in view of the enormous responsibilities which we carry and the serious necessity of shouldering those responsibilities. It is deplorable, grievous and horrible, that so large a part of the resources of the world should be devoted to these purposes, when otherwise, they might be available to promote and sustain peaceful progress. A general limitation of armaments, effectively secured, would indeed rapidly change the outlook. If we have to face a continuance for a time of this heavy burden, let us at least remember that other countries feel this burden as well as ourselves, and let us be confident that our own land, with its financial strength and with those other resources which are the more potent because they are beyond money value— British character and democratic faith— will be able to stand the strain.

4.30 p.m.

Photo of Mr John Tinker Mr John Tinker , Leigh

There are on the Order Paper three Amendments to the Resolution—In line 2, leave out "eight hundred," and insert "seven hundred and ninety-nine"; in line 4, after "one," insert: provided that Old Age and Widow's Pensions have been increased to twenty shillings per week per person"; in line 7, at the end, add: and the establishing of plants for the extraction of oil from coal by the hydrogenation process so that sufficient oil will be produced to make it unnecessary for this country to buy foreign oil. I am anxious to know whether it is your intention, Sir Dennis, to call the second Amendment, in line 4, which is in my name.

4.31 p.m.

Photo of Lieut-General Edward Fitzroy Lieut-General Edward Fitzroy , Daventry

The hon. Member and his colleague would probably wish me to deal not only with the second Amendment, but the third at the same time. I have given very careful consideration to these Amendments, because this Resolution in Committee of Ways and Means is a type of procedure which has not been very commonly used, and consequently any Ruling which may be given now on this question may be very important in our procedure in future. With regard to the second Amendment, that in the name of the hon. Member for Leigh (Mr. Tinker), this is clearly out of order for the following reasons. In Committee of Ways and Means discussion must be confined to matters directly connected with or arising out of the Question put from the Chair, or, to use the words of Erskine May, page 543: Every Amendment must relate to the matter under consideration, and is governed by the rule of relevancy. Old age and widows' pensions cannot be regarded as being relevant to the Resolution which has been put from the Chair.

With regard to the Third Amendment, that in the name of the hon. Member for Spennymoor (Mr. Batey), this has given me a little more trouble, but I think that it is also out of order for a reason similar to that which applies to the preceding Amendment. The Resolution proposes that "Defence Services" shall include Air-Raid Precautionary Services and grants in aid of the Essential Commodities Reserves Fund established by the Essential Commodities Reserves Act, 1938. This Amendment proposes to include grants for "the establishing of plants" for the production of oil. I cannot find any authority for regarding this establishing of plants for the production of oil as an "Air-Raid Precautionary Service." Although I have searched the index of the Official Report, I have not been able to find any reference to hydrogenation processes as an air-raid precaution. If expenditure for the establishment of plants for this purpose were to be proposed, I cannot suppose that it would be placed under the heading of Air-Raid Precautionary Services. It will be remembered that the House sanctioned expenditure for this purpose two years ago, when special legislation was passed for the purpose. Many matters were then taken into consideration which had nothing to do with defence of any kind. On that occasion it was certainly not treated as an Air-Raid Precautionary Service.

I have next to consider whether it would come under a grant-in-aid of the Essential Commodities Reserves Fund. Petroleum is included in the Schedule to the Essential Commodities Reserves Act as a commodity which may be declared an essential commodity, but the Act does not, in my opinion authorise the use of the fund for expenditure of capital for providing plants for the production of essential commodities. The expenditure authorised by Section 2 (2) of the Act on the execution of works is limited to works "necessary for the storage, preservation and transport" of stocks of essential commodities and does not extend to works for producing such commodities. I cannot find anything in the Act authorising expenditure for producing such commodities. I have, therefore, come to the conclusion that this Amendment is also out of order, because it extends the purposes for which borrowing powers are asked by the Resolution, and is not relevant to the Resolution before the Committee.

4.36 p.m.

Photo of Mr Joseph Batey Mr Joseph Batey , Spennymoor

It seems to me, after the explanation you have given, Sir Dennis, that you have given a great deal of thought to this question, and have had a great deal of trouble to find reasons for ruling the Amendments out of order. I am sorry that you have come at last to that conclusion, especially in regard to my Amendment. We are debating this Resolution to-day under altogether changed circumstances. In 1937 we were discussing the raising of a loan for the Army, Navy and Air Force only, but the Chancellor has to-day deliberately opened the door so as to bring in air-raid precautions and food storage. That being the case, why cannot the Committee be allowed to add what they consider to be essential? We believe that two of the essential things are the provision of oil by this country and the making of a strong and healthy people so that they will be able to withstand a war.

With regard to the second Amendment, it seems to me that if it is essential for the Government to make provision to store food, it is more essential that food should be given to the people who need it. That is our reason for that Amendment. It is to make it possible for old age pensioners and widows to be in a position to buy food so that they will be strong and healthy and not weak and nervous if war breaks out. While, however, I can appreciate what you said with regard to this Amendment, I cannot understand your Ruling with regard to the third Amendment, because what is the use of Parliament raising money for the purchase of aeroplanes if there is no oil in this country to fly them? Whether it is brought under air-raid precautions or food storage does not trouble me, but it is essential to set up plants to provide oil in order that this country can be independent of foreign countries and have enough oil for all the aeroplanes and the Navy in time of war. May I ask you to reconsider your Ruling?

Photo of Lieut-General Edward Fitzroy Lieut-General Edward Fitzroy , Daventry

In reply to the hon. Member, my difficulty in finding reasons for ruling these Amendments out of order was no greater than my difficulty in finding reasons for ruling them in order. As a matter of fact, when I considered the matter I was entirely ignorant, as, indeed, I am at the present moment, of what might be the wishes of the Committee generally or of the Government as to whether these particular matters should be included or not. It was the interests of the procedure of the House in the future, that, as I mentioned in my introductory words, I regarded the matter as of great importance, and as one that should be dealt with according to the practice of the House in the past and to such precedents as I could find. It is on that basis that I came to the conclusion which I set out just now, and perhaps I may be excused for not going in detail into what the hon. Member said in support of his plea, beyond saying that the hon. Member devoted himself mainly to what I might almost describe as a short speech in favour of his Amendment rather than to quarrelling with my Ruling.

Photo of Mr Frederick Bellenger Mr Frederick Bellenger , Bassetlaw

As I understand your Ruling, it is that the Amendments are out of order because they are not relevant to the Resolution proposed by the Chancellor. Do I understand that in the subsequent discussion hon. Members may refer to imported oil but not to petroleum distilled from coal in this country?

Photo of Lieut-General Edward Fitzroy Lieut-General Edward Fitzroy , Daventry

That is a rather hypothetical question. I would rather put it in a different form. Hon. Members may in the discussion refer to "the storage, preservation and transport of" essential commodities, in the words of the Act, and that would include oil.

4.43 p.m.

Photo of Mr Hugh Dalton Mr Hugh Dalton , Bishop Auckland

I beg to move, in line 2, to leave out "eight hundred," and to insert "seven hundred and ninety-nine."

I do not, of course, intend to challenge the Ruling you have given to my hon. Friend the Member for Spennymoor (Mr. Batey), but I would like to express the view that, although no doubt it may be out of order to discuss to-day some of those matters with which the Amendments deal, yet I think that they are relevant in a broad and general sense, particularly the second of them, to the questions which we are considering. I assume that we shall have an opportunity, if not this afternoon, on some not very remote day on some other Vote, for examining the problem of the production of oil from our own resources viewed as a means of promoting the defence and security of the country. The Chancellor of the Exchequer rather unusually took a backward glance this afternoon over a period covering his previous history in another departmental incarnation. I could not forget when he reminded us of the passage of the years since 1930 that seven years ago, almost to the day, in the middle of February, 1932, the right hon. Gentleman in another capacity and in another place, as British Foreign Secretary at Geneva, did, indeed, lay the foundations upon which the edifice which he described as horrible, grievous and deplorable has had to be erected.

On that occasion to which he has in-invited us to address our memories he neither gave a lead on behalf of His Majesty's Government in favour of "the limitation of armaments effectively applied," to use his own words, nor did he line His Majesty's Government up behind other States which were giving a lead in the direction of abolishing not only bombing aeroplanes—one of the principal reasons for this great expenditure both for attack and defence—but many other weapons which under the Treaties of Peace were forbidden to be possessed by the defeated States. Therefore, we are grateful to the Chancellor for reminding us of the perspective, the historical background, in which we are discussing this subject this afternoon. These horrors in the course of recent history result logically from the follies, misjudgments and cowardice of His Majesty's Ministers in those years to which the Chancellor carried our minds back. We are reaping now what he sowed then.

This afternoon we are considering only the cost in money. To find the money for these instruments of war is, perhaps, the easiest of all the problems of defence, but none the less I think it is necessary that something should be said upon the financial aspects of the matter, as, indeed, the Chancellor himself invited us to do, before we pass to consider other aspects of the problem of defence, which will, no doubt, be kept well in view by many hon. Members during these two days discussions. I should like to ask the Chancellor whether I have correctly understood certain figures which he gave us towards the end of his speech. I will recite what I understood him to say, and he will correct me if on any point I am wrong. He was comparing the sums drawn from revenue and from loans respectively in the last two years and in the year just about to begin, for defence in the broad sense, including air-raid precautions, storage, and so forth. He told us that in 1937–38 we got £200,000,000 from revenue and £65,000,000 from loans, in 1938–39,£274,000,000 from revenue and £132,000,000 from loans, and that in 1939–40 we were going to get £230,000,000 from revenue and £350,000,000 from loans, if I understood him correctly.

Photo of Mr John Simon Mr John Simon , Spen Valley

Sir J. Simon indicated assent.

Photo of Mr Hugh Dalton Mr Hugh Dalton , Bishop Auckland

If that is so, I should like to ask for some explanation to be given as to why not only the relative but also the absolute contribution of the revenue is diminishing in this coming year. I could understand the argument—I will come back to it in a moment—that with this very rapid up-rush of expenditure it is not unreasonable that an increasing absolute amount should be charged to loans, but it is more difficult to understand why the absolute amount derived from revenue should be diminished in the coming year as compared with last year, why although £274,000,000 was drawn from revenue last year, this coming year only £230,000,000 is to be drawn from revenue. I should have thought that at least the same sum as last year should have been drawn from revenue in absolute figures, if not a larger amount to correspond with the very much larger total. I think that hon. Members opposite like myself will have wondered, when the figures were read out, whether they had correctly understood them, but since the Chancellor assures me that I have correctly understood them I think there is a case for further explanation as to why the revenue is yielding not only proportionately but absolutely some £40,000,000 or £50,000,000 less towards the cost of defence in the coming year. This Government has given us many blessings. The other night the Prime Minister told us "Count your blessings," and I hope this Committee will follow his precept. The Government has given us a load of taxation unprecedented in time of peace. The National Debt—the principal of it—is at a figure which is unprecedented and unparalleled either in time of peace or war, including the Great War of 1914–18, and the Chancellor has told us that this is a total expenditure on defence which is also unparalleled and unprecedented in time of peace. I hope that I have correctly followed the injunction of the Prime Minister in enumerating these among the blessings.

If I may return to the financial burden and its distribution, I think we should show a sense of complete unreality if we were to argue that all this additional burden should properly be placed upon annual taxation. I do not intend to argue that, nor, I think, do others of my hon. Friends, but we may ask the question how much should be placed upon the annual revenue. I personally would not argue that in the conditions in which the Government have placed us, with the assistance of certain foreign nations, all this additional burden should be placed upon annual taxation. Unemployment is bad enough now—that is another of the blessings we may count—and there is no reason to suppose that an enormous addition to the ordinary load of annual taxation would have any other effect than that of increasing unemployment still further. If we were to raise the standard rate of Income Tax, or put a bit more on tea or beer or other commodities of wide consumption, it would hardly, I imagine, have any other effect upon unemployment than to enable the Government to break still more records by driving up the figures to yet more unprecedented heights. Moreover, the standard of living of a great mass of our people is already so deplorably low—that was the consideration which led my hon. Friends to put down one of their Amendments upon which we have had the Ruling of the Chair—not only the standard of living of the unemployed but of many of those who are employed, and many who are pensioned, that they cannot stand any more tax pressure.

Therefore, as I have said, I should not myself argue that we should attempt to place the whole of this burden upon annual taxation, but there is a strong case for getting a substantial part of our arms bill by the taxation of the arms profiteers, the people who are being enormously enriched as a by-product and consequence of this armaments programme, there is also a strong case for meeting some considerable part of the bill from special taxation of those very large incomes whose owners, as the Chancellor is well aware, have been evading and dodging by various legal subtleties their proper contributions to the revenue. I think it would be only retrospective justice in their case if he were, as a first step, to stop the leaks more effectively and then to raise the rates of Surtax. And it would not be equitable that at this time, when such great burdens are imposed upon the community as a whole, small sections of the community should get large unfair advantages, and there is much to be said for an increase of the Death Duties which have not been raised for a number of years past, and from which a substantially larger revenue could be obtained towards meeting this arms bill.

Without committing myself to the details or to any particular proposals, I recall having read in a recent article by Mr. Douglas Jay, the able financial correspondent of the "Daily Herald," some figures which show that in 1936–37 close upon £600,000,000 passed at death and was subjected to Death Duties, but the Treasury took out of this large sum less than £90,000,000, leaving rather more than £500,000,000 to persons who, whatever their relationship to the deceased or their services to the deceased, had rendered no service equivalent to the advantages which they then received. I suggest that at this time the Chancellor might well scale up the rates of Death Duties, particularly upon the larger estates. Out of the £600,000,000 that passed at death no less than £250,000,000, nearly half, was in big estates of £50,000 and upwards into millions.

Photo of Mr William Mabane Mr William Mabane , Huddersfield

Can the hon. Member say what amount of the £90,000,000 was contributed by the estates of £50,000 and upwards?

Photo of Mr Hugh Dalton Mr Hugh Dalton , Bishop Auckland

Not without notice. But, of course, a high proportion. What I am urging the Chancellor to do is to lift the whole scale of rates of Death Duty at those higher levels, in order to get a contribution which would accord both with equity and economy at this critical moment in our financial history. I thought the Chancellor of the Exchequer was rather disingenuous, if he will allow me to use that word, in the explanation which he gave of how these loans were going to be linked up in the future, how interest payments, Sinking Fund charges and so on were going to be set out in a schedule and linked up with the Defence Estimates from year to year. It may be a pretty piece of Treasury book-keeping, but I do not think it holds out in any realistic sense the prospect of the repayment of these debts within a reasonable time. The history of the past, as I hope the Chancellor of the Exchequer will agree—I see opposite an ex-Chancellor, the right hon. Member for Epping (Mr. Churchill) who I am sure will agree from his own experience during his distinguished career at the Treasury—that all these arrangements for spreading such charges over a long term of years are nothing more than an exercise in hypothetical arithmetic. They are always abandoned after a year or two. I remember well that in one of my early years in Parliament the right hon. Member for Epping produced a plan, which fascinated me at the time, to repay the whole National Debt in 30 years on certain hypothetical assumptions, which seemed not unreasonable at that time.

Photo of Mr Winston Churchill Mr Winston Churchill , Epping

But which have not been realised since.

Photo of Mr Hugh Dalton Mr Hugh Dalton , Bishop Auckland

That is my point. It is all very well for these plans to be put forward from time to time, but none of us believe, as I am sure the Chancellor does not believe, that they have any real value as a forecast of developments in the coming years and, while I do not want to use so harsh a word as "humbug," it is mere window dressing. I do not think that this device will take anybody in or in the very slightest degree raise the credit of the country or reassure the taxpayer. The plain truth is that we have now built up the National Debt—in terms of its principal, I am not arguing about the effects of conversion—to an unprecedented height. And the principal is the sum which has to be repaid, if repayment is being contemplated at all. Where is this going to lead us? For my part I do not believe that any of the traditional sinking funds—finicking little sinking funds which are very small in proportion to the total of the debt—well ever effectively operate again to bring about large reductions in this enormous burden in any period which we shall see.

I think that the consequence of the policy of the Chancellor of the Exchequer and the policy of the Government will be that we shall build up the principal of the debt and the annual burden of the debt to a figure that will be felt to be intolerable by the community a few years hence, when we have even worse trade than now—if this Government continues in office—and are confronted with the problem of a fixed debt charge and a shrinking revenue. Then something will have to be done. You will be driven either to the deliberate depreciation of sterling, which unkind people call inflation, or alternatively you will have to adopt some such plan as a capital levy once advocated by some of my hon. Friends and by the late Mr. Bonar Law, which undoubtedly is much more just than general inflation. I feel confident that we cannot drift on continually increasing the amount of the debt in this way year after year and hope that a mere reversion to traditional methods of small repayments and conversions will deal with it in future. You will have to make a bold effort to repay, if not the whole, at any rate, a substantial proportion by some special effort, and lessen this terrible pressure which is otherwise going to lie on the community for the rest of our lives.

We are glad that A.R.P. and the storage of commodities have been brought into this discussion. We have long argued that it was impossible to discuss defence effectively without consideration also of these subsidiary, but extremely important, services. If there is any case for borrowing for one, there is a case for borrowing for the other. You cannot distinguish, on any ground of financial propriety, between the two. There will be an early Debate on A.R.P. and I will not say much about it this afternoon, except to remark that the sums provided for A.R.P. are very small indeed compared with those provided for the Defence Services. I cannot believe that the sums proposed are at all adequate for the duty for which the Lord Privy Seal was appointed to his office, or adequate for such defences for the civil population as his activities can ensure.

For one reason or another the Government has been slow and obstinate in response to the demands from various sections of the community about A.R.P. They were slow and obstinate about camps. We were told that, because we could not provide enough camps for all the children, we should not provide them for any of the children. Now the Government have been pushed from that impossible position and they are going to spend £1,000,000, and I hope they will soon spend a lot more. If they come back to the House and ask for more money for that purpose they will get a freindly reception from this side. The Government are still being slow and obstinate about deep bomb-proof shelters. If all this money is to be spent on the assumption that there may be a war, it would be better to make more effective preparations so that if it does come considerable numbers of the people will have effective shelter. Last night I happened to be at Billingham, which is a target well known no doubt to those who are planning in certain circumstances an air attack on this country. Even there, where the bombs are sure to fall unless the aeroplanes miss their way entirely, there is not even a beginning of deep bomb-proof shelters for those workers who would have to stay at the Imperial Chemical Works. It came to me as a shock, in view of the vulnerability of that place, and the obvious possibility of it being an object of attack. I hope that in the forthcoming Debate we shall be assured that the Government will not be afraid to ask the House for a very substantial sum in order to set quickly on foot the construction of these bomb-proof shelters for a substantial quota of the population who would have to stay in these vulnerable areas.

This White Paper, like its predecessors, is rather an insipid document and very uninformative. There are many questions which may be asked upon the story it tells. How does it come about that there is not a mention in it either of the function of the co-ordination of defence nor of the Minister for Co-ordination? It will be interesting to know how this is to be explained. Reading this White Paper one would get the impression that the three Defence Services are all increasing their personnel and increasing their equipment, but there is no hint of any discussion, of the problem of co-ordinating them. That, I think, is typical of the superficial and uninstructive character of the White Paper. We have now two Ministers for the Co-ordination of Defence. I do not think anybody outside the Government bad any complete confidence in the former Minister. We always regarded him as something of a joke—him and his typist. He is to be succeeded by an eminent sailor, assisted by the right hon. Gentleman who got into some difficulties about milk. Perhaps he will be more fortunate when he deals with the liquids and solids which are the subject-matter of his new Department.

I have not the honour of knowing Lord Chatfield personally, but I am aware that he has had a distinguished naval career and for any appointment principally naval I would throw no doubt at all on his competence or suitability. I want to raise the question however, whether, when you are going to co-ordinate three Services one of which is the Navy, it is really wise to appoint a sailor to do it. I should have thought there might be a suspicion—perhaps unjustified, and perhaps by reason of it he may go too far the other way—that if you have a sailor co-ordinating the Services he will lean a little towards the Navy and his decisions will be tilted in a naval direction whenever differences arise. He may take away a lot of the Secretary of State for Air's aeroplanes, and give them to the Fleet Air Arm. That suspicion is inclined to enter the mind of anybody contemplating this appointment. It may turn out, on the other hand, that the Navy will get less and that the Secretary of State for War and the Secretary of State for Air will be able to bluff and hustle Lord Chatfield and will get from him things which ought to go to the Navy. But it is not clear that the appointment of a sailor, any more than the appointment of a soldier or an airman, is the proper appointment to this post. I hope that, although the matter is thought too delicate to be mentioned in the White Paper, a Government spokesman will say something about the co-ordination of defence and tell us what is being co-ordinated and how, and how effectively.

My hon. Friends have no reason to feel any confidence in the Government's plans for defence. This White Paper does not contain any startling departure from past models or suggest that those who failed us last September have done much better since. Disgraceful revelations were made then regarding almost every arm of National Defence, and we feel no assurance that since last September there has been any real improvement. I hope that other speakers from the Government Bench will endeavour to persuade the Committee that there is some hope that we may get value for the money we have been pouring out all these years upon defence. I hope some case will be put up that this greatly increased demand for borrowing powers is going to be effective in giving us increased efficiency in quality, quantity and co-ordination, and in our general planning for defence.

My hon. Friends have frequently made their position clear on this matter. I will quote a few sentences in order to get them on the record and to avoid misunderstanding in any quarter of the Committee of what my hon. Friends and I feel should be done in this matter of defence. I propose to quote from a statement issued by us at the end of last October, in which we state: National Defence must be ensured. No effort must be spared to make our country, as far as possible, safe from air attack. Air-raid precautions must be regarded as of equal importance with the other three Defence Departments, and made thoroughly efficient. The resources of the nation, in scientific knowledge and in man-power, must be organised. We must absorb large numbers of the unemployed in this work of vital national importance. A powerful and effective defence by anti-aircraft guns and balloon barrage must be provided for all our crowded centres of population. The relative weakness of our Air Force must be remedied as speedily as possible, and the number of fighters greatly increased. A Ministry of Defence must be created to co-ordinate our Defence Services, and a Ministry of Supply to ensure prompt and orderly supply of their requirements. That, in summary, is the view that my hon. Friends have maintained in this House and in the country. We do not grudge the expenditure of money on these purposes if we can be reasonably assured that we are going to get value for the money expended.

We are not discussing foreign affairs this afternoon, and I have followed the Chancellor of the Exchequer's example by making but a passing reference to them at the beginning of my speech, but it is quite clear that, on any view of foreign policy at the present time, except that of the complete pacifist, we must very greatly increase the strength of the defences of the country. My hon. Friends are not going to vote against the Financial Resolution, but we have put down a token reduction of £1,000,000—we are offering the Chancellor 799 millions instead of 800 millions— in accordance with the traditional practice of the House, in order to give the Opposition the opportunity of expressing their dissatisfaction with the past record of Ministers on the matter under discussion, and their desire for much stronger assurances than have hitherto been received that past errors will be repaired and that the Committee will not be voting these great sums of money uselessly.

5.16 p.m.

Photo of Mr Hugh Seely Mr Hugh Seely , Berwick-upon-Tweed

As has been already pointed out, we have before us a new Statement of Defence, and it deals very largely with matters which have already been discussed in earlier statements. The important matter at the beginning is that of finance. I do not think the Chancellor of the Exchequer used a very happy simile when he spoke about the engine of revenue having to get help now because it came to hills and sudden inclines. After all, the engine is not an explorer; you have usually laid the line first, before you start on your trip. These hills are largely of the Government's making, and that is the reason for our present difficulty. The right hon. Gentleman also said that one of the reasons for this high expenditure was that what has to be done has to be done in the shortest possible time. Whose fault is that? It is not, of course, entirely the fault of this Government or of this country, but we know that they had many warnings—many from the right hon. Gentleman the Member for Epping (Mr. Churchill), and many from this side of the House; and the fact that nothing was done in those days is largely the reason why we have to face up to these enormous sums of money now.

The question of borrowing has already been settled by the House. I, for one, questioned at the time the wisdom of the early borrowing, because, when you have borrowed, you not only lose control to a large extent, but you get a sort of deadening effect as regards the manner in which the money is spent. I still think that, if the earlier amount required for defence had been raised by more direct taxation, a great deal more interest would have been taken in the defence problems with which we had to deal. We should have got more value for our money, and there would not have been the delays that have occurred. Moreover, I am certain that the deficiencies which we know to have existed would have been put right.

There is also the question, referred to by the hon. Member for Bishop Auckland (Mr. Dalton), of the enormous profits that are now being made. I am certain that there would have been a drive against this money going into profits if it had been raised by direct taxation and not by loan, and some scheme might have been brought in at the beginning to deal with the question of profits. The matter has now, however, gone so far, and the urgency is so great, that it cannot be dealt with as it could have been then. We pressed for such a scheme at the time, and we were promised it, but it was not forthcoming, and the Government then told us they did not believe in it. I did not agree with them. Nothing has been done, and no one can deny that, of the £580,000,000 that is being spent on defence, an enormous amount will go into the very high profits that are now being made.

We now have two Ministers for the Co-ordination of Defence. Perhaps that is a good thing; perhaps it is a bad thing. We were told that the late Minister for the Co-ordination of Defence was a very fine Minister, but I must say that, looking at this document, in the production of which, I suppose, he had some part, I have never seen one in which there was less co-ordination of defence. Quite clearly, all the Ministers of the Departments concerned are trying to get as much money as they can; they are going absolutely out for production. We know that the production brought about by the present Secretary of State for Air turned out the man whom he succeeded, and I am sure he is not going to fall into that trap, but is going to fight as hard as he can.

It must be clear that there are many big questions of defence which are not being dealt with, and about which many people are asking. For instance, there is the question of the Army; there is the question of an expeditionary force; there is the question of what would happen if war came. Do not let us blink our eyes to the fact that all this money is being spent because of the German menace. There is no question about that. Therefore, if we are to spend this money, let us see that we have a proper defence against that menace if it should come. No one wants to contemplate what happened in the last War, when we sent 4,000,000 British soldiers across the sea. In the White Paper there is no mention of an expeditionary force, but that is bound to be a large matter.

We are faced now with a more serious situation in many ways than before the last War as regards our land forces. We know that the peace-time strength of the German Army is about 1,000,000 men; but we know—at least, it is stated by several competent observers—that, if war came, they would be able to put 120 divisions into the field, as against, I believe, about 60 in the case of France. These figures, I agree, may not be sufficient to give the three-to-one advantage which they say you must have if you are to win by land forces alone, and, of course, there is the Maginot Line. It must be remembered, however, that France has now two new frontiers, those of Italy and Spain. They may be assessed as low or as high as you like, but the French themselves are bound to assess them high, because, especially as regards Spain, they have moved a lot of their vital centres into that area. Therefore, a large number of French troops will be drawn away from what was formerly the eastern front. Moreover, in the last War France was able to use many divisions from her Colonial Empire, but I doubt whether she would be able to withdraw many of those divisions now.

Therefore, we are faced with the big question whether we are to have an Army to work in conjunction with a Continental army abroad, and I think we ought to know whether that is being contemplated. At present our recruits are largely going into the Territorials and into the antiaircraft forces. As the Air Force figures show, the recruiting is largely for this country. But we know where the menace is, and I cannot see that it is dealt with here. Since the crisis it has been reported that the figures show that we are in a strong position as regards defence, and Ministers are making different speeches from those which they made just after last September, when the Chancellor of the Exchequer himself told us of the deficiencies that existed and of the examination that had to be made. Just lately we have had another statement about the deficiencies; everyone must have been alarmed by what was said by General Harington the other day about Gibraltar. The First Lord of the Admiralty and the Secretary of State for War are responsible for the strength of that important part of our defences, but General Harington tells us that at the time of the crisis there were only four anti-aircraft guns at Gibraltar. No one can feel real confidence and no one can be quite satisfied with the rather smug statements that are made now by defence Ministers as to how strong we are, when we remember those things.

Another point on which I should like to comment—it was dealt with to a slight extent by the hon. Member for Bishop Auckland—is typical, to my mind, of what is happening in regard to the coordination of defence. The position of the Fleet Air Arm was very strongly debated in the House. We had much advice from the admirals who sit in the House; and everyone will recollect how keen the controversy was; but at that time the whole basis of the argument for altering the decision which had been arrived at after a very long time and deep consideration, and for giving the Fleet Air Arm to the Navy, was the small matter of what they called "the eyes of the Fleet." In the end their request was granted. Now the man who was chiefly responsible for winning that battle, Lord Chatfield, is Minister for the Co-ordination of Defence, and we find that, without any explanation at all, it is proposed to increase the Fleet Air Arm to an enormous extent. Is it going to take over some other duties than that of being the eyes of the Fleet? What is to be its duty? That is typical of what happens when there is unlimited money on which people can draw. It is happening without any new policy being laid down, and is completely contrary to the reasons given at the time—which in my opinion were not very strong—for the new arrangement in regard to the Fleet Air Arm.

Photo of Mr Robert Boothby Mr Robert Boothby , Aberdeenshire and Kincardineshire Eastern

Does the hon. Member think that the function of the Fleet Air Arm is solely to act as the eyes of the Fleet?

Photo of Mr Hugh Seely Mr Hugh Seely , Berwick-upon-Tweed

I am only saying that during the Debates at that time that was the point on which the greatest stress was laid. How, it was asked, could you expect a man who had not been in the Navy to recognise which way a battleship was steaming, or whether it was an enemy ship?

Photo of Admiral Sir Roger Keyes Admiral Sir Roger Keyes , Portsmouth North

The hon. Member really cannot have listened to the Debates?

Photo of Mr Hugh Seely Mr Hugh Seely , Berwick-upon-Tweed

I not only listened to them, but took part in them, and I remember the case that the hon. and gallant Member made. I know well the arguments on both sides. That was the basis. Now we have an enormous increase, because of the idea: "We will all increase; we shall all become strong." But I do not wish to reopen with the gallant Admiral these discussions. There is another side: that is the naval side and the question of our supplies in case of war. On whether our supplies come here or not depends whether we shall win or not. We must remember what happened in the last War, and it is not a happy outlook. In the last War the German submarines were working under enormous difficulties, a long way from their base, and I believe it is stated in Germany that there were never more than about 30 submarines acting at the same time. Yet they sunk 11,000,000 tons of shipping up to 1917. That is equal to the whole of our Mercantile Marine of the present time. Now, the Rome-Berlin-Tokyo Axis could use something like 270 submarines, and, whereas in 1917 we had something like 400 escort vessels, we have now only 100. Also our number of merchant vessels is much smaller. It is true that some of them are bigger vessels, but that does not make us any less vulnerable. There is also the new weapon of the air to prevent supplies reaching us.

I do not see in this White Paper enough attention paid to what almost must be the most vital side of our defence. I cannot believe that if we merely continue building up armaments like this we are going to get the fullest possible security. It is no good getting enormous numbers of aeroplanes and spending unlimited sums of money, as is done now. That has been pointed out both by the hon. Member for Bishop Auckland and in the Amendment which you, Sir Dennis, said would not be called, and I am not going into the matter in detail because on the Estimates we shall get time for that. But one cannot feel that the last word on defence has been said in this White Paper. We have to get on to something better, something more co-ordinated, something which will give a greater feeling of security; and it is only through collective security that we are going to get proper defence for the people of this country.

5.35 p.m.

Photo of Mr Robert Boothby Mr Robert Boothby , Aberdeenshire and Kincardineshire Eastern

I think it is symptomatic of the times in which we live that the official Opposition should have moved to reduce this Vote by £1,000,000 instead of £100, and that we should all regard it as a mere fleabite, a very trivial sum. I think, in contradistinction to the hon. Member for Berwick-on-Tweed (Sir H. Seely), that the Committee as a whole has received this White Paper with great satisfaction. Whatever the hon. Member may say, nobody can deny that the naval figures are satisfactory. I do not think there has ever been a moment in the history of this country when our naval strength and indeed preponderance was greater than it is to-day; and for that we have to thank very largely Lord Chatfield. So far from sharing the disquiet expressed in certain quarters at Lord Chatfield's appointment, I hope and believe that he will do for the other services what he has already done for the naval service.

I come now to the figures for Territorial recruiting. They are most encouraging. I would like to impress on the Government the desirability of forming the necessary cadres, so that the Territorial Army may be rapidly expanded if war is declared. I am one of those who believe that, if world war unfortunately broke out, it would be quite impossible for us to expect France, with her comparatively limited population, to hold indefinitely the Maginot Line against the onslaught of a population of 80,000,000, without receiving some support in the shape of military assistance from this country. The third, and most satisfactory, feature in this White Paper is the evidence of ever-increasing aircraft production. I remember 10 years ago the right hon. Gentleman the Member for Carnarvon Boroughs (Mr. Lloyd George) saying to me, "The best administrator you have got in the Tory party is Kingsley Wood. You have not discovered it yet, but some day you will." Whatever criticisms we may make against the right hon. Member for Carnarvon Boroughs, he certainly has an eye for administrators; and he discovered a winner in my right hon. Friend. All Members of the Committee are pleased with the great expansion that has taken place since he assumed charge of the Air Ministry.

At the same time we are expending an enormous amount of money. The Air Estimates are going to amount to over £200,000,000; and I think we ought to have a little more information, at a later stage, with regard to the actual numbers of aircraft coming in. There have been rather disquieting rumours from time to time with regard to profits in connection with the manufacture of aeroplanes, in particular those arising out of the operations not of the main operating companies but of subsidiary companies, both on the selling side and the purchasing side. The Committee, which after all, even in these days, has to have some regard for the public purse, ought to ask at a later stage for a little more detailed information with regard to the number of aeroplanes coming into production, both in relation to the total expenditure, and in regard to their individual cost.

For my part, I would like to see a very much larger expenditure than is at present apparently contemplated on the provision of concrete shelters, and I think the Committee as a whole would like to see that. The necessity for these shelters grows every day more apparent. I would like also to see much more adequate provision made for training our young men. Under existing conditions it is intolerable that so many young men in this country should be thrown out of school on to the dole. I have never departed from the conviction I have held now for the last two years that, sooner or later, we shall have to come to a system of one year's compulsory training for every young man in this country. I do not mean military training, but some form of compulsory training. However, that is not a subject on which we can conveniently discourse this afternoon. The Debate this afternoon is intended primarily to deal with the financial aspect of defence. This financial question is very formidable. I think the hon. Gentleman who led for the Opposition tried unnecessarily to make our flesh creep; but there is no doubt that the financial aspect is in some respects the most difficult of the whole rearmament problem; and it may well turn out that the war which, in some respects, is going on at present, will ultimately be won by the country which manages to hold out,. from an economic point of view, the longest. This financial aspect is therefore of paramount importance.

I suggest that, in the long run, the only way we can hope to pay for the rearmament policy and programme is by an expansion of the revenue, and this means an expansion of the national income. It also means high production and high employment. It does not mean an unemployment figure of 2,000,000. In order to employ people, you have to produce capital goods at a profit. Our economic system, therefore, requires a steady flow of investment into the capital goods industries, under the stimulus, I admit, of anticipated profits. One of the remarkable features of our present situation is the amount of capital now lying idle. I believe that the figures, if they were disclosed, would seem to most hon. Members to be absolutely staggering. I want to try to examine the question of how we can get this capital into action. If the volume of investments lags seriously behind what is necessary to employ all the available factors of production, over and above those which can be used for producing consumers' goods at the given propensity to consume, the total national income is bound to fall; and there will be neither capital to accumulate, nor revenue to collect. The tendency of the rate of profit is to fall with the expansion of the means of production.

It seems to me, therefore, absolutely essential, in the present phase, to stimulate production and investment by every possible means. In the old days at the close of the nineteenth century it may have been true that people had to be induced to save. Now what they have to be induced to do is to invest, because many people are so frightened that they exercise what economists call "liquidity preference," and endeavour to keep at least half their capital in cash. The classical theory that monetary savings are automatically transformed into capital equipment has proved to be completely fallacious. A slump simply means that, for the time being, the capitalist will not invest; the entrepreneur, therefore, abandons the use of substantial means of production, and the masses are unable to buy, not having sufficient purchasing power. In these circumstances, it is for the Government to set the unused capital and labour to work again, and, by so doing, give the masses sufficient purchasing power to clear the market at prices which will cover costs. In my submission, there is no other way of getting out of a period of recession such as we are in at the present time.

I want to put the case this afternoon for an expansionist policy, because I believe that the Chancellor of the Exchequer has to-day taken another decisive step forward. Whether he wants to or not, he is going to be compelled by overwhelming forces to adopt an expansionist policy; and I am anxious that he, and everybody else, should be as happy about it as possible, because an expansionist policy is the only way in which we are going to be able to surmount the difficulties that lie ahead, and pay for rearmament. Two things are called for. There must be a financial policy designed to maximise investment and increase the tendency to consume, and a trade policy designed to increase the volume of our exports.

I would like now to say one word on the subject of debt. The hon. Gentleman who led for the Opposition was very despondent on the subject of debt. He foretold dire consequences, including a capital levy. I am bound to say I cannot agree with him. In a rich community like ours—and we are a very rich community still—with insufficient opportunities for capital outlay such as exist at present, it is healthy that the National Debt should grow in periods of trade recession, for otherwise the savings of the community, lacking vent, are bound to cause a reduction in purchasing power, and in consequence unemployment and a reduction of the revenue. The people that you borrow from are largely the same people that you tax. The question of raising revenue by loan or by taxation is therefore to a large extent a bookkeeping transaction. You have to raise the money whatever happens, and you are going to raise the money either by loan or by revenue. Whichever you choose, you are merely altering, the method by which you transfer existing wealth from one section of the community to another. I do not myself see any dire consequences arising out of borrowing in times of recession, such as we are undoubtedly going through at the present moment. On the contrary it is a very healthy thing, because it gives that stimulus to production which I have for so long been advocating in the observations which I have from time to time addressed to the House.

There are three parts to this expansionist policy. The first part, which I have advocated for the last two years, is the writing up of gold. That has already been carried out, I am delighted to say, by the Chancellor of the Exchequer. The second is loan expenditure. I heard with the greatest possible satisfaction the figures my right hon. Friend gave this afternoon of the amount that he intends to raise by way of loan. If I had been Chancellor of the Exchequer I would have made it a little higher still, but I am bound to say that he is making a very good start. As to the efficacy of loan expenditure for capital works, I would make one observation. The President of the Board of Trade, when he was winding up the Debate in an otherwise admirable speech on trade on the Censure Motion—it seemed to me to be the only wholly relevant speech of the Debate, though the Opposition did not take that view—appeared rather to disparage the value and efficacy of capital works. If that was so, I think that he is wrong. I do not altogether share Mr. Keynes' joyous optimism and arithmetic as far as his "multiplier" theory is concerned; but there is plenty of evidence to show that, but for this very large expenditure on rearmament, we should be undergoing in this country to-day a very serious slump indeed. That has not to be forgotten.

The third method of carrying out an expansionist financial policy is by a reduction of the rate of interest. And I now wish to plead with my right hon. Friend the Chancellor of the Exchequer to take this next essential step in order to complete and round off his expansionist policy. If the producer or entrepreneur, as they call him, is to carry on, the rate of profit must always exceed the prevailing rate of interest. The margin, therefore, between the anticipated rate of profit and the actual rate of interest at any given moment does largely govern the amount of investment that will be undertaken. The first and most essential thing, therefore, is to lower the rate of interest to a point which will enable the bulk of the abnormally unemployed to be reabsorbed into industry.

I do not want to bore the Committee with long statistics, but this seems to me to be a matter of vital importance. In the modern world, bank money is, to a much greater extent than many of us realise, fictitious. Banks now have actually the power to create money. Only 10 per cent. is required in the form of notes. The amount of money available, and therefore the rate of interest, is primarily determined by the amount of cash reserves in the joint stock banks at any given time. The Treasury and the Bank of England have absolute power to determine the amount of these cash reserves. Therefore I beg of my right hon. Friend the Chancellor of the Exchequer to see that the cash reserves in the joint stock banks, through these difficult months and perhaps years that lie ahead, are always kept more than adequate for all requirements. If the Bank of England sells securities, the cash reserves of the joint stock banks must fall, because they are obliged to sell their assets and call in loans, especially loans to the money market. If the Bank buys securities the cash reserves of the joint stock banks subsequently rise.

For this purpose some extension of the field over which the monetary authorities of this country at present exercise deliberate control lay become necessary, for example, an offer to buy and sell, at stated prices, gilt-edged bonds of all maturities in place of the single bank rate for short-term bills. But, as a first step, I beg of my right hon. Friend to give serious consideration to the proposal of a very eminent and I think very able young economist in this country, Mr. Harrod, which is to pump now £15,000,000 of cash into the joint stock banks, and thus force them to expand their gilt-edged investments by £150,000,000. That in itself might well suffice to start the ball rolling. I see no reason, in existing circumstances, with the enormous amount of borrowing that we have to undertake, why we should not aim to bring the rate of interest down to 2½ per cent.

I agreed with the hon. Member for Bishop Auckland (Mr. Dalton) when he said that there would be some inevitable consequences of pursuing this policy of expansion or inflation which I now believe to be inevitable. A policy of maintaining a high level of national income and employment, entailing as it does a cumulative increase in the quantity of money, must involve a continuous depreciation of wealth and of incomes fixed in terms of money. Why should the hon. Gentleman complain of that? The importance of the entrepreneur will be increased, and that of the rentier will diminish. Why should the Labour party be so solicitous about the rentier? I have often thought that there is only one valid Socialist argument, and that is, that under the present system a disproportionate amount of savings is piled up in the hands of a very small class which is unable to use them for the benefit of the community. The theory that the growth of capital depends upon the savings of this class no longer holds water, owing to the power of the modern State over the management of money and the control of credit. Therefore, I say to my hon. Friends that the gradual diminution of the power of this small class, of the real wealth of the man who receives money in the form of interest and does not earn it, is bound to continue through the years that lie ahead. I cannot shed any crocodile tears over them.

Photo of Mr Hugh Dalton Mr Hugh Dalton , Bishop Auckland

Neither would I for them, but I had in mind a number of other people who have very small incomes fixed in terms of money, people who insure their lives for fixed amounts, annuities and so on. It was to that mass of small people that I was pointing as being unjustly and very hardly hit by the general depression in sterling.

Photo of Mr Robert Boothby Mr Robert Boothby , Aberdeenshire and Kincardineshire Eastern

I think that many ways and means will have to be adopted, as time goes on, of looking after these people, especially by way of remission of taxation, by pensions and by social schemes of different kinds. I agree that the small man who receives his money in this way will have to be specially looked after.

I would point out that the main objective of an expansionist policy is, first of all, to get your rise in the national income. Thus you will get your revenue rising and without increased taxation, and I cannot see how we can otherwise pay for this gigantic expenditure. In the long run you are also bound to get a great saving in unemployment relief. You will get your rise in commodity prices, without which anything my right hon. and gallant Friend the new Minister of Agriculture may do will be solely in the nature of a palliative. Until you get a rise in world commodity prices there can be no real hope of bringing prosperity to agriculture. Last but not least the cost of raising your loans will be substantially reduced.

Photo of Mr Ellis Smith Mr Ellis Smith , Stoke-on-Trent Stoke

I am in agreement with the hon. Gentleman as to his expenditure policy, but he also suggests that the time has arrived to increase the national income, and I would ask him what concrete proposals he has to make to see that a great proportion of that national income is used for the mass of the people of the country in order to increase their consuming power.

Photo of Mr Robert Boothby Mr Robert Boothby , Aberdeenshire and Kincardineshire Eastern

As you get increased employment, which will inevitably follow an expansionist policy, the trade unions will see that the workers obtain rises in wages. It is inevitable. It must come, it will come; and it should come. I do not intend to deal with the trade policy of the Government, beyond saying that I think that His Majesty's Government have rightly decided in favour of a policy of extending medium term credits as the best way of helping the export trade. But I would like to remind hon. Members of two very striking object lessons which we should do well to ponder over, and which we have had the good fortune to receive during the last three years, one from Germany and one from the United States of America. How has Germany financed her rearmament programme which has been just as large as ours, and is likely to continue so for some time to come? The German Goverment have borrowed all the capital accumulations not being actively used inside Germany and have invested them themselves. Public expenditure has been financed in Germany first of all by the creation of credits—that is how they started their whole rearmament programme. Secondly by the raising of medium and then long-term loans. And only lastly and finally by increased taxation. The State expenditure in Germany in recent years has been 35 per cent. of the national income as against only 25 per cent. here; and their loan expenditure, primarily on rearmament, has been 10 per cent. of the national income as against only 3 per cent. here.

Photo of Mr Frederick Bellenger Mr Frederick Bellenger , Bassetlaw

Do they disclose the figures?

Photo of Mr Robert Boothby Mr Robert Boothby , Aberdeenshire and Kincardineshire Eastern

They are perfectly prepared to give you the broad figures, and I do not think that these could or would be challenged. They have successfully avoided a wild inflation by the imposition of various controls, most of which we would not wish to see in this country, although I think the time will come when we shall have to exercise a rather closer supervision over investment policy in this country, if our expenditure on armaments continues. The fact remains, and we cannot get away from it, that production has been maintained in Germany at the maximum level, without any unemployment at all, for the last three years, because both profits and wages, at restricted limits, have been virtually guaranteed. This has given confidence, in spite of all the loan expenditure, to the manufacturers of Germany. I would simply point out that, as against Germany, we have large reserves of materials, of productive capacity, and of labour, and there is no strain on our capital market at all. If Germany could do it in the last three years, why cannot we? I see no reason whatever.

Now for my second illustration. Compare the situation in Germany with the position of the United States of America, where up to 1937 you had recovery proceeding smoothly and steadily under the impetus of an expansionist policy and reviving confidence. Suddenly, at the very moment you were getting your vital change-over from the prosperity of the consumption industries only to the prosperity of the capital goods industries as well, you got that fatal pronouncement by President Roosevelt that commodity prices were too high when in fact they were not. Federal Government expenditure was sharply curtailed. Credit was contracted by the banks. The capital goods industries were subjected to political attacks. And last but not least, there was a "gold scare." All these things happened simultaneously. The result was that confidence was completely undermined, and the United States entered the deflationary spiral in which they are still spinning, and unfortunately we are spinning with them. Thus you have got two examples from overseas, one in Europe and the other on the other side of the Atlantic—an expansionist policy pursued, with comparatively small resources to its logical conclusion and with the utmost success in Germany; and an expansionist policy held up and reversed, for no adequate reasons but with disastrous results in the United States.

To sum up: The important factors to-day, if we are going to get through economically, are our national income and our national consumption. Unless these two can be sustained and increased, a financial crisis sooner or later in this country is inevitable. Therefore, I beg the Chancellor of the Exchequer to stick to his guns, to stick to the policy that he has laid down for the first time this afternoon, and not to impose any further taxation upon production or consumption until we have got a very much greater level of prosperity than we have at the present time. Let prices and wages move constantly but gradually up by increasing the quantity of money at a rate sufficient to maintain the rate of interest at the required level; and until the stagnant mass of unemployment has been absorbed. Then, and only then, can we afford to apply the brake, gently, by curtailing the supply of money. Finally, take deliberate steps to stimulate the export trade.

I thank the Committee for having listened to this long economic discourse, but the matter is of the greatest im- portance, not only for to-day or tomorrow but for the years that lie ahead. I cannot see any other way out. If it is any consolation to the Committee, I would say that the observations that I have ventured to offer have been the result of very prolonged study on my part during the last few months.

6.2 p.m.

Photo of Sir George Benson Sir George Benson , Chesterfield

We have just listened to an extraordinarily eloquent speech on what the hon. Member opposite calls an expansionist policy, but on what we commonly call inflation. As always, he maintains that now is the appropriate time for expansion or inflation. I think he rather cut up in referring to Germany. He said that they had achieved wonderful results by expansion and they had avoided wild inflation by adopting certain controls. Then he suggested that we should not like to adopt these principles here. Surely, if the control of inflation were necessary in Germany they are equally necessary here. As a matter of fact, Germany has achieved what she has achieved in the way of putting her people to work, not as the result of an expansionist policy but because Germany is a totalitarian State, and she can do things economically which it is quite impossible for this country to do. Economically and financially Germany is very nearly a self-contained unit, and she is not a part of the world financial economy as we are. If we are to achieve the same results that Germany has done we shall have to adopt not identical methods but we shall have to take control of our industries just as Germany has taken control of her industries. We have always said from these benches that you will never abolish unemployment so long as you have free and unfettered capitalism. It was only when Germany fettered her capitalism that she succeeded in abolishing her unemployment.

I want to come back to the problem that we really are discussing to-day, and that is the increase of our borrowing powers from £400,000,000 to£800,000,000. I make no apology for reverting to the purely financial point. The £800,000,000 we are proposing to borrow is more than the whole of the pre-war National Debt. Is it not very strange to find a Chancellor of the Exchequer coming forward with a proposal of this kind, and discussing it quite casually, saying that the principle of borrowing has already been decided and that he need say nothing further about it? We are accustomed to astronomical figures in finance in these days, but the House would not be doing its duty if it concurred in the Chancellor of the Exchequer's proposals to borrow £800,000,000 as casually as he put the proposal forward. There are two conditions which must be satisfied if borrowing is to be justified. The first is that the process of the borrowing is temporary, and the second is that when opportunity occurs repayment of the loans must be vigorous. I suggest that so far as the Government are concerned neither of these conditions is likely to be fulfilled. Certainly, there are no signs that the process of borrowing for armaments is to be merely temporary.

In 1937, when the Defence Loans Bill was first introduced, the then Chancellor of the Exchequer propounded a scheme for five years. We are now only half way through the five years' scheme, and the Chancellor of the Exchequer comes and asks for borrowing powers for double the amount. That five years' scheme will be at an end in another two years. Does anybody really believe that the armaments race is going to come to an end in two years? Is there anything in the international situation which suggests that we can see an easing or an amelioration in two years? Germany and Italy have been steadily increasing not merely their military strength but their strategical advantages in the world, picking off one democratic country after another, and we have acquiesced, and now that they have achieved these things the probability is that they will intensify the armaments competition rather than agree to its mitigation. I can see no hope that we are going to have any early cessation of this tremendous expense on armaments. The Chancellor of the Exchequer said that he could give no estimate as to our future expenditure and no estimate as to the time when the expenditure would continue. He said five years or more. That is all we know. When we are facing expenditure of this kind, apparently unlimited in quantity and unlimited in kind, it is mere groundless optimism to suggest that we can continually borrow year after year the vast sums that we are discussing to-day. Groundless optimism is a very bad basis for sound finance.

In regard to the question of repayment, I must say that I was very disturbed by some of the statements of the Chancellor of the Exchequer this afternoon. This Government have probably the worst financial record of any Government. I do not think there has ever been any period in history where we have had such a short-sighted financial policy. Take the last six years. In the years 1933–38 we had a period of expanding trade. Our index of production and the wealth of the country reached a point higher than it had ever reached before, yet during those six years what was the result of the Government's policy? If we exclude, as we may rightly do, the borrowings for the Exchequer Equalisation Account, the Government have reduced debt by £28,000,000. That was during six years of continuous expansion.

When the Labour Government were in office, in the two years 1930–31, in a period of unparalleled world difficulty, they reduced the debt by no less than £82,000,000. Compare the six years prior to the War—the six years ending 1914, when we had a National Debt of less than we are proposing to borrow in this Bill. In the six years ending 1914 we actually reduced debt by £57,000,000. That was with a National Debt of nearly £700,000,000, and now with a National Debt of £8,000,000,000—with expanding trade, in the same period this Government has reduced the debt by £28,000,000. I would ask the Chancellor of the Exchequer whether he is satisfied with his provision for repayment—with these interdepartmental sinking funds?

Photo of Sir George Benson Sir George Benson , Chesterfield

As my right hon. Friend says, it is nothing but a book-keeping juggle. It binds nobody. It does not bind any future Chancellor of the Exchequer. They say that the road to hell is paved with good intentions. Certainly, the road to bankruptcy is paved with Sinking Fund schemes. This is not the first Sinking Fund scheme that has been arranged to put our finances on a sound basis. If we looked at the history of the nineteenth century we find dozens of them. The last scheme of this kind that I remember was introduced by Mr. Snowden in 1930 or 1931. He put a Clause in the Finance Bill to the effect that whenever there was a deficit in one year the Chancellor of the Exchequer should be compelled to regard that as expenditure and to make it up. That proviso lasted for exactly 12 months. It was withdrawn by Mr. Snowden himself.

I know perfectly well where this fantastic inter-departmental sinking fund comes from. It comes from the mind of the present Prime Minister. It is exactly on a par with the fantastic scheme of taxation that he introduced—the N.D.C. Certainly, the scheme never originated in the trained minds of the Treasury. Yet that is what the Chancellor of the Exchequer offers to us as a sop for the borrowing of £800,000,000. Performance in the past is a great deal better guide than fantastic schemes in the future as to what is likely to happen in financial matters, and the record of this Government is so bad that, quite frankly, I have not the slightest faith in their Sinking Fund scheme.

The Government are willing to borrow in bad times, but as soon as the Budget shows a surplus there is immediately a clamour from the benches behind them for a reduction in the Income Tax. We have heard it in the past during the Budget Debates, and as soon as the pressure of this armament race abates we shall inevitably get a similar clamour for a reduction of taxation. My hon. Friend the Member for Bishop Auckland (Mr. Dalton) has already referred to the extraordinary proposal of the Chancellor of the Exchequer as to the allocation of the £580,000,000 which he is proposing to spend on armaments during the ensuing year. In the coming year the Government are proposing to allocate less to revenue than to borrowing. At the present moment we are on the upward swing of expenditure. It is not as if we had seen the height of our expenditure and can see our way in the future. For the last three years there has been an increase each year of about £130,000,000 but in the midst of this steady increase, and with more to come, the amount of money to be spent on armaments out of revenue has actually decreased by £44,000,000. What justification is there for that? [An HON. Member: "The General Election."] That may be the reason, but all I can say is that this expenditure on armaments is as ominous for the future as it is indefensible to-day.

I agree that at the present moment, owing to the intolerably bad finance of the Government for the last six years, we must borrow now. I object not so much to the borrowing of the Government as to the thoroughly bad character of the borrowers. We sometimes see an advertisement "£5,000 lent on note of hand alone." I have never applied for any such loan, but I understand that a character investigation takes place before the loan is negotiated. I doubt very much whether any borrower could raise more than four pence on the record of the Members of the present Government. This money is not being raised on the record of the Government but on the knowledge that whatever kind of mess this Government makes of our finances some other Government will have to clear it up. The figures for the last six years of the present Government, with an expanding trade, show a reduction of £28,000,000, while two years of Labour finance, under the most appalling trade conditions, showed a reduction of £82,000,000. We on this side are financial purists. We believe you have to run the finances of the country on a businesslike basis, and we are not prepared to go on piling up debt ad infinitum with no hopes for its future repayment.

6.20 p.m.

Photo of Admiral Sir Roger Keyes Admiral Sir Roger Keyes , Portsmouth North

The hon. Member for Berwick (Sir H. Seely) took exception to the increase in the Fleet Air Arm as proposed in Clause 6 of the White Paper, and declared that the sole reason for restoring the Fleet Air Arm to the control of the Admiralty was because the Fleet Air Arm is "the eyes of the Fleet." For the last 20 years outside, and in this House for the last five years, I have been contending that the Navy should possess all the aerodromes it requires and all the aircraft it needs, irrespective of whether the under carriages are floats, wheels or boats, whether they are carried in ships or whether they are based on strategic points along the trade routes, the naval security of which is the Navy's sole responsibility. In fact, a Fleet without an adequate air service is at a terrible disadvantage if it has to fight a fleet which is equipped with a more powerful and adequate air service.

Twenty months ago the Government decided that the Fleet Air Arm should be handed over to the complete control of the Admiralty, that the aircraft carried in battleships and cruisers and aircraft carriers should be under the complete control and administration of the Admiralty. It is obvious that if the Fleet Air Arm is to be properly maintained it will require a maintenance staff and the aerodromes which were necessary when it belonged to the Air Ministry. I am sure the Committee will be astonished to know that although this decision was made 20 months ago very little or nothing has been done by the Air Ministry to hand over the essentials for a complete Air Arm to the Admiralty. When Lord Swinton was Secretary of State for Air it is no exaggeration to say that he blocked its transfer at every turn, and when the new Secretary of State for Air succeeded I hoped that matters would move swiftly and that the opposition which undoubtedly exists in the Air Ministry to the Navy developing its own Fleet Air Arm would be swept away and that everything necessary would be handed over.

The new Minister for the Co-ordination of Defence is very well aware of what the Navy needs, and for the last three years he has been striving for the Navy to be allowed to control its own air service. I hope the Secretary of State for Air will make his task easy. Obviously it will be difficult for him to intervene in the matter, but I hope my right hon. Friend the Secretary of State for Air will hand over to the Navy all the essentials for a Fleet Air Arm without further delay. It is vitally important that we should have an immensely powerful home defence Air Force to safeguard our people against bombing attacks, but in the meantime it is equally important that they should not starve, and an adequate and efficient Naval Air Service will play an ever increasing part in the protection of our trade routes over which the necessities of life are carried.

6.24 p.m.

Photo of Mr James Ede Mr James Ede , South Shields

The hon. and gallant Member will excuse me if I do not follow him in his highly technical speech. Clearly it would be very unbecoming for one like myself, who cannot go from Southsea to Ryde without being seasick, to criticise an Admiral of the Fleet with so distinguished a career as the hon. and gallant Member. I was interested in the speech of the hon. Member for East Aber- deen (Mr. Boothby). It seemed to me so easy while he was speaking, until the hon. Member for Stoke (Mr. E. Smith) asked him what appeared to me to be one of the easiest of questions. It then appeared that as far as any share in the hon. Member's new paradise is concerned the working classes are only to get such a part as they and their unions can jolly well fight for. The case of the hon. Member for East Aberdeen was completely deflated by the simple question put by the hon. Member for Stoke. I am amazed at the apathy which exists in the Committee to-day on this question to which the appropriate epithets of horror were applied by the Chancellor of the Exchequer. I regard the Debate as the final evidence of the defeat for what youth stood and hoped for during the late War. I wonder whether the men who served in the dreadful days of the War ever thought that, 21 years after, we should reach such an appalling stage when for armaments alone in preparation for the next war we propose to raise a loan greater than the whole of the National Debt on the 4th August, 1914.

It is not as if this was confined to this country alone. It is going on among all the nations of the world, and I see no hope but that these enormous armaments sooner or later will be used. I see the Chancellor of the Duchy of Lancaster in his place. He will know the lines of Scott in "Marmion," where Marmion looks down on the Scottish hosts drawn up and says to the man who had conducted him there: …were that host mine,Not power infernal, nor divine.Should once to peace my soul incline.Till I had dimm'd their armour's shine.In glorious battle-fray. Sooner or later these enormous armaments are going to land us in another catastrophe, perhaps greater than the one from which we have emerged. They are the final measure of the defeat, not of those who won and lost the battles, but of those who lost the peace. The war was won by youth, but the peace was lost by old men. One of the tragedies of this country is that nearly everyone who has held high office since the War is a person with a pre-war mind. The Chancellor of the Duchy was one of those who fought in the War, and I hope that something I may say will strike a responding chord in his heart when he comes to reply. £580,000,000 is to be spent in the next year on weapons of destruction and on making preparations to defend our people from attacks by a possible enemy. Of that huge sum, it is proposed to raise more than half—£350,000,000 of the £580,000,000—by way of loan. I venture to say that if any local authority went to one of the Ministries and asked approval for a loan for expenditure of that sort, with no better asset to show, it would be refused immediately. If we asked for £350,000,000 to rebuild the ravaged countryside—to put the right hon. Gentleman's recent audience at Lincoln into a state of heart in which they would have listened to the hon. Member for Lincoln (Mr. Liddall), when he attempted to address them—or even for a small part of that sum, we should be told that the country could not afford it. If, when the Government took office, we had suggested that they should raise £350,000,000 by loan, spread over seven or eight years, to deal with the social condition of the people, we should have been told that the country could not afford it.

It is astonishing what this country can afford when the Government have a determination that the expenditure shall be incurred. I cannot understand why it is justifiable to raise a loan for guns or battleships or aeroplanes, which from the whole hypothesis one hopes will never be used, whereas if it is proposed to raise £350,000,000 for roads, bridges, better equipment of farms, or schools, we are told that the country cannot afford it. The one thing which the armaments policy of the Government has done has been to prove to every person in the country what untold financial resources there are, and how, under a Government that had conducted the foreign policy of the country in another way, it might have been possible to mobilise those resources to sweep away nearly all the social evils that exist.

My hon. Friend the Member for Bishop Auckland (Mr. Dalton) drew attention to the omission from the White Paper of any reference to the Minister for the Co-ordination of Defence or his new office boy, the Chancellor of the Duchy of Lancaster. It hardly seems fitting that so ancient and honourable an office should be made subordinate to one that has been in existence for so short a time and has been filled so inefficiently throughout the whole period of its existence. But I was not surprised to find no reference in the White Paper to co-ordination, for there was no reference to it in the last White Paper either. Co-ordination is not the sort of thing that can ever be committed to black and white, for after the lapse of a few months the words might be discovered, and might be expected to mean something. I have turned to the first White Paper that was issued, and which had the three mystic initials "J.R.M." at the end. I think all hon. Members know whom those initials were supposed to represent. All subsequent White Papers on the subject have been anonymous; only the first ever had an acknowledged paternity. I do not know whether there is some contest in the Cabinet as to who is the father of the more recent pronouncements; certainly, they appear to be of a somewhat doubtful and mixed pedigree. I will quote to the House from the second and third paragraphs of that first White Paper: The establishment of peace on a permanent footing is the principal aim of British foreign policy. The first and strongest defence of the peoples, territories, cities, overseas trade and communications of the British Empire is provided by the maintenance of peace. If war can be banished from the world, these vast and world-wide interests will remain free from the dangers of attack, and the great work of civilisation and trade will proceed unhampered by the fears that have hindered their progress from the earliest recorded times until to-day. That is why every British Government is bound to use its utmost endeavours to maintain peace.In recent years the chief methods by which His Majesty's Government in the United Kingdom have pursued the establishment of peace on a permanent footing have been as follows:—(1) by unswerving support of the League of Nations, which His Majesty's Government in the United Kingdom regard as essential machinery for promoting the preservation of peace by facilitating and regularising the means of international co-operation. There is no mention of the League of Nations in the present White Paper. I suppose that the murderer feels rather chary about introducing the corpse into his public pronouncements. It was only at the last General Election that the Government said that the League of Nations was to be the keystone of their foreign policy. We are seeing to-day, in the Resolution presented to us, the results of the departure from the policy outlined in Mr. MacDonald's statement on defence, and of the successive betrayals of the collective system by the actions of the Government. Are we any more secure to-day, in spite of all this expenditure, than we were when the present Government took office? Everyone knows that the world to-day is a far more dangerous place for men and for nations than it was in August, 1931, when the Labour Government left office, and the first National Government was formed. The world in its present armed state is a far more dangerous place than it was in 1931. I do not place the whole of the blame on His Majesty's Government, but they have a very great deal to answer for in the progressive deterioration of world peace during the past seven years.

One other matter with which I want to deal is the question of profits. The Chancellor of the Exchequer and other Members of the Government are very fond of quoting the successive reports of the Select Committee on Estimates on that point. I am a member of that committee, and I want to say quite frankly that I signed those reports. I regard my position on that committee, in considering a report, as being of a quasi-judicial character. I have to consider the evidence produced before me and reach such findings, on the evidence, as I can. I will say that the various branches of the Civil Service whom we have examined from time to time have stated that the system of costing which they have introduced has been efficient and sufficient to enable them to detect profiteering if it exists. I am bound to say that the results of the trading of some firms would appear to indicate that there are ways of evading even the most efficient and sufficient costing systems yet devised. I can only hope that the Chancellor of the Exchequer, as head of the Treasury, will from time to time have those methods closely overhauled in order to see whether there is any way in which evasion can take place. I want to draw the attention of the Chancellor to one case, because the allegation is to be found several times in the evidence taken last year with regard to machine tools. I understand that machine tools are manufactured by a comparatively small number of firms who are in a very close federation, and we stumbled on this quite by accident on 20th June, 1938, in our examination of a witness from the War Office, who made the following statement: This firm refused to allow the Department either to insert a costing clause in the contract, or to apply any technical check on his price. That was in the answer to question 2825. That was a remarkable case, and the firm were contracting at the same time for the Admiralty and for the Air Force.

Photo of Mr Jack Lawson Mr Jack Lawson , Chester-le-Street

Is my hon. Friend quoting from the report of the Select Committee on Estimates?

Photo of Mr James Ede Mr James Ede , South Shields

Yes, I am quoting from the report of the proceedings of the Select Committee on Estimates, which is published towards the end of each Session.

Photo of Mr Jack Lawson Mr Jack Lawson , Chester-le-Street

I would point out to my hon. Friend that there is quite a number of instances of that sort recorded in the Public Accounts Committee.

Photo of Mr James Ede Mr James Ede , South Shields

I do not serve on that Committee, and I am not responsible for their findings. I am trying to deal with the Committee on which I serve and the reports of which I signed. On the same day, 20th June, 1938, my hon. Friend the Member for Coatbridge (Mr. Barr) asked question 2918 to which he received the following answer: We are buying in theory on competitive prices. None of the Service Departments is satisfied that competition is real. We have a suspicion that it is possible that the prices are too high; we have reason to think that, in some cases, they are too high. Now there is a test case of what we can do. On the Contracts Co-ordinating Committee we considered this sort of thing for the three Departments all together. We have had several discussions on this, and we have made an approach to the machine tool trade on the lines that we require them to justify their prices, and they have refused to. That is an interesting question what the Department can do next. The answer, at the moment, is that this question has been reported to the Minister for the Co-ordination of Defence. You see, there is no check upon the prices. I then asked: 2921. How far have you been able to apply your costing system to them?—They will not accept it.2922. Has that been reported to the Minister?—That has been reported. That is the point.2923. You have only said: 'We suspect your prices are too high and would lake to look at your books'?—That is right.2924. Their answer is a blank refusal? —At present. One or two further instances were given later on the same day; and then, on 27th June, when we were examining representatives of the Admiralty, I asked: 3177. Because we heard a similar case from the Air Ministry. Are they the machine tools people?—Yes.So that it is not a separate case from the one brought to our attention by the Air Ministry?—No, it is the same.Have you had any difficulty through sub-contractors declining to allow you to see their books where they are not subsidiaries of the main contractor?—None, I think, where they are subsidiaries of a main contractor. There is another opportunity for evasion. We are informed that there is no power to make a sub-contractor produce his books for inspection unless his company is a subsidiary of the main contractor. That leaves the door open to a considerable amount of evasion. Towards the end of last Session I raised the question of the costings of the machine-tool makers in this House and the present Secretary of State for Air, who was in charge of the Debate, undertook to go into the matter. The decision that had been reached at that time by the Minister for the Co-ordination of Defence was that if they refused to allow their books to be inspected, he was powerless in the matter.

The Chancellor of the Exchequer must realise that if it is thought in the country that a case for the existence of profiteering can be established, and if it is shown that firms are not willing to have their costs investigated, considerable resentment will arise. I hope he will see that, if necessary, the appropriate Departments and officers are armed with statutory powers to enable them to carry their investigations to the farthest possible limits. If there is a suspicion in the country that profits are being made out of this rearmament, as big as those that were made in the late War, the Government can rest assured that an amount of bitterness will be created which will completely wreck any hope of national unity in the pursuit of any scheme of National Defence. I sincerely hope, in view of the way in which the Government have been met during the, last two or three Sessions, on this matter of the requirements of the armed forces and preparations for National Defence, that there will be no cleavage in the nation as a result of any feeling that undue profits are being made.

I still marvel at the apathy which seems to beset the Committee to-day. I wonder how a Gladstonian as strong and as deeply-rooted as the Chancellor of the Exchequer could get the figure of £800,000,000 out of his mouth. If any thuds are heard in the earth to-day, I hope they will not be blamed on the I.R.A., because they will probably be caused by the bones of Gladstone turning over at the thought that one who claims lineal descent, politically and spiritually, from him, has come before the House of Commons to make the kind of speech to which we listened to-day. But this does represent the worst. This shocking outpouring of money may be but the prelude to a still more shocking outpouring of life. Once again youth may be driven into the inferno, and terrible as is the loss which we are discussing to-day, there could be no greater defeat of human hopes and human happiness in the world than that, once again, youths of this and other nations should have to shed their blood on the battlefields. I sincerely hope that the Government will not merely prepare for defence, but will take active steps so to arrange their foreign policy that the world may yet get a chance to escape from the appalling doom to which we appear to be hastening.

6.50 p.m.

Photo of Major James Despencer Robertson Major James Despencer Robertson , Salisbury

I do not propose to discuss the White Paper as a whole, but there is one phase of the Air-raid precautionary measures on which I wish to concentrate, because the Government have, in connection with it, a scheme which I believe to be financially unsound and for which, there is, I believe, an alternative, equally efficient and cheaper. I refer to the question of billeting children from evacuated areas in wartime. The Government have in preparation a scheme for billeting children in private houses and this scheme, if workable at all, might be successful were we certain that the emergency would last only, say, a month or six weeks. But if we have to look forward to the eventuality of war, no one can deny the possibility that the duration of such a war might be anything up to four or five years. I venture to say that the scheme which the Government are preparing in this connection for the reception of children in private houses is clumsy and impracticable, and would be without the slightest beneficial result to the children themselves.

Let me say at once that my criticism of it, and indeed the criticism of all who have written to me on the subject—and I have had a large volume of correspondence from all over the country—is based, in no sense, on any idea of unfriendliness towards the children. It arises from a desire to do the best for the children, and at the same time not to put the burden and the responsibility on the householder which the proposed scheme would entail. Briefly the scheme is this. The rooms in a house, downstairs and upstairs, are counted. The occupants of the house are counted and a child is then allocated to each vacant room, or five children to four rooms. In the case of a householder with wife and one child living in a standard seven-roomed house, five children will be allocated and the normal occupants of that house during a war period would thus be eight instead of three.

Those of us who live in rural areas will at once see a grave danger here. Water supplies and drainage systems in most places will be utterly inadequate to deal with a sudden doubling or trebling of the population. In many rural areas people find it hard enough at present to supply their wants from wells. Wells run dry in the summer time, and if there is to be a sudden incursion of children to an unknown number, those wells will give out in less than no time. It is well-known that the scheme presents many serious difficulties. Some householders have written to the Press and others to the Minister of Health, and the Minister has answered them both in the Press and by circular and memorandum. I wish to draw attention to some of their objections and some of the Minister's answers to those objections. One question which has been occupying most householders since they became aware of this scheme, has been how they are to provide the necessary bedding and mattresses for these children. They have written to ask whether they are to buy these articles. The Minister's answer is: It is not proposed that children should bring their own bedding and mattresses. That would be impossible as the movement would involve 1,000,000 children from the Metropolitan area. Steps will be taken to ascertain the amount of extra bedding, etc., which the householder will require. Presumably the Minister will not wait for a sudden emergency before issuing the bedding and mattresses. If he did, the roads would be cluttered up with lorries conveying this material at a moment when all transport would be required for other purposes. Presumably, therefore, he intends to issue bedding and mattresses to householders at an early date. One may reasonably ask, then, what steps he is taking to ensure that they shall be properly stored so as to be as far as possible, immune from depreciation? In what seven-roomed house can accommodation be found for the mattresses and bedding which would be necessary for five extra children unless they are stored in one of the sitting rooms? They may have to be stored for an unlimited period. What system of periodical inspection is contemplated? Not all householders are saints, and it is not hard to visualise a case in which a householder might replace some of his own worn-out bedding from the stock which has been entrusted to him for the children. Some sort of inspection will be necessary. This scheme will cost money, as well as cause trouble to the householder, and I think very little good will come of it.

When I say that all householders are not saints, that raises another question. Undoubtedly many people who are offering to take children to-day are tempted by the money which is being offered to them. That means that they think they are going to make something of it, but if they do make anything of it, they will make it at the expense of the children. That is another reason for considering the alternative scheme which I propose. Again, what arrangements would be made for the return of bedding and mattresses in the event of a householder's death or removal to another place and the advent of another householder with a large family which would leave no accommodation available for billeted children? What scheme is there for retrieving the mattresses and the bedding? We are told by the Minister of Health that if the householder has not a sufficient number of bedsteads, mattresses can be placed on the floor. Again, that might be all right for a short emergency but is it seriously contemplated that these children are to sleep on mattresses on floors for anything up to five years? I cannot think that such an idea will be acceptable to their parents.

Further, the question of cooking and domestic help has engaged the attention of householders. The Minister says that volunteers are being recruited for these duties under the National Service scheme. Here there is a very important point which needs clarifying. If the householder and his wife volunteer for national service, are they still to be allowed to take children? If so, when they are called on to fulfil the duties for which they have volunteered, which may take them away from their village or town, no one will be left to look after the household and the children. In some areas people are being told by the visitors who are going round looking for this accommodation that they must not volunteer, but must hold themselves in readiness to take children. The Minister tells us that where houses are large enough to accommodate whole units it is anticipated that adult persons would certainly accompany them and stay to help with them. When will this anticipation be translated into certainty? Will it ever be translated into certainty? And what about the houses not big enough to take whole units? Is it really intended that the householder shall undertake the whole-time job of looking after five or six children, whose discipline may not be of the best, whose habits may not be very good, who may quarrel among themselves and be as naughty as all really nice children are? And what guarantee is there that the householder will be the sort of person who is capable of looking after children? It is expecting too much to ask all this for four or five years. And what a risk for the children to be brought up at their most impressionable age by people who are perhaps unsympathetic and totally unused to children, with few of the qualities which are so essential for their careful upbringing.

Let me turn for one moment to the smaller children, the children of pre-school age. Here we are told by the Minister that Householders who receive these younger children and their mothers will only have to provide shelter and access to water and sanitary accommodation, but it is hoped"— only hoped, mind you— that they will make cooking facilities available as well by mutual agreement, and where such an arrangement involves expenditure on the householder arrangements for some appropriate payment would be made between householder and lodger. The Minister will have a fine field of discontent there. Who is to arbitrate on the question of appropriate payment? Who is to clean the pots and pans? Who is to keep the fire going? And if no mutual arrangement is arrived at at all between lodger and householder, how are the mother and child to be fed at all? The Minister is completely silent on that.

There remains the very serious question for householders of compensation for damage, and here the Minister offers as his contribution some of the most fallacious reasoning that I have ever come across, and reasoning which I think will not appeal to anyone who contemplates receiving children. He says: while the risk of occasional cases of superficial damage …. cannot be ruled out"— and I would like to ask the Minister why he rules out anything but superficial damage? When you have a lot of naughty boys in the house and leave them alone for a few hours there is very likely to be more than superficial damage there— it is unlikely that any such damage would bulk very largely against a background of a state of war. Why? In war or peace people want to keep their houses in order. They do not like to have them damaged and, if they are damaged, they like to make the person responsible for the damage pay for it. But, here, apparently they can expect no help from the Minister when they go and complain and say, "These boys have cut up my panelling, have cut the carpets, and the girls have pulled down the curtains and broken the windows." All that the Minister is going to say to them is "Remember there is a war." I do not think that is a policy that will commend itself to a very large number of householders. I think this idea of the background of war bulking too large for anyone to take notice of such trifles is one which has obsessed the mind of the Minister. I would urge him to consider this. Even in wartime one wants everyday life to go on as normally as possible. Wars have a knack of lasting a long time, and in the end they are won almost as much by the morale of the civil population as by military events, and if the hundreds of thousands of people are going to be put to the inconvenience, irritation and bewilderment that this scheme will engender, I think the home front will be in a very grievous state indeed. There are many other points one could raise—the health of the children, and their care in epidemics and illness, when most trained nurses and doctors will be away from the villages and smaller towns. I submit that the scheme is far too clumsy to be workable, and far too involved, far too extravagant. It is prejudicial, also, to the well being of the children and a great burden and responsibility to be placed on ordinary householders.

I submit that there is an alternative, and that alternative is the provision of more and more camps. In this connection I do not feel that we want such vastly expensive camps as have been foreshadowed by the Lord Privy Seal. I believe that camps could be made at a far cheaper rate. I believe that a great number of the big houses which are today standing empty because they are far too big for the ordinary man to keep up, could be bought at a low figure, and, with very little trouble and expense, turned into homes capable of receiving children. I believe that in some cases during wartime barracks, either of the Royal Air Force or of the Army, might be available when the units have already gone. Some schools certainly would be available, but in any case you would have the children all together in one body, looked after by teachers whom they know, not teachers sent there for that special business. You would be able to earmark special doctors and special nurses for those centres, and I would urge that the centres should be not too remote from the area from which these children have been taken. That would obviate the necessity for these children being removed, possibly for four or five years, from all contact with their parents.

That, I think, is one of the most difficult things to visualise—the effect that evacuation will have on children who may be taken from their homes, losing all touch with their fathers and mothers for a period of four or five years, and knowing nothing in after life of the joys of home life and parental love. I commend this scheme that I have outlined to the Government as one which is capable of answering their purpose. If it is elaborated I believe that they will find that they are able to do without any billeting in private houses, with all the dangers connected with it, dangers not only to the householders but to the children; and I believe that the scheme of camps would be bene- ficial to the children of the country as a whole.

7.9 p.m.

Photo of Mr Andrew MacLaren Mr Andrew MacLaren , Stoke-on-Trent Burslem

Listening to this Debate I have been wondering what we are really discussing. The hon. Member for East Aberdeen (Mr. Boothby) became so abstract that I wondered whether he remembered he was in the House itself. He reminded me of Bishop Burke who was asked what were meta-physicians, and he replied, "A number of gentlemen who get into a corner and kick up a dust and then complain that they cannot see." He threw about economic fallacies, quite oblivious of the fact that he was doing so, and finally landed up not knowing himself where he was. The reason I intervene in the Debate is to join with those who have already expressed agreement with the Chancellor of the Exchequer in the horror of contemplating the task which faces the country at the moment. When the last War was declared little did I think that when it was over we should come right round again and be in the position in which we are now. It is horrible to think that it is all real, and not a sort of mad fantasy. "War to end war," "A war to save democracy"—where is all that rhetoric now? Where is the right hon. Member for Carnarvon Boroughs (Mr. Lloyd George), who swept the people off their feet into believing that when they carried through the last War, war would not happen again.

But see where we are to-day. The Chancellor of the Exchequer gave us a sort of Greek threnody at the Box to-day, telling us that he required £580,000,000 or £800,000,000 in all. It is not only that such colossal sums are devoted' to the building of machines for war, but it is the awful thought when this vast structure is in operation of what it means in the destruction of mankind. I have two sons. I can scarce get them now to attend closely to their studies. Why? Because they are constantly haunted with the thought "Should I go on with these studies and exams? What is the alternative before me?" That is the case probably of millions of boys in this country to-day—young men asking older men, "Is there any solution for the problem that has brought the youth of the nation to this position?" To-morrow the young men of the country will be reading what the Chancellor truly said, that we have built up our resources in the hope of creating some measure of static peace in Europe. The Prime Minister when he was Chancellor of the Exchequer carried through vast conversions. Where is all that effort going now? We are piling up our resources, not as an investment to save mankind or to steady society, but in competition with the nations of Europe—a competition which we all fear might bring about the destruction of Europe itself.

One hears very serious rumours going about as to the profiteering that is going on. I am not here to make charges, I am only saying that one is not entirely deaf to what is said of wild profiteering in armaments. I know that at a time like this such rumours easily arise, and are magnified from mouth to mouth. But I think it would be well if more assiduous inquiry were made into the cost of production and into what these subsidiary companies are doing, and how they are passing on prices to the major contractors. Such inquiry is very essential.

There is another question I want to raise. Recently we have seen the Bressey Report set aside owing to the cost, but I wonder why this House never tries to visualise London—not to speak of Birmingham, Manchester, Glasgow and other cities—under the threat of an air raid, with its narrow streets and wildly excitable people trying to escape by any kind of motor vehicle, and poor people without any conveyances at all trying to get along the streets. Try to visualise what would happen in the streets of London when the populace attempted an exit under the wild exasperation of a threatened air raid. What are we doing about it? The Bressey Report is set aside owing to the cost, and it is not for me to say what the major cost of implementing that report would be or how it would be met, except to mention, of course, the taxation of land values. The London County Council are now standing there apparently nonplussed. The threat of air raids let loose on the streets of London, with motor cars breaking down on the roadways, is a thing that no sane person can contemplate without horror, and what are we doing about it? In Manchester, Birmingham, Glasgow, any large city, you can visualise what would happen. Yet this House is apparently not coming to any decision on the matter. It has been allowed to slip, and I merely ask that this point should be seriously considered.

I do not know whether, within the purview of these new moneys which the Chancellor is going to raise by loan and taxation, that will be one of the duties imposed on the local authorities or whether the State will take it. It is not a thing that we can allow to stand much longer without something being done in the matter. The cost will be enormous. Then we have heard a good deal to-day about air-raid shelters and whether they should be deep or shallow. Whatever they are, they also will be expensive. We have just heard a petition for some more humane treatment of those dear people on the countryside who desire to maintain the quietude of their estates and who do not wish to have poor city children foisted upon them. A great deal could be said about that, but the alternative proposal to billeting children on these country houses is camps, and I can imagine what they will cost. Camps, shelters, new roads, everything we do in order to preserve a measure of safety under the threat of war, is going to cost millions.

The Chancellor told us that three-fifths would be raised by loan and the other two-fifths by taxation, and I noticed that the Committee seemed to be rather delighted that the major weight of the new impost would be on loans and not on taxation. It was interesting also to hear the hon. Member for East Aberdeen give that old bit of advice, "What does it matter what it costs in taxation?" I remember the right hon. Member for Carnarvon Boroughs shortly after the last War saying the same thing: "It does not matter if it costs millions, because, after all, it is all in the family. If you raise it in millions, then you tax the gentlemen who gave you the money on loan, and it is all right." I think the Chancellor of the Exchequer, remembering the old Liberal doctrine, will not be so light-hearted about that. He knows, and I know, that taxation will ruin a State if it becomes over-heavy, and there is no instrument more potent for driving the common people into revolt against the State than heavy taxation. We cannot lightheartedly look at what is facing us now and say that it is only a matter of book-keeping and adjusting. It is nothing of the kind. Under the present canons of taxation, if this enormous weight is to be carried—and it must in the ultimate be carried—by those who are engaged daily in the production of wealth, it means that the whole process is bound to break down.

It is the threat to the future of civilisation that one sees in these figures that makes one apprehensive and that makes one wonder whether it is possible for some of the statesmen in Europe to get together. Is it too late? Is it possible even now for statesmen in Europe to come together and to do something to stop, to check, the progress of this horror which is hourly encroaching upon us? God bless the Prime Minister—I say that now —for what he did in Munich. We are here to-day discussing this passively because he had the singular courage to do what he did. I am not saying this directly to him, but could he not get others in Europe of whatever colour or political creed, to join with him? Could he not even now call a conference of the statesmen of Europe to face the situation? Frankly, I also agree that this is one of the most important Debates that has ever happened in this House, and I cannot believe that we have become so dead to the spirit of our own intuitions, our own foresight, our own promptings, that we are going passively to slip on, piling up more millions and saying, "Oh, well, it is only a matter of book-keeping." Indeed, it would not matter if it were a mere question of book-keeping, if it were a mere matter of juggling with figures. Who would care if it were but some device for creating the great machinery of war and we knew that it would not be used? But I cannot believe that we are so lost in the real spiritual reaction against this thing that we are going to remain here passively moving millions and talking as we are doing now. I believe the time has come now, if it has never come before, for this House to bestir itself, for every man and woman in it to back the Prime Minister, and those who think like him, to face Europe seriously, valiantly, with vital force behind them, and to see whether something cannot be done to stop this, because we cannot drift and drift like this, with nice quiet Debates, and even with empty benches on a day like this. That is very significant of the state of affairs at the moment.

I have intervened as I have done to-day because I see in this Vote, as I dare say almost everyone of us sees, a red light for civilisation in Europe. But what sometimes makes one oppressed is this, that when we see these things at close quarters in this House, we cannot help feeling that the mentality of the common men and women in the streets is such that they are almost oblivious of the fact, that they are more intent upon other instantaneous amusements of the moment than they are upon the great tragedy that is being performed here to-day. Perhaps what I have said is almost as far astray from the real subject-matter of discussion as the things that I criticised when I rose to my feet, but I am taking this opportunity if for no other reason than to point the moral of the expenditure involved in this state of arms, what it implies, the significance of it. If it has any significance at all, all that we have dreamt about in our philosophies and our religions is now damned, because arm in arm and slip and slip we go down, like gadarene swine, to destruction. If this continues, nothing can stop it, but for men of singular views and with singular faith in the goodness of mankind, men holding leading positions in the States of Europe, to come together at this moment. I ask, if they still possess within them faith in God and a spark of religious feeling, that they shall gather together and meet this menace, not for the preservation of impregnable war machines, but with the courage of men who believe that man was put upon this earth, not to destroy his kind, but to enjoy the bounties which God has freely given to him.

7.25 p.m.

Photo of Mr Austin Hopkinson Mr Austin Hopkinson , Mossley

Now to return to the subject of the Debate, which divides itself into two parts. First, Is this the best method of raising the money required; and, secondly, ought this amount of money to be required at the present moment? With regard to the first part, I think there is fairly general agreement in the Committee that the Chancellor's methods of raising this immense sum are probably the best that could be devised. There may be minor points of criticism, but I think there is general agreement that some such form as is proposed is essential. I should, therefore, like to address myself more particularly to the second part of the subject, and that is, Is this gigantic sum necessary? I think Members of the Committee who have watched all these preparations through the last five or six years will agree that the main decisions taken by this Government and its predecessor have been, on the whole, extraordinarily wise and far-seeing. The main decisions of the Government, as I say, are certainly not fit subjects for criticism, and it seems to me that where we have broken down is in the carrying-out of these decisions.

To recapitulate these main decisions, the first one, of course, was the decision to rearm, and that was taken, though not published, as far back as 1933, when it became perfectly obvious that unilateral disarmament was no longer possible, and when the rise of Herr Hitler in Germany began to create a situation which must ultimately be one of very considerable danger. I hold that plenty of time was given, and that by March of last year, when the crisis came, we ought to have been ready. There was plenty of time. The second major decision that was taken was the fixing of a sum of £1,500,000,000 as sufficient for satisfactory rearmament, and there again I venture to say that the decision was a wise one and that we ought to have been in a position, in March of last year, with an expenditure of well under £1,500,000,000, to have faced the situation which then arose. It is no use criticising Departments without making suggestions, and I may say at once that I am not standing up to attack the Government or any Department as it exists, but to do the best that I can, with some little knowledge and experience of these matters, to be of assistance to the Government and to my country at this crisis in its affairs.

It is necessary, I think, in order to get a grasp of what is required, to go back on past history and to point out some of the major mistakes which have been made and which, in my opinion, have necessitated the Chancellor's request to-day for still further sums of money. Those mistakes have been made in one Service Ministry, perhaps, more than in the other two, and that is only to be expected. One cannot expect a new Ministry to be as good as those Ministries which have been in existence for a long period of years, and which have built up traditions and staff efficiency to a degree which, as I say, we cannot expect from a new Ministry.

I hope the Committee will not think I am unfair to the Air Ministry in what I am going to say. I pointed out that of all the three Defence Ministries it is the one which is most likely to have failed in its task. If we examine the history of our aircraft supplies there are a number of points which, I think, can be used as lessons for the future, and I will put some of those points to the Committee. The Noble Lord who was in charge of the Air Ministry made what seemed to me to be certain fundamental mistakes. Perhaps the biggest mistake of all was that in approaching those firms and persons who would have the task of producing this great air armament, never, from first to last, as far as I am able to ascertain, did he ever appeal to the better side of the natures of the people in question. From the very start the appeal was made to their business instincts and to their greed, and no real attempt of any kind was made to appeal to the better instincts which they share with every Member of this Committee.

The second mistake was this. We were going into the market for immense purchases of aircraft and accessories, and the Noble Lord in question announced publicly that he was not going to buy except from a certain small number of favoured firms. In other words, before he went into the market to buy he formed the whole industry into a complete ring with practically a pledge that nobody else would be allowed to compete in that market. Subsequently—and in this I am in no way criticising the gentleman in question, because I do not think criticism has been earned by him—we set up that remarkable system by which the ring, in which the individual members might have quarrelled among themselves, was to speak with one voice to the Air Ministry. Sir Charles Bruce Gardner was to receive a salary from the Aircraft Manufacturers' Association and was simultaneously to take an official position with the Air Ministry. In other words, if the ring showed any signs of breaking he was there to see that it spoke with one voice and that the ring remained intact. It seems to me to be the most ludicrous performance which even the Air Ministry have perpetrated in recent years.

The third point is this. The system which was designed for producing the aircraft that were required, the system of contracts in particular, seems to me to have been very unsatisfactory. After all, what can one expect? Lord Swinton, with all his virtues, knew absolutely nothing whatever about business, and he was up against some of the keenest business minds that this country has produced, with the result, of course, that he went under and they went to the top. The system of contracts was, in brief, this. It was decided at the outset that in view of technical developments it was impossible to obtain aircraft for the Air Force by any system of competitive tenders. There is a great deal to be said for that point of view. I should say that if opinion were taken from people who had experience in these matters a considerable majority would agree that a system of competitive tenders at that time was impracticable in the securing of aircraft. There is only one alternative to competitive tenders if you are going to buy, and that is some system by which the price you pay is related directly or indirectly to the cost of production of the article you are buying. Hon. Members, if they look into the matter carefully, will see that there are only these two alternative ways of getting a price. Therefore, it was decided that a system must be set up in which the price paid by the taxpayer would be related to the cost of production.

Here, again, Lord Swinton's total ignorance of business put us on the wrong track. He was obviously under the impression that a system of cost accounting in a works can actually control the cost of production. Of course, this Committee knows that it can do nothing of the sort. It can merely register the cost of production, which is quite another matter. It can tell you that such and such an aircraft has cost so many pounds, but it is no means of telling you whether it ought to have cost a great deal less or not. Another weak point in the costing was that the cost accountants under the control of the Air Ministry in aircraft works could tell the Air Ministry that so many hours labour and so much wages had been spent on a job. They could also tell the Air Ministry that they had inspected the invoices for the material and the accessories and that the firms in question had actually paid these sums for the material and the accessories. The cost accountants, however, can never tell you, what is the most important thing, whether the prices on those invoices were what they ought to be or whether they were excessive. In the case of the industry in question it frequently happens that the aircraft manufacturer and the firms from whom he buys accesories and material are linked up financially through holding companies, through selling companies, through buying companies and through all those various devices by which we modern industrialists secure our end, which is that we shall get the money and not the outside public who are shareholders.

I have pointed out a few of the gigantic errors that were made in aircraft supplies. I am afraid that we must put them down to Lord Swinton's total ignorance and total inexperience of business. To go back to those main decisions of the Government and their predecessors, which, as I pointed out, we all admit were very wise. One of them was that we must conduct our rearmament programme in such a way as not completely to hamstring at the outset the whole industrial life of the country. That, I think, was a wise decision and it was based upon the knowledge that the thing could have been done on those lines. It was wise because if one is entering into an armaments race with one or other foreign countries it is an immense gain that one should, at any rate, appear to be getting armaments without undue strain, because then there is much more hope of one's opponent giving up the race knowing, or thinking that he knows, that one is in a position to beat him in the long run. Unhappily, that has broken down already, and I maintain that if we had exercised more skill and care, particularly in our air armaments and Air Force base equipment, we should have been able to carry out that very wise decision of the previous Government. I have pointed out how wise were the main decisions of the Government. In the case of one service Ministry those wise decisions were rendered completely void by mistakes on the part of an ex-Minister, so that it may be said, I think, truly that we have not up to the present been getting value for our money.

It seems, perhaps, unfair to the Air Ministry, but I have still one or two more points to put before them as I see a representative in the Committee. When it became necessary to provide much more productive capacity for the aircraft industry we adopted a plan which, to my mind, again showed a lack of business ability on the part of those who introduced it. We advanced to aircraft manufacturers enormous sums of money at very low fixed rates of interest. By that means we enormously increased the value of their equity capital, because we gave them cheap money which enabled them enormously to increase their output and to that extent made the return on their equity shares gigantic in some cases. If the taxpayer is to provide the capital of industry during a period of rearmament, he is entitled to get the equity value of what is being done. I would suggest to the Chancellor of the Exchequer and to the Chancellor of the Duchy of Lancaster, as representing the Minister for the Co-ordination of Defence, that the time has now arrived to take drastic steps to secure for the taxpayer and for the country some of the gigantic profits which are being raked off, in many cases by men who are contributing absolutely nothing to the efficient production of the aircraft industry. I am suggesting a system which I have been working in my own works for the last 13 years. I have worked out all the difficulties and I find that they can be overcome, and it seems to me to be the only reasonable and fair system for dealing with rearmament on a large scale. In the case of my own concern all the ordinary shares are held in trust, and the beneficaries are everybody employed in the concern except myself. Surely it is possible during a period of national emergency, as this must be, to compel firms to exchange their equity shares, their ordinary shares, for fixed interest bearing stock for the period of the emergency, with the option of making the exchange back again when the emergency is over.

The fundamental point in rearmament surely is that the capitalist system, the system of individual enterprise, is obviously the best system for any nation in time of peace, because it is the system by which capital is amassed and accumulated. The capital resources of the country can only be increased by individualistic capitalism. When, however, the country is in an emergency like the present, and particularly when it is at war, State Socialism is the only proper policy for that country, because Socialism is simply a synonym for living beyond your income. A country at war is a country which wants to get at its capital resources and pour them out like water for that period. Therefore, I say that during war or a period of emergency rearmament some form of State Socialism is obviously indicated as being the proper policy for the Government of the day. The modified form which I have tried out for 13 years and found to work seems to me to be the most reasonable and the simplest way of going about it.

War and peace alternate. If we are to adopt some Socialistic system during war for the supply of munitions, we must adopt a system by which we can easily go back to individualistic capitalism when the war is over. We must have a system which does not upset the whole organisation of industry, and the system which I suggest does not, because it preserves each individual enterprise complete and intact. There is no merging, there is no bureaucracy, each individual concern is working, as now, as an individual concern. The only difference is that instead of immense profits going into the pockets of private individuals, any profit would go, in the first place, into the pockets of those who are doing the work; and, mark this, the trustee of each of those individual concerns could also reduce his prices for what he supplies to the taxpayer through the Departments concerned. I hope the Chancellor and the Committee will not think that this is a very wild idea, as at first sight it might appear to be. I have not got up to make these proposals without having thought them out very carefully, and for a number of years, and I hope—against hope, perhaps—that what I have said will be taken to heart by the Departments concerned and that we may see an end of that scandal which is developing at present, the scandal of men making enormous sums out of the emergency in which their country find itself.

And now about the whole system of co-ordination of defence and the Committee of Imperial Defence. As I think some Members of the Committee know, for a short time I occupied a very subordinate position in the Ministry for the Co-ordination of Defence, and I was able to get some knowledge, at least, of the working of that system. I may say straight away that so far as I could make out the machinery is admirable. The machine provides everything that is wanted in the way of machinery, but where I venture to criticise is that I do not think that machine has been fully used or that its capabilities have been fully developed. That has been due very largely to what appears to have been a misconception on the part of the first Minister for the Co-ordination of Defence who was appointed. He does not seem to have realised quite how important and how powerful that position really is, and was apparently meant to be when the Ministry was set up. It seems to me that the position was really that of deputy Prime Minister for all defence questions, and if one comes to think of the circumstances in which the Co-ordination Department was set up I think there is a good deal of truth in what I have said.

It will be remembered that when the matter came up for discussion, now many years ago, it was decided first of all, and obviously rightly decided, that the Chairman of the Committee of Imperial Defence must be the Prime Minister, since otherwise there might have been a Minister much more powerful than the Prime Minister himself. That was the axiom, the whole basis of the scheme. It was then quite obvious to everyone that under modern conditions no Prime Minister of this country could be an effective Chairman of the Committee of Imperial Defence. He must have a deputy, and to that deputy he gives, if the Chancellor will pardon my excursion into legal terms, a limited power of attorney. That is to say the Minister for the Co-ordination of Defence becomes Prime Minister so far as all matters of defence are concerned, and he is responsible to no man on earth except the man who gave him that power of attorney.

If the Minister for the Co-ordination of Defence takes the view which has been taken hitherto, that he is nothing more than a Cabinet Minister and responsible to the Cabinet as a whole, then it seems to me that that machinery, which as I have said seems to be admirable machinery, will fail to act, as has very largely been the case hitherto. The position of Chairman of the Committee of Imperial Defence is only comparable to the position of Prime Minister himself under modern conditions for, mark this, not only has he to co-ordinate the efforts of the three Services but he is responsible for the co-ordination of strategy in its very widest sense, and strategy—and here is where the Chancellor comes in—under modern conditions involves finance just as much as it involves the Army, the Navy and the Air Force.

It is impossible to get true co-ordination of defence unless the co-ordinator of defence as Chairman of the Committee of Imperial Defence has a very large degree of control over finance as well as over the other subjects which come within the purview of the Committee of Imperial Defence. That has not been the case hitherto. Service Ministers, without any reference to the Committee of Imperial Defence, will go direct to the Chancellor, hoping that, with his kindly disposition, more can be wangled out of him than could ever be got through the Committee of Imperial Defence, and it has been rumoured—though I cannot vouch for this—that there has been at least one case in which even the Chancellor himself was sidetracked and a Service Department went to a higher authority still before it could get consent for what it wanted. That sort of thing will not do in the present financial condition of this country. There must be much more definite control right from the point where schemes come before the Committee of Imperial Defence. Indeed, I should like to see a rule that the Chancellor got no applications of any sort whatever from Service Ministers unless they had been first endorsed by the Committee of Imperial Defence.

The mere fact that originally a round sum of £1,500,000,000 was set aside for this purpose of rearmament implies at once that there must be rationing of some sort, otherwise it would be quite impossible to keep within the round sum which the Cabinet had decided would be suitable for the purpose, and who is to do that rationing except the Committee of Imperial Defence and the Minister for the Co-ordination of Defence? Take a simple practical case, the defence of Singapore. The General Staff have to decide upon whom that defence is mainly to rest, what part of the defence lies with the Navy, what part with the Army, what part with the Fleet Air Arm and what part with the Air Force. This decision having been taken by the General Staff, then any of the Departments can very well say, "Well, so far as Singapore is concerned, we are expected to do very much more than we thought we should have to do, and, therefore, we shall require additional Estimates for next year." Obviously, that is a matter for the Committee of Imperial Defence and not for the Treasury. The Treasury ought never to see those Estimates until the Committee of Imperial Defence has had its say and has decided whether the sum available can be best used in this direction or that.

I trust that I have not bored the Committee with what I have been saying. I have tried, to the best of my ability, not to criticise unkindly or captiously, but as far as I can from what little experience I have, to be of assistance not only to the Chancellor but to the Government and the Departments, but I assure the Committee that an increase of the power and the authority of the Chairman of the Committee of Imperial Defence, now termed the Minister for the Co-ordination of Defence, is essential, is the keystone of the whole system, or, to go back to the metaphor which I used before, the machine will not work unless the engine driver takes real control, which has not been the case hitherto.

I have great hopes for the future. I think the Committee will agree with me that the combination of Lord Chatfield with the Chancellor of the Duchy of Lancaster is as far as we can see as good a combination as the country can possibly provide. The one point on which Lord Chatfield might have broken down was his lack of experience of the House of Commons and of the common people of this country. The Chancellor of the Duchy has a thorough knowledge of the House of Commons and a flair for knowing how the common people think, which is almost as great as the similar facility possessed by Lord Baldwin. The combination of those two men in this position augurs well, I think, for the future, but I do hope that the Government and the House of Commons will really do all they can to increase the power and the authority of the Chairman of the Committee of Imperial Defence and make it possible for that body to reduce the appalling Estimates which year after year the Service Ministers put before us.

It is only fair to the Air Ministry to say that real efforts are being made to wipe out some of the mistakes to which I made allusion, but it seems to me essential, if we are to continue purchasing aircraft for the Air Force on any system based upon the cost of production, that we should have some sort of check. The Admiralty has its dockyards from which it can ascertain roughly what the costs of ship construction should be, and the Air Ministry's supply department will never function properly from the economic point of view unless it has some check works of its own in which it can ascertain not what the costs of production are in the aircraft works, which is what we are doing at present, but what those costs of production ought to be. And starting as it does with the experience of the Admiralty before it, it will not make the mistake that the Admiralty used to make in the days before the War, when it was commonly said, and I believe with truth, that the Admiralty thought in its innocence that if a ship cost £1,000,000 to construct at Devonport that £1,000,000 was a suitable price to offer to the private contractors. I understand that the Admiralty know better now, and that if a ship costs £1,000,000 at Devonport they think that about £750,000 would be a suitable price to offer to a private contractor. That experience is all at the disposal of the Air Ministry if it sets up a similar department.

One final point. There is one other organisation which the Air Ministry lack, and again it is one which is paralleled in the Admiralty. The Admiralty has its corps of naval constructors, and I have ascertained that private contractors in the shipyards regard with the greatest respect the technical ability and technical judgment of that corps. In other words, if the corps of naval constructors put forward an opinion the technicians in the private yards sit up and take notice, because they know them to be very competent people and feel that there is probably something in what they say. Hitherto the Air Ministry has not had a comparable body of technical experts, and that is one of the reasons why, despite all the efforts of successive heads of that Ministry, we are producing a vastly greater number of different types of aeroplane than makes it possible to get them at reasonable prices. There is no body at the Air Ministry that can go to the aircraft directors and tell them how to make aeroplanes. The result is that we are very much in the hands of the contractors and have to put up with an indefinite number of types when we really ought to be content with about six designs. If I were to go on to all the points that interest me I should detain the Committee for too long. Therefore I would conclude by again asking the Government to see if they have not already in the co-ordination of defence all the machinery that is necessary, and to ensure that those in charge of that Department have the whole backing of the Government so that they can make that machinery work as it ought to have worked all along.

8.1 p.m.

Photo of Major Lawrence Kimball Major Lawrence Kimball , Loughborough

I hope the Committee will forgive me if I do not follow the last speaker but raise a somewhat different point. I desire to support this Resolution because a great deal of the expenditure is of a capital nature and of more or less lasting benefit. The present generation of taxpayers should not be called upon to pay the whole of this burden; many of the items are of benefit to the next generation. In the White Paper which was issued at the same time as this Resolution we have in paragraphs 66 to 74 a number of items of expenditure on air-raid precautions. In so far as this expenditure is to be met under this Resolution and with reference to air-raid precautions I think we should look at the question rather carefully and see whether this expenditure is being wisely made and for the purposes of producing lasting benefits. I know it is intended to have a Debate on the subject of civilian defence at a later stage and, therefore, I do not expect to-night to receive an answer from the Government. However, I wish to put a question now so that on a later occasion we shall not be faced with the decision already taken and with no chance of raising this point. The point is with regard to shelter policy.

So far as I can gather from this White Paper the shelter policy is confined at the moment to the construction of trenches, plans to strengthen and strut up existing buildings to make basement shelters, and the provision of a large quantity of small steel shelters. I venture to say that that is at best a short-term policy and does not go far enough. We have the lesson of Barcelona, from which we should profit. There, in the early days of the civil war, the Republican Government thought that trenches and the strengthening of ordinary buildings would suffice. After a number of people had been killed in those trenches and buried in the basements of so-called reinforced buildings, it was found necessary that the Republican Government should construct deep, really bomb-proof shelters, and this was done with great success. I understand that a roof construction of something like 12 feet with six feet reinforced concrete and then a cushion layer of sand and more concrete was complete protection against bombs up to 1,000 lbs. and this was proved particularly during the last few weeks before the city fell, when civilian casualties were almost negligible.

What can we do here with regard to this question of deep shelters? In every city there are a great many open spaces in which deep shelters could be built. I know the objection will be taken at once of the cost and time of construction, but I hope to be able to show that neither of these objections is insuperable or impossible. As to cost, I admit that the cost would be very heavy and would in fact be impossible under present conditions if they had no peace-time economic use and could not be made to pay for themselves. In this connection it is worth observing that in the White Paper, paragraph 67, the Government are proposing to spend some £20,000,000 on these steel shelters which are admittedly a wasting and non-productive asset. These possible shelters under the spaces of our big cities might have several economic uses. They could be underground streets with shops, show rooms and warehouses, or they might serve as underground car parks. The need for car parks to relieve the congestion of our streets is a real necessity, and I therefore want to confine my remarks here to the possibility of making deep shelters which would in peace-time have an economic use as car parks and be self-supporting.

I think it will be argued against me that the conventional type of car park, which is a large open space with a roof supported on columns or pillars, is by construction unsuitable for an air-raid shelter. With that I entirely agree. Another argument is the amount of space that has to be left available for manoeuvring cars under their own power, turning them, and getting them in and out. The amount of useful space available does not make it self-supporting. There has recently been considerable publicity for the Finsbury scheme of a shelter car park. I should like to compliment the Finsbury authorities on their initial survey of their borough, which I believe should be a model for local authorities, because the Finsbury authorities went into the question not only of the census of population and the density of population both by day and night, but also the types of services to be found in their area—sub- soil and the types of buildings. But the conclusions they reached, I am afraid, are wrong, because the type of shelter which they have evolved is a deep spiral, cork-screw-like construction which I venture to say is a real danger rather than a shelter.

People coming in would have to do so through one opening at the top and proceed down a series of inclined floors, and those going in first would be pushed downwards by those coming in afterwards. When the shelter was full you would have a large number of people all in close contact with each other standing on the sloping floor—a slope of one in twenty—in conditions in which hysteria and panic would be likely to spread. If the top of this shelter were damaged there is no other exit, and its construction around a central shaft increases the danger of concussion to those inside. The other claim for this type of shelter is that it is a car park. It may be a car park, but its capacity is no more than 150 cars and the difficulty of getting them in and out up its inclined plane and the time wasted would, I submit, make it impossible for it to pay its own way. It is the type of shelter which is in theory sound, but in practice is neither a shelter because of its construction, nor is it a self-supporting car park.

But there is an alternative type of car park with a different construction and a different method of handling cars. The construction is not of the conventional open space type, but is one in which the space is divided by transverse walls of any desired thickness, making a series of compartments for normal purposes spaced about 15 feet apart. This type of construction makes it very much cheaper to build, and makes it readily and immediately adaptable into an air-raid shelter. At the same time cars are not intended to be moved about under their own power, but once they have been driven in they are taken away and stored in these compartments by a mechanical method of a moving floor or conveyor. This method has been perfected after a number of years of experiment and work by a company which, I must tell the Committee, I have been interested in for several years. That fact does not necessarily make the theory wrong or the idea impracticable, but I do submit it gives me some slight claim to say I have a knowledge of this problem. By the use of this mechanical method you can nearly double the useful capacity of any given space. You avoid many of the problems of dealing with exhaust gases and you have a building suitable for a shelter. I know that the plans have been worked out, and I have seen a number of them, for many possible sites.

I think that it is fair to say that there are somewhere between 400 and 500 of these open spaces in our centres of population where these shelter parks could be built. The estimates prepared by architects and engineers who have been interested in this subject for a number of years show an average cost of about £150,000 for each unit, and each unit would have a capacity of some 7,000 people. If you assume that 500 of these shelter garages were built it would represent a total cost of £75,000,000. The average capacity for motor cars is about 350 per unit. It is safe to assume that the number of cars using them during the course of 24 hours would be twice the total capacity. Assuming a modest charge of one shilling per car, that is £35 a day each, and if you omit Sundays and holidays and say it covers only 300 days in the year you have a total revenue of £10,250 from each one of those units. If you have 500 the total revenue will be something like £5,250,000.

I understand that the National Car Parks Association has offered to operate these and pay all the running expenses and cost of operation for 25 per cent. of the gross earnings. If you take that off the £5,250,000 profit you get £4,000,000 net left, which would service the interest and sinking fund on this total capital expenditure. Therefore I claim that this scheme can provide shelters by a method which will be self-supporting and will be of no appreciable cost to the Government. At the same time I believe I am right in saying that several private financial interests are prepared to contribute the whole of this capital, provided the Government will support the scheme with a guarantee. I believe that these shelters can be produced within 16 weeks from the start of excavation because the excavation could proceed forthwith while the final actual working drawings were completed. People who say you could not produce a number of shelters within a short time do not take into consideration that there are a great many contractors in the country and that a great number of these shelters could be under construction at the same time.

I first raised this point in the House on the Home Office Estimates in 1935, and I raised it again on other occasions in December, 1937, and July of last year, and I sent memoranda to the Home Office and to the Ministry of Transport. Naturally I only received a polite acknowledgment and nothing has been done, but before the Debate next week, when the Lord Privy Seal, I understand, will announce his decision on the policy of shelters, I do urge that this should be reconsidered because I believe that it is a solution of a dual problem. I saw in the Press last week that at a meeting in Glasgow addressed by the Lord Privy Seal someone was sufficiently ill-mannered to throw a gas mask at his feet with a remark that he wanted some real protection. I am not throwing gas masks or bouquets in the direction of the Lord Privy Seal, but I am offering him a real solution of this problem of protection. It is a solution of shelter and traffic congestion and at the same time I submit that it would give a great deal of direct employment. I do most sincerely urge that before next week's Debate the Government will give it their serious consideration.

8.14 p.m.

Photo of Colonel Harry Nathan Colonel Harry Nathan , Wandsworth Central

Any observer of this Debate during this afternoon viewing the empty benches, or relatively empty benches, might think that this was an uninteresting subject of little importance that the House is discussing to-day, instead of its being, as it is, a subject of the most vital importance to the country, both from the financial and from every other aspect. But any observer who formed that opinion would be profoundly mistaken. The real reason why there has been a relatively small attendance in the Chamber to-day is that, in substance, the House is united upon the necessity for this expenditure. There is in the House of Commons a universal desire, in the inexorable circumstances in which we find ourselves, for defensive measures, efficient, adequate, and, above all, swift, and upon that subject there is no controversy in any quarter of the House; all parties are at one. But it is a very different matter, as a domestic question for the House of Commons itself, when it is discussing the expenditure of so vast a sum as £800,000,000 for purposes so appalling, when a policy is put before the House of Commons and the Chancellor of the Exchequer speaks of it as being horrible—as indeed is the case—that there should be no Cabinet Minister on the Treasury Bench, nor any representative of the Treasury, the War Office or the Air Ministry. The only representative of any of the Services is my hon. and gallant Friend the Civil Lord of the Admiralty, and, great as is my admiration and, if I may say so, even affection for him, I do not think that even he would claim for himself that he has either the responsibility or the authority to answer any questions that might be directed to him during the Debate. The only other Government representative on the bench is an hon. and gallant Friend of mine who is a junior Whip, and whose authority and responsibility are even less extensive.

There are occasions when relatively small matters are being discussed in Committee, or when Bills of a highly technical nature are being discussed, on which it is permissible that there should be no representative of the Cabinet on the Treasury Bench, and I am not by any means attempting to assert a general rule that a senior Minister ought on all occasions and at all times to be at the service of the House. But I do say that on this subject and on this occasion it shows a most remarkable lapse from that respect to which the House is entitled, especially having regard to the issues that are involved, and I would ask my hon. and gallant Friend if he would be good enough to convey to those Ministers who may reasonably be expected to be upon the bench the sentiments which I have expressed, and which, I believe, are the sentiments, not of myself alone in any personal sense, but of the House as a whole. It is sometimes necessary to make a stand for the rights of Members and the respect which is due to the House of Commons. So much by way of preliminary.

This Debate has taken the form of a Debate on a Financial Resolution, but, when the new procedure was adopted of a general Debate on the Defence Services, it was never intended that it should be on a Financial Resolution. My hon. Friend the Member for South Shields (Mr. Ede) has already referred to the first of these defence statements, issued in 1935 over the initials of the late Mr. Ramsay MacDonald. It was a broad statement of various political and strategical considerations which, it was thought, the House of Commons should have in mind when considering the details of defence. It was, indeed, the answer to the argument that there should be a Minister of Defence who would be able to answer for the Services at large and for the whole defence policy of the Government. That Paper of 1935 was followed by the 1936 White Paper, in which the position was made even clearer. It said: Before the Debate of 1935, a White Paper was issued, in order to indicate generally the policy of the Government on Imperial Defence and the conditions which necessitated their proposals. It went on to give reasons why it was necessary that the House of Commons, before discussing details of Estimates, should make a comprehensive survey of the general problems of defence, and should have placed before it the reasons and the justification for the scheme of increased expenditure which it was to be asked to authorise. Where has that idea gone now of presenting to the House of Commons a broad, comprehensive, justifying statement? No one will deny—certainly I shall not—the usefulness of the White Paper that has been presented to us during the last few days. It is an interesting White Paper; it shows that there has been in almost every Department—the War Office, the Admiralty, the Air Ministry—a great amount of progress in equipping the nation for defence. Indeed, all that the Chancellor of the Exchequer extracted from it was a catalogue, and he could do little more, for the White Paper is itself little more than a catalogue.

The Chancellor of the Exchequer, in his opening speech to-day, dealt with this matter purely as a financial question. He entirely ignored the whole purpose of the Debate, which was that it should be a Debate on the broad problems of defence, on questions of strategy, and one thing and another of that kind. Let me remind my hon. and gallant Friend that in the White Paper of 1936 the Government not merely stated that it was necessary that there should be a comprehensive survey of the general problem, but it went on to make the survey. It spoke of the development of the dispute between Italy and Abyssinia, and the effect that that must have upon our dispositions. It spoke of the increases in the Italian garrison in Libya, and the effect that they must have upon our dispositions. It then went on to speak of the rearmament of various other countries in turn—Germany, France, Belgium, Italy, Soviet Russia, Japan, the United States—and, after that, proceeded to state what was to be, in broad outline, the policy of the Government. There is nothing of that kind in the present White Paper. There is nothing in the present White Paper which is more extensive than what would be contained in the memoranda attached to the original Estimates, except that they are all brought together under one cover in succinct form.

In 1936 there was a White Paper out of which there emerged the Minister for the Co-ordination of Defence and the arguments justifying the appointment. There is not a word about Co-ordination of Defence or the Minister in the present White Paper. It was said in the 1936 White Paper that the Minister would supplement the activities of the Chief of Staffs Committee by guidance and initiative of his own, his function being to ensure that every aspect was fully considered and difficulties fully faced. We might have been told in the present White Paper how that worked out in practice: whether there had been any modifications made in the various schemes at the instance of the Minister for the Co-ordination of Defence. We might have expected to be told what are the effects on British strategy of the changed position in Spain and of the changed position in Abyssinia. If Abyssinia was important enough to take a first place in the White Paper when Italy was trying to take Abyssinia, how much more important it is when she is actually in possession. Are we or are we not to have an Army on a continental scale? What is the effect on our strategic position and our Imperial Defence of the occupation of those islands in the Pacific by Japan? All those are questions which one might have expected to find dealt with in this White Paper. They are unsuitable for a memorandum accompanying the Estimates of the various Departments.

This procedure of a White Paper and a Debate on defence was brought into being for the very purpose, and for no other purpose, than for the Government to set out its views broadly on the strategic situation, and to give an opportunity of discussing our defence system as a whole, in the light of that changed situation. With the exception of one or two speeches—and I speak of all speeches in this House with respect—all the speeches to-day might have been made on the individual Estimates. As far as the speeches are concerned, there was no reason for this Debate on the White Paper as a whole; and, as far as the right hon. Gentleman the Chancellor of the Exchequer was concerned, this might have been an ordinary financial discussion. There was not a word on the great problems and the profound difficulties of strategy which confront us, and the uses to which our armed forces are to be put in the event of war; not a word in the White Paper or from the Government Front Bench on the question of military strategy; scarcely a word on the equally important question of economic strategy—because now, and rightly, civil questions and economic questions are within the purview of this loan.

The Chancellor of the Exchequer informed the House as to the proportions in which during the coming financial year the expense was to be borne as between revenue and loan. The fact that we should have spent during the last three years, out of £1,250,000,000 or thereabouts on defence, no less than £700,000,000 out of revenue seems to me something of which the nation may well be proud. Of this expenditure, 60 per cent. is borne out of revenue. It is a tribute to the strength of the finances of the country that that has been possible, but I am bound to say that I think the limits of direct taxation along the lines to which we have been accustomed have very likely now been reached, with Income Tax and Surtax on the highest rate at nearly 14s. in the £. New sources of revenue will have to be found. I know not whether the Chancellor will have the skill and the nerve to find those new sources. Time alone will show, but I know that if and when the opportunity arises my hon. and right hon. Friends on this side will have both the skill and the nerve.

On the further question of economic strategy in direct relation to the problem of defence, I should like to ask one or two questions. What steps are being taken to obtain a stratistical survey of commodities in this country which may be required in the event of war? I should like to know from the Government whether they have in contemplation any steps to save wastage of food, and also to prevent any undue expenditure upon luxuries. Those are matters which, in the general interest, will require attention. I want to know what the Government have in mind for the collection, either in this country or elsewhere at our disposal, of that vast range of raw materials, including food, forage, fertilisers, petrol and all the rest, which we shall require for the prosecution of a war. It is a difficult problem, but it has got to be faced. It is difficult for this reason among others: unless you have these resources at your disposal before war begins, you will find it extraordinarily difficult to obtain them after war has begun.

I am glad to see a representative of the War Office present now. I know that illness keeps the Secretary of State away, and I am glad that, despite disability, the Financial Secretary to the War Office is here. When my attention was drawn to the arrival of the hon. Gentleman I was speaking about the steps to be taken to obtain adequate supplies of food and other resources that we shall require. I should like to think the Government were taking really drastic steps to obtain supplies of food for this country now, so as to be useful and available in time of war, if war should come suddenly. It is very remarkable that, according to this White Paper, the only amount provided for the purchase of food, petrol, fertilizers and forage is £5,000,000 during the coming financial year. That is the figure given in the White Paper, as I understand it, and it seems to me a remarkably small sum, and I should like to know whether that is the only expenditure which the Government have in mind for this purpose. It is almost incredible that it should be so. The answer may be that the Government are relying not upon their own direct purchases, but upon purchases during the ordinary course of trade by the private trader. If that be so, then I would ask what steps are being taken to ascertain what the private trader has in stock, to encourage him to buy more, and to store stock, and to ensure that it is revolving and circulating stock which is preventing as far as possible undue deterioration?

The following is not an idea that I evolved out of my own inner consciousness but one put forward with great force and clarity by Mr. Maynard Keynes last August when addressing the Economic Section of the British Association. I hope the Government will take steps to establish storage facilities on a really large basis, and instead of their spending £5,000,000 on the purchase of these commodities which are essential in war. I visualise their spending even £500,000,000. It is essential that, as far as we can, we should have those commodities in this country now. It would not only give the people confidence, but it would save the difficulties of finding tonnage in time of war and the still greater difficulties of finding convoys for it. I think it was Mr. Keynes who said that a stock of these commodities here on the spot in time of war is worth more than a gold mine. That is true. You save your shipping, your convoys, and your risks and your time. But clearly it may be necessary to make purchases from abroad in war time. How are such purchases made in war from abroad? No doubt the hon. and gallant Gentleman will correct me if I am wrong, but as far as I know there are only two ways which, in time of war, we can make purchases abroad. One is upon our credit, which is really like a fiduciary issue in a time of war, and, while I do not want to discuss in the least the rights or wrongs of withholding the payment of the American debt, that is bound to have some effect in the United States upon whether we are able to raise a loan there or not. Apart from our credit, what have we with which to purchase goods from abroad? We have these capital assets, which we could transfer very easily across frontiers, such as gold and our foreign investments.

I am glad that we have now a responsible Member of the Cabinet available to answer any question which may be put. We can purchase in time of war goods from abroad by transferring across frontiers our capital assets such as gold and foreign currencies, and also we have the reserve of our export trade. But export will be singularly difficult in time of war partly because the whole, or greater part by far, of our manufacturing capacity would be devoted to equipping ourselves and our Allies and making what we wanted for the nourishment and maintenance of the livelihood and life of our own people and that of our Allies. There would be only a small residue left for export available for the acquisition of foreign supplies. There, again, the difficulties of shipping, and so on, arise. There is a considerable fund of foreign investment, and it is, I believe, upon that that we shall have to rely to the largest extent.

The practical suggestion I make to the Government is that they should take quite unusual steps to increase our export facilities at the present time. We have already agreed in the Exports Credits Act to devote the sum of £10,000,000 to the special purpose of the disposal of exports. We ought to go a great deal further than that. I go so far as to say—and the Financial Secretary to the Treasury, who has now arrived, will no doubt correct me if I am wrong—that we ought to subsidise exports at the present time so as to be able——

Photo of Sir Cyril Entwistle Sir Cyril Entwistle , Bolton

Although the discussion on the Money Resolution is fairly wide, I think that the hon. and gallant Gentleman is now getting beyond the limits of defence.

Photo of Colonel Harry Nathan Colonel Harry Nathan , Wandsworth Central

May I, with great respect, draw your attention to the fact that the right hon. Gentleman is including in. his Financial Resolution the articles comprised in the Essential Commodities Reserves Act?

Photo of Sir Cyril Entwistle Sir Cyril Entwistle , Bolton

I did not pull up the hon. and gallant Member for taking that point. He has referred to it extensively. He cannot make out a case for the development of our export trade, but he can refer to it in making a specific point with regard to the defence expenditure.

Photo of Colonel Harry Nathan Colonel Harry Nathan , Wandsworth Central

I am sorry. I do not wish to labour the point at all. I am concerned with the difficulty of acquiring the various commodities we shall need and specifically those referred to in the Essential Commodities Reserves Act, and I am suggesting that, in order that we may lay in a large stock, it may be necessary to subsidise exports during peace time, because during war it will be extraordinarily difficult to make any exports at all. The vital necessity is that we should establish as large a stock as possible and as soon as possible in this country. Well-organised businesses keep a graph upon which they tell you how much they can raise their price without the consequence of a reduction in the quantity they can sell, and to what extent they can produce their price, and at the same time increase the amount that they can sell. We want to sell as much as possible at this time in order that we can get as many of these essential commodities as possible into this country. May I remind the Financial Secretary to the Treasury that it has been calculated by Sir Robert Kindersley that our foreign securities now amount to about £3.300,000,000 in terms of quoted foreign investments? It is not a very large sum of money if it is all that you have to Tely upon in time of war, apart from your gold, with which to purchase all that vast range of commodities required for the sustenance of our own nation and our allies. It would not go very far.

Therefore, the argument I have advanced is to subsidise exports so as to enable us to purchase these essential commodities, thereby enabling us to be free in time of war to use our gold and our foreign securities, which are almost the only capital assets which we can freely transfer across frontiers. I think I have said sufficient to indicate that not merely is it desirable that the White Paper should have gone far beyond a catalogue, but that it should have been what it was intended to be when the whole system was started by Mr. Ramsay MacDonald and, as was the case in the two following years, giving a broad statement of the military necessities of the case and the strategic position of the defence problems arising out of it. I have indicated that what we want in the White Paper is a broad statement also as to economic strategy in case of war. If that is not to be included in the White Paper, I express the hope that we may have some pronouncement on the subject from that Box by the Government.

Photo of Mr Cecil Poole Mr Cecil Poole , Lichfield

May I call attention to the atrocious atmosphere in the House? Cannot something be done to improve the atmosphere and make it a little more breathable?

Photo of Sir Cyril Entwistle Sir Cyril Entwistle , Bolton

We will see what can be done.

8.47 p.m.

Mr. Vyvyan Adams:

I hope that my speech will mitigate the atrociousness of the atmosphere. I am glad that the hon. and gallant Member for Central Wands-worth (Colonel Nathan) remarked on the absence of a representative of the War Office. I am also glad that a representative is now present, because in a few minutes I desire to say something about the dimensions of our Army. Before reaching that topic I should like to mention two eloquent and kindred speeches made by the hon. Member for South Shields (Mr. Ede) and the hon. Member for Burslem (Mr. MacLaren). I share the profound disappointment of the hon. Member for South Shields, but I do not think there is need for quite such black despair. I believe that, even at this eleventh hour, those hopes of youth which he so eloquently described may not be defeated. I believe that Britain can even now avert the peril by two things, first, strength of arm and secondly clearness of voice. There is no better principle on which to base our policy to-day than the advice of Polonius to Laertes: Those friends thou hast, and their adoption tried,Grapple them to thy soul with hoops of steel. Earlier to-night the Munich Conference was mentioned, and it was applauded by some hon. Members across the Floor. The Munich Conference, whatever we may think of it as individuals, was a luxury in which we cannot indulge twice. We cannot afford a second Munich. Such a composition, if repeated, would mean for us not only war but defeat as well.

It was an ironical thing to see the Chancellor of the Exchequer whom, to quote my hon. Friend the Member for Oxford University (Mr. Alan Herbert), we all love and admire so much, coming before us to raise money to pay the bill which some years ago he himself did so much to incur. I suppose the "Times" newspaper, if it notices my speech at all, will despatch me to-morrow in a single sentence—"Mr. V. Adams (Leeds, W.), U., said they all in that House admired and loved the Chancellor of the Exchequer."—But I propose to say a little more than that. Dignity is an admirable quality. It flourishes among headmasters, bishops and undertakers; a suggestion of each of these indispensable and dignified functionaries was in turn conveyed by our right hon. and most unfortunate Friend the Chancellor of the Exchequer. To-day he was as inarticulate about foreign policy as he was five years ago. To-day, he had some excuse for his silence, which lasted over an hour, but five years ago he had no excuse, and his silence then lasted for nearly four years.

It is not possible to consider defence apart from policy, and I have been rather surprised to-day that hon. Members have not dealt so much with policy and strategy as might have been expected. There has been more concentration upon the financial side of the question, to which I propose to refer. That seems to me to be only half of the subject we are discussing. Unless we are clear about the probable source of danger we are doomed to spend money without purpose, without plan and without direction. I submit to the Committee that there is only one Power which need cause us concern, or can directly threaten our security, and it is not Russia. Anyone who believes that it is Russia, will believe anything. The danger is and will remain Nazi Germany, so long as the present régime, ruthless, ambitious and insatiable, persists.

Photo of Lieut-General Edward Fitzroy Lieut-General Edward Fitzroy , Daventry

I must remind the hon. Member that this is not a debate on foreign affairs.

Mr. Adams:

No, Sir. With very great respect: I understand your Ruling, but I am now coming to the gist of my argument, that the louder that truth is stated the better for the security—we are surely discussing security—of the Western Democracies and of the British Empire. Therefore, it is for that reason that I mention the main source of danger to our own security, and when we think of our own security we must simultaneously think of France.

Photo of Lieut-General Edward Fitzroy Lieut-General Edward Fitzroy , Daventry

The hon. Member possibly was not in the House at the beginning of the Debate when I gave a Ruling. If he was in the House he will perhaps remember that I ruled quite definitely that the discussion as well as Amendments must come within the terms of the Resolution on the Order Paper.

Mr. Adams:

Will you help me over this point? May I now discuss the size of our Army in relation to a possible expedition to the Continent?

Photo of Lieut-General Edward Fitzroy Lieut-General Edward Fitzroy , Daventry

I am afraid the hon. Member must make his speech in his own way and if I find, as I have already done, that he is going beyond the scope of the Debate, I shall stop him.

Mr. Adams:

I am much obliged. Perhaps I had better eliminate some of the observations that I had proposed immediately to make. I will suggest that France, whose security is our security, might possibly be confronted, with her own population of 40,000,000, by a totalitarian bloc of 120,000,000. If she could count on quick and certain succour from her African possessions, she could perhaps redress the balance; but the sea-route is not so secure as it was.

Photo of Lieut-General Edward Fitzroy Lieut-General Edward Fitzroy , Daventry

I think that is entirely outside the Debate. Perhaps the hon. Member will look at the Resolution.

Mr. Adams:

I will try to confine my observations to Sub-section (2) of the Motion: To include in the expression 'defence services' the following civil services, namely, air-raid precautionary services and grants in aid of the essential Commodities Reserves Fund. One of the questions referred to is the air-raid precautionary services, to which I propose to come in a moment, but I hope you will allow me to say this about the Army before I deal with that question. We have an Army hardly large enough to-day to garrison the key points of the Empire. We could not even despatch to France to-day an Expeditionary Force comparable in figures with the one we sent in 1914, which was so contemptuously described by the last ruler of the Hohenzollerns. I submit this—I hope it will be in Order—I cannot conceive how it can be out of Order—that a larger British Army of 750,000 or 1,000,000 men would be both a deterrent against further aggression and an earnest of early victory in any future campaign which assumed roughly the outlines of the last. It seems to me that a maximum degree of preparedness is the only sensible policy to-day.

I come now at once to the question of air-raid precautions. In that connexion I would say that I do not think the conduct and execution of our rearmament programme are giving us value for money—and I reiterate the complaint made earlier in the Debate—nor is it producing that qualified mitigation of unemployment which we are entitled to expect from it. I know well enough that it is absurd to suggest that rearmament by itself is going to produce a great reduction in unemployment, because we know that the tremendous burden of taxation which these new loans and impositions will lay upon us will themselves reduce the purchasing power of the country. But there are different ways of conducting a rearmament programme. By certain methods you can produce a greater volume of employment than by others. It seems to me that we have been for years fiddling at air-raid precautions. I cannot understand why we cannot boldly institute a programme for providing deep underground bomb-proof shelters. For the Metropolis I should like to see what is known as the Finsbury scheme multiplied many times. In the great provincial centres of population I think we should be well advised to build what would be commercial assets—namely, underground railways. Incidentally—I know this argument is not along the narrow avenue of this Debate—the provision of steel and concrete required would give employment to many hundreds and probably thousands of men. Simultaneously—this of course is the main point—we might provide the civilian population in the evacuation areas with a 98 per cent. guarantee of safety.

Perhaps I may return for one moment to the military question before I sit down. I understand that we are dealing not only with the Air Force but with the Navy and Army as well in considering these defence loans. One advantage of enlarging the standing Army would be to reduce the number of unemployed at the present moment. Hundreds of thousands of men might by this means be taken from the Employment Exchanges. I cannot see any threat to our freedom from this larger conception of service, employment and training. If I may draw an analogy and take the risk in your hearing, Sir Dennis, of mentioning a foreign country, I would say that a great army does not endanger the liberties of France. If we fail to enlarge our own military strength we may find imperilled those very liberties of which Great Britain has been fated to be the trustee.

9.0 p.m.

Photo of Lieut-Colonel John Moore-Brabazon Lieut-Colonel John Moore-Brabazon , Wallasey

The Debate has been allowed to proceed on very broad lines, but I must thank you, Sir Dennis, for ruling, I think for the first time in a defence Debate, that foreign policy is not to be discussed. We have had Debates on National Defence many times in the past and they have been turned into nothing but discussions on the League of Nations, when many hon. Members have wanted to get down to the rigid details of defence. I have a certain sombre satisfaction in seeing the Cinderella of the Services to-day the most expensive of the three. This conquest of the air, the ability of man to fly was a dream which men little thought would go so far astray as it has. There was an idealism about it. Men visualised that such a form of transport would get the nations close together; they would be able to know each other and to understand each other better. What has happened is that flight has been prostituted for an arm. It is not our fault; it is the fault of the world. In fact, the advance of mechanical science is going much faster than the advance in political science. Here we have an example of an invention of mechanical science of so potent a nature and so unable to be controlled that our very civilisation has created a weapon which might destroy itself.

I have earned a great deal of unpopularity by drawing attention year after year to the lack of efficiency and the quantity in our Air Force. I have criticised Minister after Minister, and it is to me surprising to find that my ideal Air Minister is the present Secretary of State for Air. A man with a cherubic appearance like a Greuze with wings almost growing behind his head. Of course, one cannot put everything down to him; one must give a certain credit to Lord Swinton for his work a year or so ago, but nobody, I think, has realised more than the present Secretary of State the dangers we are in. What he has done is, to my mind, remarkable. He has not only realised the position but he did a thing which other Secretaries of State for Air have not done. He has made the Treasury realise the position and give their support. Another remarkable thing: he has kept the industry in good temper. That the previous Secretary of State did not do. To keep industry in a good temper is one of the most important things for an Air Minister. He has also spread the work. That is a very important thing, because formerly we have had a concentration of effort along the lines of approved firms which caused a bottle-neck congestion through which it was almost impossible to get a real output.

Now we have come to a state in which we want a yardstick in order to compare where we stand as against foreign countries. We talk in this House very glibly about first-line machines. I have never been able to understand what is meant by first-line machines. I try to gauge the position of this country and to make a comparison, by estimating the manufacturing potentialities in machines per month. That is the only basis on which to go. I see quite clearly that we shall not have in the future any detailed figures. They will be kept more and more in the background as a national secret; but if the Secretary of State for Air can tell us to-night that we shall have reached the state of being able to supply 600 aeroplanes per month in June, frankly I shall be very satisfied. The yardstick whereby we may compare one industry with another is based on three things—the number of men working, the material available, and the floor space. Those are the three most important things, particularly the last, which has been realised only recently. The factories which we are erecting to-day are national factories. Certainly they are managed by private firms, but when competitive armaments production is over they will fall back on to the State, and will be potential reserves against any future occasion when they may be needed. But in this competitive armaments production, even if one of our potential enemies has an industry that is bigger than ours, there must come a limit. Trees do not grow to the sky, and in the production of aircraft, there must come some point above which it would be quite futile to go.

I believe the controlling influence in that respect will be the personnel. Anybody who has followed the growth of the Air Force cannot do anything but congratulate the personnel side on the training of pilots. The expense in life of training pilots abroad has in same cases been quite fantastic, sometimes as many as 50 per cent. of the young men having been killed while training. We have a very good record in that respect. It is my firm opinion that there is something in the English race which lends itself peculiarly to this form of warfare. I do not believe any other country could supply more and better pilots than we could in this country. I do not know why that is. It is curious that we do breed good animals in this country, perhaps because of the bad weather—I do not know. Again, is it not a most extraordinary thing that the combined Universities can send a team to Switzerland and beat the Swiss universities in ski-ing? I do not know where the practise—it cannot be done on the Market Hill at Cambridge. I believe there is some peculiar characteristic of the English race which will always make us superior from the point of view of personnel.

I wish to make one point about the manufacturing of new machines. Quantity and material may be important, but they are not more important than the technical and designing side. We must remember that in warfare, at the present time, we are not in a static state, but are changing from month to month. What was all right in the last War will not be any good in the next war. From the point of view of the air arm, there is nothing more important than keeping up to date and ahead of every other country in design and technical research. I hope that the Under-Secretary of State for Air, if he replies, will be able to tell us that no money is being spared on that side.

Another point of a general kind that I wish to raise relates to the general outlook of the Staffs as regards war in the future. Nothing that has happened in the past really helps us to know anything about a future war. Perhaps one lesson that we have got from Spain is that one intensely mechanised column was entirely destroyed by air power. That was one of the great victories in Spain; air power entirely beat the mechanised force. We do not know what will be the power of long-range bombers against our mercantile marine. Will the effects of a long-range bomber, with a range of 3,000 miles and a ton of bombs, be more deadly than the submarine? We do not know. What is the power of resistance of the Maginot Line; will it be possible for it to hold up the great might of Germany; is the power of the defensive so strong that a few men can hold up a horde? We do not know. What will be the effect of fighters against bombers? We do not know; we cannot actually try that out. We could debate all day the question of whether we should have the same sort of air fights as we had in the last War. I very much doubt whether that will be so.

What will be the effect of bombing, not only from the point of view of civilians, but from the point of view of factories? This can be said, that any attack from bombers will be made not so much against the civilian population as against the aircraft industry. It is important that that industry should be divided into parts so that an air raid upon one works will not put out of action the production of a particular machine or body. I want to draw attention to the organisation of the Derby works. After all, our machines are equipped as to 80 per cent. with Bristol engines and Rolls engines. The production of the Bristol engines is spread all over the country, but that is not so with the Rolls engines; and an air raid on Derby might put 30 per cent. or 40 per cent. of our engine production out of action. That matter needs looking into.

The amount of money to be spent is tremendous, but I do not believe that this country has ever been in greater danger than during the last year. It was a regrettable thing that, instead of thinking in terms of the future, we thought only in terms of the past. I am certain that if we had maintained the supreme air power that we had at the end of the War, we should never have had this bill to pay. In spending this money—in paying part, and borrowing the remainder and placing it on to posterity—I am convinced that we are following the right and only course which will enable us to face the dangerous position in which we find ourselves.

9.13 p.m.

Photo of Mr William Gallacher Mr William Gallacher , Fife Western

I support the Amendment, and oppose the Resolution moved by the Chancellor of the Exchequer. No hon. Member opposite is doing his duty to his constituents if he supports the Chancellor and the Government in the policy which has led to these new efforts to get increased borrowing powers. Last Thursday, when we were debating a domestic question, several hon. Members remarked that it was a very desirable change to be discussing domestic problems instead of foreign policy; but surely, this Resolution shows us very clearly how closely our domestic affairs are linked up with foreign policy. This Resolution brings home to us the broad generalisation that a bad foreign policy means a heavy burden of armaments, a heavy burden of armaments means heavy debts, loaded on to the backs of the people, and that means increased unemployment, increased poverty, and insecurity. Those things are growing all around as a result of the policy represented by this Resolution. There is to be increased borrowing to the extent of £400,000,000. How can any hon. Member support that, knowing that the burden must be met by increased poverty as far as the masses of the people are concerned? There is no other way in which it can be met. Therefore we must oppose this demand for increased borrowing powers.

There is the other question. This increased borrowing is for the purpose of expenditure on armaments and kindred matters relating to defence. The White Paper is entitled "Statement relating to Defence." But armaments alone can never make defence. Besides armaments we must have friends whom we can trust, or else our armaments will be of no use and all this money will be wasted. I say that instead of increased borrowing, which can never be of any real service as far as defence is concerned, the Government ought to concern themselves with increasing our circle of friends. Instead of seeking to borrow an additional £400,000,000, let them endeavour to make friends whom we can trust. But they can do that only if people trust us, and there are no people anywhere in the world who have the faintest trust in the present Government. Therefore, I want included in the second part of this Resolution, which extends the scope of the expression "Defence Services" something else which is absolutely vital.

I am very deeply interested in the defence of the people of this country, and if it were in order to do so I would draw attention to the immediate need for defence against high rents, against the malnutrition of children and the neglect and poverty of the old. But I know it would not be in order to deal with those matters now. I am, however, concerned about the defence of the people and I want to declare before this Committee and before the country that in the critical situation which exists in Europe the most effective defence measure that could be taken for the people of this country would be to get rid of this appalling and pro-Fascist Government. If you got rid of this Government it would not be necessary to put forward such a resolution as this because instead of borrowing money you would make friends. [ANHON. MEMBER: "We have got friends."] You have not one. I challenge the hon. Member to tell us of one friend who is prepared to trust this Government. There is a lot of manoeuvring going on round about on the part of different Governments, but none of them, after what has happened, can trust this Government.

Photo of Lieut-General Edward Fitzroy Lieut-General Edward Fitzroy , Daventry

The hon. Member has obviously been trying very carefully to keep in order, but I must point out to him that the turning out of the present Government is not a matter which is provided for in this Resolution.

Photo of Mr William Gallacher Mr William Gallacher , Fife Western

I accept your Ruling, Sir Dennis, but I am faced with the fact that the present Government are asking me to vote to increase these borrowing powers by £400,000,000 and I say that I would rather get rid of the Government than give them that power. I further say that there is no need to increase this limit of borrowing. If we had a Government representing this side of the House, then, instead of concerning themselves with borrowing and providing splendid interest for those from whom the borrowing will take place, at the expense of the masses of the people, they would build up a circle of trusted friends round this country. Then it would not be a question of discussing what was going to happen when war took place.

Why is everybody discussing what will happen when war takes place? Are we all expecting war? It is not necessary that we should adopt that attitude. The people of this country and of Europe are strong enough and powerful enough to check the aggressors and put an end to aggression. Sooner or later, the people of Europe will unite, and then Hitler and Mussolini and all their friends on the other side, and all their friends in this country, will pay a terrible price for the crimes they have committed against the people of Europe and of this country. The Government tell us that they want borrowing powers up to £800,000,000 because they want to defend the country. After having destroyed the defences of Czecho-S1ovakia they want more borrowing for defence. After having destroyed the defences of Spain—which affect this country—they seek more borrowing powers for defence.

Photo of Lieut-General Edward Fitzroy Lieut-General Edward Fitzroy , Daventry

I am afraid that the terms of the Resolution seem to bring into the hon. Member's mind a number of things which are quite outside the scope of this discussion. Generally speaking, the hon. Member throughout his speech has been off the subject of the Debate and I must ask him to keep to the Resolution before the Committee.

Photo of Mr William Gallacher Mr William Gallacher , Fife Western

I am very anxious to follow your Ruling, Sir Dennis, and to keep within the limits of the Debate, but what I am concerned with is opposition to the Resolution. The Resolution demands the right to borrow double the amount originally sanctioned. Why am I opposed to giving such power to the Government? They say they want the money for defence purposes, and as I have pointed out the White Paper is called a "Statement relating to Defence." When I see a hopeless, unscrupulous gang of misfits and oddities of all kinds led by a representative of big monopoly capitalists in this country, whose interests arc in contradiction to the interests of the defence of the people—when I see that motley gang of misfits destroying our defences and at the same time asking power to borrow more money for defences, then I am forced to take great exception to it.

I cannot support the Government in this demand because they have been destroying our defences all over Europe. At every opportunity they have shown themselves sympathetic to those against whom they claim to be preparing these defences. In the Debates in this House if there is anything against the interests of this country, anything which is going to strengthen potential aggressors against this country, a certain section of hon. Members opposite, the wooden-headed Members who support the Government, are all delighted. We hear, especially from the Neolithic men at the back below the Gangway, continuous hurrahing when anything happens which threatens the defences of this country, such as the sinking of a British ship. Will any of this money go to save British ships? When a British ship is picked up by pirates, will any of this money be used to save that ship and its crew?

Photo of Lieut-General Edward Fitzroy Lieut-General Edward Fitzroy , Daventry

I still find the hon. Member's speech quite irrelevant. He might wish to vote against this Resolution because it was proposed by a Government composed of Ministers, the colour of whose hair he did not like; but that would not make a discussion on the colour of Ministers' hair in order on this occasion, and if the hon. Member cannot confine himself to matters which are relevant to the Resolution, I am afraid I must ask him to resume his seat.

Photo of Mr William Gallacher Mr William Gallacher , Fife Western

I will try to follow your Ruling. I must say that as far as the Members of the Government are concerned I do not like the colour of their hair or their eyes; I do not like anything about them.

Photo of Lieut-General Edward Fitzroy Lieut-General Edward Fitzroy , Daventry

That is exactly what I told the hon. Member would not be in order in this Debate.

Photo of Mr William Gallacher Mr William Gallacher , Fife Western

I am sorry to have given you so much trouble, Mr. Chairman, in keeping me on the straight lines, but the essential thing about my contribution is that I am supporting the Amendment and I am absolutely opposed to the Resolution. I consider it would be a crime against the people of this country to give the Government more power to borrow money. The hon. Member for East Aberdeen (Mr. Boothby) said there was no difference between taxing them and borrowing from them, that you were borrowing from the same people that you would tax and it was only a matter of book-keeping. But he forgot to mention that if you tax them you take the money from them, but if you borrow from them you not only pay them back the money you borrow, but you pay them interest on it, and that comes off the standard of life of the masses of the people. There has never been any other means of assuring the repayment of such loans than at the expense of the masses of the people. And the more this borrowing has gone on, despite the fact that you have a great armament boom, the more the unemployment, the greater the intensity of poverty and the greater the insecurity of the people. For all the reasons I have enumerated, and especially because I consider this the worst Government that this country has ever been cursed and tortured with, I wholeheartedly support the Amendment.

9.28 p.m.

Photo of Sir John Mellor Sir John Mellor , Tamworth

I want to congratulate the Government upon the proposals contained in the Resolution, and I am sure that throughout the country one sentence in the Chancellor of the Exchequer's speech will be particularly welcome; that was the very skilful sentence in which, without in any way anticipating his Budget statement, he did give us a confident expectation that increased taxation will not be required in his forthcoming Budget. I believe that the effect of increased taxation upon industry at the present time would be deplorable. It would create grave and increasing depression, so much so that I think that, however high a rate of taxation was exacted, the yield would definitely diminish. The Chancellor of the Exchequer emphasised the fact that this generation is playing its part now in bearing the burden. I think that is perfectly true, and the moral aspect of our position is very strong. In addition to that, we have enormous capital resources, and those two considerations, I feel, ensure that the British Government would have to borrow an enormous amount, infinitely more than is at present contemplated, before it ceased to be regarded as a highly credit-worthy borrower. I do not think that the proposed borrowing will have an appreciable effect in reducing the price of gilt-edged securities or increasing the current rate of interest. If it did I am sure that the great mass of savings awaiting investment would come into the market in support of gilt-edged securities and would correct the position.

I think that in the near future the confidence of investors will depend far more upon our military strength than upon purely financial considerations. Indeed I think they will look far more at our strategic security in the world and far less at the state of our national overdraft. International political considerations have now become an overriding factor in the market, and are considered far more by investors than strictly financial considerations. I think this is a favourable time for the Government to borrow on a large scale, because it is a time when investors are disinclined to invest their money in industry, and industry itself is disinclined at this moment to seek further capital. The risks at the moment are rather incalculable, and industry wisely does not want to launch out very much. Therefore I think that the moment is most favourable for the Government to borrow.

The Chancellor of the Exchequer described the situation as unprecedented. It certainly is, and I think we must consider that the situation is entirely abnormal, because if the present situation, having regard to our military necessities, were to remain as a normal state of things for an indefinite time to come, it would be quite clear that this country—as indeed all other countries—would inevitably come to a condition of bankruptcy. But as things are, and regarding this as an exceptional period, and provided that the Government in issuing these loans makes an appropriate provision for their redemption over a period of time, so as to spread the burden over easier times as well as more difficult times, I am sure that the effect of the Government's policy, as foreshadowed by this Resolution, far from shaking confidence, will strengthen it. I feel that the assurance which will be derived by industrialists from the Chancellor's speech, when they appreciate that increased taxation this year is unlikely, will stimulate industry and have a refreshing effect all round.

9.34 p.m.

Photo of Mr Fred Simpson Mr Fred Simpson , Ashton-under-Lyne

I am sure it is a depressing thought that we should be considering to-night financial proposals of such terrific magnitude, and concerned, unfortunately, at their best with waste and social loss, and at their worst death and destruction. It is indeed a ghastly testimony to hopes betrayed and to a loss of faith in peace and reason that this should be the situation with which we are confronted to-night. This is not the time, however, to discuss the reasons for and the responsibilities of that situation and its development. Rather do I propose to deal with the harsh realities that are represented in this Motion. That being the case, I desire to raise one or two points that may be related to an effort to avoid, at any rate, some of the mistakes and costly efforts associated with organisation during the last Great War. These points are somewhat pedestrian and trivial, compared with some of the abstruse lines of argument taken by other speakers.

I desire, however, to deal, in the first place, with the question of costs and economy. I suppose the Estimates Committee is responsible to this House for considering methods of checking and controlling contracts and for ensuring, so far as possible, that no unreasonable profits shall be made out of this programme. It seems to me somewhat unfortunate that any failure by that committee to take action now to give effect to that intention will be opportunity lost to bring its effectiveness to bear on this problem. It has been their intention, and steps have been taken, to check the methods that have been proposed, but obviously until quite recently it has been impossible to judge the results. Departmental officers have been examined, and the various calculations have been measured, so far as one could do it in a situation that was largely hypothetical. Sums of that kind look satisfactory on paper, but now that we see some of the results as reflected in companies' profits, it would appear that some of those calculations were not as sound as they seemed and that some of the formulae were not as satisfactory as they appeared to the committee at the time.

Some startling profits are seen in connection with the various companies associated with many of these contracts, and although I do not propose to-night to go into any financial details of that kind, or to attempt to relate those profits to Government contracts as such, yet they demand attention, and they are creating some dubiety in the public mind; and I think that now is the time when the Estimates Committee, and particularly the Departments, before the Estimates Committee get to that point, should endeavour to look over the previous contract terms and ensure that any weakness in those original arrangements should immediately be put right. Now is the time to deal with the Departments in this respect; otherwise any improvement in the system will be too late, as we hope that this expenditure is likely to be of a limited time and character. The last report of the Estimates Committee concluded in these terms, so far as the contract arrangements were concerned: While the evidence before them reveals these grounds for misgiving, it will be appreciated that such evidence is necessarily of a general character, and that not only the adoption of sound principles, but their rigorous enforcement, is essential for maintaining the degree of success which has been attained in preventing excessive profits being made. The Committee were also assured that the Departments concerned were themselves creating a small committee for reviewing the procedure and methods after the results had been examined, and one would like to know what has been done in that connection. At any rate, I think the Committee itself might be called together, especially in view of the urgency of this problem and the fact that any action that is delayed at the moment will mean that opportunity for sound calculation and pricing will be lost. It would be easy to have exciting and spectacular party discussions or inquests on results subsequently, but it would be much more profitable to take what steps are possible to safeguard the public purse at the moment.

I want to make only one other point, and it is in regard to the carrying-out of some of the contracts in factories. I do not speak to-night with any technical knowledge or in any special detail, but, broadly, the point that I want to make is this: I gather that there are many firms which have contracts today which necessarily have to conform to design and specification, but they find that if they had been consulted in regard to specific parts or particular features of the machines that they are making, they could have adopted methods that would have been much more rapid and less costly. But they have to adhere strictly to the specifications, and consequently they are unable to give to the Departments the advantage of their special knowledge and experience. I gather that inspectors are responsible for ensuring that the contracts are adhered to, so far as design and so on are concerned, but these inspectors, I gather, have no responsibility, and they are not competent to deal with proposals of that kind. They insist on rigid conformity to the specifications, and the Departments therefore lose the advantage of that economy, both in cost and in speed. One may think that the contractors are unnecessarily timid, but, after all, many of these firms would think they might be prejudicing their industrial position or the question of future contracts if they were too critical in this respect, and I should like an assurance at any rate that suggestions from contracting firms which desire to do the decent and honest thing would be welcomed and a proper co-operation with such establishments secured.

The hon. Member for Mossley (Mr. Hopkinson) made many interesting observations upon these business firms and contractors, and in so far as there was value in his observations, I think the Estimates Committee ought to be in a position to examine them. Certainly, from his point of view, there were indications as to the necessity for some assurance of this kind; otherwise we are going to run up expenses unnecessarily high and delay the execution of orders, and we shall have firms dissatisfied with the Government's organisation. The hon. Member for Mossley suggested that it would have been wiser and sounder if an appeal had been made to the best instincts in the contractors rather than relying so much on their mercantile or material interests, and it certainly would be a great pity, where we had honest, decent, and well meaning contractors, if ugly and uneconomical schemes were thrust upon them and they were compelled to make big profits and incur delays by reason of the fact that they were not in a position to co-operate with the Government Departments as they would desire to do from the point of view of speed and economy. On these points possibly the spokesman for the Government may be able to give us some assurances in order that we may secure not only the good will, but the best technical co-operation of the firms responsible for carrying out these huge contracts at the vast cost reflected in the Resolution.

9.46 p.m.

Photo of Major Frank Heilgers Major Frank Heilgers , Bury St Edmunds

I am not a financial expert, and I do not propose to follow the hon. Member into the question of costs. The Chancellor has given us an astonishing decision to-day, and I feel that it will do much to restore the confidence which is so badly needed to bring the spring revival of trade. It is the best news which the unemployed have had for a long time. My purpose to-night is not to speak on finance, but rather to ask whether we are spending this vast sum to the best advantage and, in particular, to draw attention to the fact that some of this money should go towards providing an expeditionary force. What are the resources which we can offer to-day to any ally? We have the most powerful Navy in the world and an Air Force amounting to 1,750 first-line aircraft and I imagine, many thousands of aircraft in reserve. The air, however, cannot occupy the land and the sea cannot starve out hostile populations to the same degree that it was able to do in the last War and former wars. Therefore, I submit that the real fight must come on the land and that for that purpose this country must be ready and able to produce an expeditionary force if it is required. It is now the accepted theory that there are the great fortified lines like the Maginot and the Siegfried lines which would be impassable; but so the Hindenburg Line was thought to be in the last War and that line was eventually pierced.

Is it our purpose to fight on land or not? We have a potential expeditionary force in our Territorial Army. We have nine infantry divisions, three motorised divisions and one mobile division in the Territorial Army, but that force is not capable of immediate action. It must take something like six months before it can come into action. In the last War it was the British Expeditionary Force that saved the situation at the Marne and again at Ypres. That was all done in the first weeks of the war, and I suggest that that situation will arise again in any future war and we must have some expeditionary force that can go overseas at once. Many arguments have been put forward by the military correspondent of the "Times" against an expeditionary force. He lays down that we ought to conserve our strength, and that the last War was the only war where we wasted our strength and were exhausted at the end. Again, he says that we have to have a three to one attacking force to have any chance to pierce the defence, and against the vast resources of Germany a combination of France and ourselves would be of no effect. Again, he says our bases would have to be too far off and we should have great difficulty in maintaining an expeditionary force. All these are points against such a force. On the other side of the picture, the mere fact that we had an expeditionary force ready to the last button and to the last gun to send overseas must have a tremendous moral effect on our Allies.

I believe that we could raise an expeditionary force of six divisions and one mobile division in this country without great difficulty. There are to-day 59 battalions in this country, and they would go a long way towards providing the necessary numbers. It may be said that the full numbers could not be raised in this country, but surely there are other means of raising them. We have in India 26 battalions which are doing ordinary police work, not on the frontier, but in the middle of India. We have 17 battalions in Palestine. Could not some of these battalions be replaced both in India and in Palestine by some form of gendarmerie? We have the finest mechanised army in the world to-day. We led the way in mechanisation after the War, but for a long time it was checked because we had not the resources. We now have the resources, and the mechanisation, but we are lacking in one thing, namely, tanks. It is true that there may be a great number of anti-tank devices. I believe that in the German Army there are 80 anti-tank guns per division, and shortly the number will be increased to 135. I submit, however, that we must provide more and more tanks. In the last War none of the generals believed in tanks, but they turned out in the end to be wrong. Tanks are the only form of armament which is capable of paving the way for the infantry, and if we are to spend vast sums on the mechanisation of our Army, it would be folly to neglect tanks.

I would like to make an appeal to the Government to give up contemplating the use of the Mediterranean for shipping in war. We have, of course, to keep naval forces there. As one who went through the Mediterranean three times during the last War and was constantly in ships that were in danger of submarines when there were no hostile countries on the shores of the Mediterranean, I can only say that to use the Mediterranean again would be sheer folly. If we are to make use of the Cape route I would ask that all possible measures should be taken to get it in operation beforehand. St. Helena, Mauritius, Ascension and Simons town all need immediate action. We are not asking our shipping to perform an impossible task. It is that they should take only three days more to Australia and some 11 days more to Hong Kong and Singapore. From 15 to 20 per cent. of our trade passes through the Suez Canal and if it is to be carried the longer distance we shall need more ships and need them quickly. Finally I would say only this, that I hope that His Majesty's Government will not lose sight of the importance of an expeditionary force. I do not urge them to commit it in advance to any detailed arrangements, any definite line of action, but I do ask them to have it ready for immediate action. Our rearmament is progressing and it is impressing the world. We are grateful to the Government for the fact that they put their plans into operation two years ago and more, and those plans are now coming to fruition. I will conclude with this quotation, taken from the "Frankfurter Zeitung": The armoured British lion is an admirable spectacle in his courage and strength.

9.55 p.m.

Photo of Mr Frederick Pethick-Lawrence Mr Frederick Pethick-Lawrence , Edinburgh East

One of the most extraordinary things about this Debate has been the complacency with which the proposals in this Motion and the speech of the Chancellor of the Exchequer have been received by Members on the opposite side of the Committee. I have known occasions when we have been discussing in Committee of Supply Estimates not of £400,000,000 but £400,000, or even £4,000, which have secured more interest and attention than the enormous proposals of to-day. I think the hon. Member for Tamworth (Sir J. Mellor) was only expressing the opinion of a large number of Members of his party who have gone home to dinner or did not trouble to come to the Debate at all when he said that the Chancellor's speech was most encouraging because it envisaged no increase in the Income Tax, though the Chancellor himself was careful not to go quite so far as that. Yet what we have, in fact, been discussing or contemplating is a Budgetary expenditure of no less than £1,200,000,000 and a Budget unbalanced by a sum of no less than £350,000,000.

I am not unique in this House in going back in my political life to a time when there was a Budget of £120,000,000, only one-tenth of the figure which we are thinking about at the present time, and when a deficit not of £350,000,000 but of £350,000 would have been considered a most serious and dangerous phenomenon. I think that the Victorians who used to sit on these benches in the times of Gladstone and Disraeli would be turning in their graves if news could reach them of what is happening in the House at the present time. I remember that the hon. Member for Hastings (Mr. Hely-Hutchinson) rather startled (he House when he said only two years ago in his maiden speech that it was now fairly clear that we had reached the £1,000,000,000 mark for the Budget, and that it was doubtful whether we should fall below that amount again.

Before I deal with the financial aspect of the question I have one or two words to say upon the situation which has brought it about. The fact is that this so-called National Government has let the international situation get completely out of hand. When the Labour Government was in we had a very much smaller armament, but I venture to say that that comparatively small armament was relatively far stronger than the armaments of this country will be even after this expenditure has been incurred. That is due to two reasons. The first is that then there were no other countries that possessed large armaments, as is the case at the present time, and that we were living in a comparatively unarmed world. The other reason is that we were living at a time when the League of Nations was a reality and when, therefore, the pooled resources of the nations which stood for peace were stronger than those of any possible aggressor.

To-day all that has changed. We have more than one nation prodigiously armed and the collective ideal has been destroyed, and for that vast change a heavy share of responsibility—I do not say the whole responsibility, I do not want to exaggerate—must certainly rest upon the shoulders of successive National Governments. They refused appeasement to Germany when she was weak, they sabotaged disarmament, their responsible Minister boasted of retaining bombing from the air. I only say this in passing: hon. Members know perfectly well that it is true. They connived at aggression, they failed to notice that Germany was arming and the extent of the armament, and when they did discover it they hid that fact from the people of this country and failed to tell them the truth. They did not put their trust in democracy, and then blamed democracy because it was not prepared to support them in the steps that were necessary; they led the League of Nations to threaten action and fail to carry it out; they cold-shouldered the Union of Soviet Socialist Republics; and now they have brought us to this pass, where all but absolute pacifists are forced to support rearmament. This House as a whole supports rearmament not because it expects war, but because it believes that the knowledge of the risk of war which will exist when this country is armed equally with others will so appal the peoples of the world that we may hope that war will not happen.

That is the political record of the Government, and I venture to suggest that the financial record is equally bad. The Members of the party opposite hounded out a Labour Government because there was a prospect of an unbalanced Budget. The Government of to-day argue that the situation is so grievous internationally that they must unbalance the Budget. The Labour Government were faced with a grievous domestic situation of the most serious kind, but their Budget was not actually unbalanced, though the prospect was that it would become unbalanced. Yes, this Government has a past unbalanced Budget and that Government had a prospective one, because, in fact, it was following out the policy which had been initiated by the Government of 1924–29 of borrowing for unemployment. The Chancellor of the Exchequer said there is all the difference in the world because there was no prospect of that deficit being subsequently put right, whereas the present Government had made full plans, set out in the actual Act of 1937 whereby the whole borrowing would be got rid of in 30 years. I have more respect for the Chancellor's intelligence and prescience than to imagine that he himself really believes the argument he is putting forward, and I venture to say that however serious was the unemployment in 1931, and however difficult it might be to secure repayment in full of the amount borrowed, the chance of that repayment being effected when employment recovered was far greater than the chance that this fresh debt will be wiped out in the 30 years that the Government say is going to be the case.

Photo of Mr Robert Boothby Mr Robert Boothby , Aberdeenshire and Kincardineshire Eastern

Surely the hon. Member will agree—and I have heard him say this in the House—that there are many things you can do when you are no longer tied to the Gold Standard that you cannot do when you are tied.

Photo of Mr Frederick Pethick-Lawrence Mr Frederick Pethick-Lawrence , Edinburgh East

Yes, certainly, but I would remind the hon. Member that this Government's predecessor came into power for the express purpose of remaining on the Gold Standard; and one of its first steps was to go off it. The real answer is this, that one man may steal a sheep and another may not even look over the hedge. Two years ago the then Chancellor of the Exchequer asked for £400,000,000 to be borrowed, or an average, as the present Chancellor reminded us to-day, of £80,000,000 a year for five years, to help the estimated expenditure of £1,500,000,000 for the quinquennium. Where are those figures gone to-day? The £400,000,000 is being doubled; the £1,500,000,000 is already certain to be far exceeded. The most serious thing of all, more serious even than those figures themselves, was the forecast given us to-day by the Chancellor. He divided the expenditure for the year on the larger definition of defence into the bill that was going to be met out of revenue and the bill to be met out of borrowing. My hon. Friend who followed him took exception to the smallness of the figure that was to be met out of revenue, pointing out that it was £40,000,000 less than the figure for the current year. I shall have a word to add about that in a moment, but the point to which I want to draw the attention of the Committee now is the largeness of the amount to be met out of borrowing.

Let me recall certain figures to the Committee. In the first two years of borrowing we have borrowed something like £200,000,000. Next year we are to borrow, according to the Chancellor of the Exchequer, £350,000,000. Adding those two figures together we get £550,000,000. How much borrowing powers are we to have altogether if this Resolution of to-day goes through? £800,000,000. Taking £550,000,000 from £800,000,000 we get £250,000,000 left. At the end of the coming year we shall still have two years of the quinquennium to run, and to meet the borrowing for those two remaining years there will be only £250,000,000 left. Surely no one seriously imagines that if we are borrowing £350,000,000 this year we shall get through the last two years together in £250,000,000. Therefore, the statement of the Chancellor of the Exchequer means that if the present Government are in office this time next year they will come for a further extension of the amount they are asking us to double at the present time. It means that almost certainly unless there is some miraculous change in the international situation, they will need to increase it, even for the purpose of the single year 1940–41. Yet the Chancellor of the Exchequer repeated to-day the clear assurance that at the end of the five years we shall not only be doing without borrowing, but we shall be repaying interest and living up to the full prospects envisaged in the original Bill presented in 1937.

What a farce it all is. What complacency to imagine that it is all perfectly watertight because you have put it down on a piece of paper and said that that is going to be the procedure in the years to come. No right hon. or hon. Member, least of all the Chancellor of the Exchequer or the Prime Minister, imagines that future Houses of Commons are bound by these Acts and these financial Resolutions of some previous years. We all know perfectly well that when the situation arises it will be dealt with on its merits by the House of Commons of the time. If we cannot foot the bill to-day, and indeed fall short by £350,000,000, I do not see us footing the bill in three years' time, even if it should prove to be a slightly smaller bill, and also paying the interest and capital repayment.

But the full seriousness of the situation is greater yet. Rearmament ought to mean increased employment; enormous expenditure by the Government ought to mean that you are taking up the slack in the industrial system of the country, and that your idle capital and your idle human material are being re-absorbed. The great merit that is put forward by certain economists for an unbalanced Budget is that, apart from Government expenditure, the mere fact of unbalancing the Budget should have the effect of increasing employment, improving trade, and putting things straight. Unbalanced Budgets plus Government expenditure ought to mean re-enmeshing the human and material capital resources. If they were to mean that, they ought at the same time to mean an increased yield from the same rates of taxation. Yet the Chancellor of the Exchequer has come to the House this afternoon and told us that, whereas there was an actual accomplished fact, or he expected it to happen, that £270,000,000 would be available out of revenue for the defence forces in the existing year, next year he was contemplating taking only £230,000,000. There may be some other explanation or modification. He has not given us the whole Budget and I shall certainly not anticipate it, but there can be no doubt that, so far from this increased industrial prosperity which rearmament and the un- balancing of the Budget ought to bring about, he expects the reverse. We know that the unemployment figures have gone up, and last month repassed the 2,000,000 mark for the first time since several years ago. I have a great deal of sympathy with some of the views put forward by the hon. Member for East Aberdeen (Mr. Boothby). I agree with him that, when you have a great deal of unemployment, that is a time for expansion on the monetary side; but here we have rearmament and an unbalanced Budget, and still we have depression and increasing unemployment. It may be that the precise technique of expansion has yet to be tried, but the real fact is that the Government have no plan.

They have not had a plan for a great many questions. They had no plan on European appeasement until it was too late; they had no plan to utilise the really valuable opportunities, for the sake of the British Empire, of the League of Nations; they had no plan to secure the friendship of the U.S.S.R. at a time when it was most valuable to us; they had no comprehensive plan for the agriculture of this country; they had no plan for home defence until they were driven to it by an enraged public opinion; and the story came to us only the other day, from the Commander-in-Chief of Gibraltar, of the utter lack of plan for which this Government were responsible. They have been, and perhaps still are in many ways, without a plan for any one of these purposes. So they have no plan to employ idle men and machinery to produce for the good of the community and cure malnutrition, and yet this is really vital if the resources of the country are to be used to the full, if the defence of the country is to be put in proper shape, and if this country is to hold its own intellectually, physically and morally as an example to the totalitarian States of what a democracy can really do.

Apart from this derisory scheme with regard to the payment of this debt, they have no plan for the future of the debt. We may be able to float part of the debt very cheaply. It may seem desirable to make use of short-term borrowing by way of floating debt, because at the present time the cost of that is exceedingly small. It may be that, for a time at any rate, and I hope that to a certain extent it will be the case, when it comes to the actual borrowing to fulfil the terms of this Resolution, some of the money, at any rate, may be borrowed through Treasury bills at a very low rate of interest; and that may solve part of the problem of inflation which is exercising the mind of the hon. Member for East Aberdeen. But if hundreds of millions are going to be borrowed, if before we have done the amount reaches a figure of over £1,000,000,000, as I have already shown that it may very well do, a very considerable part of this debt will take a more permanent form, and that will mean the creation of a new class of rentiers. That, I think, is the answer to part of what the hon. Member for East Aberdeen said. It may very well be that in some way or other, possibly by expansion, the burden of the floating debt might become a little less, but if at the same time your are piling up new debt and creating a new class of rentiers holding this new debt to the tune of perhaps more than £1,000,000,000, you are adding to the burdens on the back of the people of this country to a greater extent than the hon. Member's suggested expansion will remove.

It may be that the public will kick the Government into providing shelters for the populace in air raids; it may be that, with the growing sympathy with the unemployed, with the old people, and with a number of others suffering from great poverty, public opinion will kick the Government into doing something really effective to help; it may be that the rapidly-mounting public debt will kick the Government into some action of a genuine kind. I do not know. But I do know this: that if it does not do that, public opinion will kick this Government out of office, and substitute one which will take a longer and more humane view of the anxieties and future of the people of this country.

10.21 p.m.

Photo of Captain Euan Wallace Captain Euan Wallace , Hornsey

One or two hon. Gentlemen on the other side, and I think some on our side as well, have commented on the sparseness of the attendance in the House this evening. It was suggested from the other side that it is due to apathy. With all due respect, I do not take that view. I believe it is due entirely to the confidence which the vast majority of hon. Members have in the Government in general, and in this Resolution in particular; and that the vast majority of the people of this country will share the satisfaction so eloquently expressed by my hon. Friend the Member for East Aberdeen (Mr. Boothby) in this Measure. During the Debate a great many questions have been discussed, ranging over a very wide field, including not only finance but the co-ordination of defence, strategy and, so far as the Chair has from time to time, perhaps inadvertently, permitted, foreign policy. [HON. MEMBERS: "Order."] I think the Chairman can look after himself. I am sure the House will not for one moment expect the Financial Secretary to deal with these very wide questions, when the Prime Minister and the Chancellor of the Duchy of Lancaster are going to speak to-morrow.

My particular task this evening is to deal with a question which has aroused not only interest but anxiety throughout the country. That is the question of profiteering in the supply of armaments. The very word "profiteer" arouses all our most natural instincts of anger and disgust. I sometimes think it is a very lucky thing for some of the profiteers in the last War that those of us who took part in it were so pleased to be home when we did get back, that we forgot what we had said we would do to the profiteers when we were in France. But the Committee must draw a careful distinction between profiteering and profits, because as long as the capitalist system continues in this country—and I think it would be a very sorry day for the country if hon. Members opposite were able to destroy it to put Socialism in its place—the fact remains that the aggregate profits of trade and industry represent, first of all, a large part of the raw material for taxation and, secondly, the savings out of which capital equipment is renewed and development financed. It is indeed the hope of securing some profit which is the spur to invention, the call to adventure and the incentive to experiment; or as hon. Gentlemen opposite would like to put it very much more crudely, the carrot in front of the nose of the financial donkey. The incentive of profit is a very important part in our economy, and I hope that the people who condemn profiteers as such will not make the mistake of condemning all profit.

In 1936, when the rearmament programme was launched, the Government made it plain that they would take the most stringent precautions to ensure that excessive profits were not made by individual manufacturers out of the nation's necessity. It was very soon obvious that the normal method of competitive tender would not suffice for a substantial part of the rearmament programme, for three reasons. First of all, the urgent necessity for speed, secondly the fact that a large part of the articles which were required had no commercial counterpart, and, thirdly, that many of the firms had no experience whatever of their manufacture. An inter-departmental committee was accordingly set up immediately to formulate proposals for regulating this necessarily abnormal contract procedure, and the Treasury and the three Service Departments embodied the Committee's recommendations in certain instructions which have been the basis of non-competitive contract procedure ever since.

These methods were examined in detail by an organ of this House, in which we all have the greatest confidence, that is, the Estimates Committee. The Estimates Committee satisfied itself that the methods proposed in these instructions were fair both to the Government and to the contractors, and that they were as good an arrangement as could be devised for ensuring that the prices fixed should be fair. The Estimates Committee drew particular attention to this in two of their reports, with which a number of hon. Gentlemen will be familiar. In 1937 they said: The methods followed in placing non-competitive contracts are soundly conceived and are fair both to the taxpayer and to the contractor. And a year later, in 1938: The three Defence Departments and the Treasury appear to be fully alive to the importance of keeping a continuous and detailed watch upon costs and profits and of improving and strengthening their methods as experience dictates. I would draw particular attention to the concluding three words "as experience dictates." This question has been constantly watched by the Treasury and the other Departments concerned, and recently a special review of the arrangements has been instituted and is now in progress. The object of this review which is going on inside the Departments is to see whether, in the light of experience which we have gained during the last couple of years, any improved methods can possibly be devised.

I venture to remind the Committee of one or two considerations which must be borne in mind in discussing this matter. The first essential of the rearmament programme is, as I think all hon. Members will agree, a large and rapid output. The checks, controls and careful negotiations which are necessary in the normal course of events are still applied as far as they possibly can be, but they must not be allowed in present circumstances to interfere either with the rapid placing of orders or, more particularly, with the speed of production. Therefore, it is fair also to remind the Committee that the danger of excessive profits accruing is not a problem that can be isolated and dealt with by itself as if it were a separate phenomenon or disease. To put it in simpler language, you cannot in present circumstances keep the machines idle whilst you argue about prices.

The provisions of the contracts which are designed to ensure that the price is fair have to be harmonised with the equally important provision that they should be designed to secure that production is both rapid and efficient. Most hon. Members will agree that the latter condition at the present time is the governing consideration. I want to make it quite clear at this point that responsibility for individual contracts does not rest with the Treasury. It rests with the Service Department that places the actual contract. Each of the Service Departments has not only its own Contracts Department but its own Inspectorate and its own Finance Division. Therefore, if allegations are made of excessive profits by particular manufacturers, that is really for the Service Minister responsible for those particular contracts to deal with.

Photo of Sir George Benson Sir George Benson , Chesterfield

When this new method of placing contracts was introduced a year or two ago we were given a pledge that the Treasury would be in constant supervision. Are we to understand that that pledge has not been carried out?

Photo of Captain Euan Wallace Captain Euan Wallace , Hornsey

The hon. Member must not understand that. The Treasury is in constant touch and in constant general supervision, but it would be not only a waste of time but of money if the Departments which have their own Contracts Departments, their own Finance Departments and their own Inspectorate, had to submit every single contract for inspection by the Treasury. It is not the Treasury's business to deal with individual cases any more than it is the Treasury's business to defend a manufacturer from a charge of profiteering.

Photo of Mr Albert Alexander Mr Albert Alexander , Sheffield, Hillsborough

Are not the Treasury interested in inquiring into, say, the distribution of 230 per cent. by one firm in a year? Are they not taking steps to deal with that?

Photo of Captain Euan Wallace Captain Euan Wallace , Hornsey

Perhaps the right hon. Gentleman will let me come to that point. What the Treasury are really concerned with is to try and secure that the system is a sound system, and then leave it to the Service Departments to handle their own individual contracts. The hon. Member for South Shields (Mr. Ede) mentioned one particular case, to which I ought to make reference, and that is the case of the Machine Tools Association. That is most certainly one clear example of a practice which everybody must deplore, namely the practice of refusing to disclose their costs or to show their books.

Photo of Mr James Ede Mr James Ede , South Shields

Would not the Financial Secretary go further and say that it is a practice to be condemned?

Photo of Captain Euan Wallace Captain Euan Wallace , Hornsey

I should like to continue my speech in my own way. Apart from this particular Association, there has been very little refusal over the whole of the immense field of the contracts which have been placed, for endless sorts of articles and goods, to give to the officials of the Service Ministries and their Contract Departments the fullest access to costs. As far as the Machine Tools Association is concerned, protracted discussions have taken place and so far have resulted in an offer of a special discount for purchases either by His Majesty's Government or on Government account. The Treasury are not actively concerned with the details of these talks, and I could not possibly express an opinion as to whether this particular offer is adequate in the circumstances; but what I can say is that there can be no two opinions in any part of the Committee or in the country that it was a reasonable request which was made by the Service Departments that these figures should be disclosed. It can be said, and I think it must be said on the other side in order to be quite fair, that the Machine Tools Association and the people who belong to it performed a great public service in the way they delivered the goods when they were badly needed.

Questions concerning the air armament programme were mostly raised by the hon. Member for Mossley (Mr. Hopkinson). They were questions which concern the Air Ministry, and I am certain that my right hon. Friend the Secretary of State for Air will be delighted to deal with them at the proper time. I must point out another thing to the Committee if I am to give, as I am seeking to give, a balanced picture of the whole of this difficult problem of excess profits. It is the question of time lag. Inevitably it takes a long time to discover whether the present system is working satisfactorily or whether it is producing excessive profits. The out—turn of any particular contract cannot be ascertained with any certainty until the contract is finished, perhaps a year or more after it has been placed. The aggregate effect of a number of contracts on a firm's balance-sheet cannot be judged until the end of the financial year, and even then the position will be uncertain if, as frequently happens, there are still a number of contracts running and unfinished.

Moreover, I should like to point out, in regard to some of the general charges of excess profits which have been made, that the acceleration of the defence programme which was announced early in 1936 could not be expected to show any appreciable effect on balance sheets for the calendar year 1936, and no large effect on a firm's balance-sheet for the calendar year 1937. If, therefore, the balance-sheets published in this period by firms which have armament contracts show larger profits, it cannot be inferred that the increase is due altogether to profits on Government work. I hope that in no quarter of the Committee shall we allow our natural dislike of profiteers and our repugnance to their methods 10 prevent us forming a perfectly dispassionate judgment on the facts as they are before the House at the moment, though I cannot attempt to prejudge what the facts may be in the future.

It is true, of course, that balance-sheets published in 1936, 1937 and 1938 were better than in the previous five years, because they reflected the results of a period when trade was a great deal better than it was in the previous quinquennium. It is not really surprising, nor I think should it be considered disconcerting, if profits earned during the second period were considerably greater than those earned during the first. It is also pertinent to note in this connection that between the end of 1935 and the end of 1938 wages over the whole country rose by a little over 10 per cent.

Again, we ought to recognise that it is wrong to assume in all cases that an increase in profits is necessarily due to armaments contracts. The Committee may be surprised to know that there are hardly any manufacturing firms in this country which, even now, are wholly engaged on Government work. Part of the deliberate policy of the Service Departments has been to spread the work as widely as they could and to bring in new firms, for obvious reasons which the Committee will appreciate. Although, of course, the volume of orders has grown greatly during the last year and is still growing, the number of manufacturers who are occupied even up to the extent of 50 per cent. of their output on Government orders is only a minority of those holding contracts. Personally, I should be inclined to question whether it is the general view in industry that Government contracts provide opportunities for making large profits. Government contracts have certain other very substantial advantages which naturally appeal to all industrialists. For one thing, payment is absolutely certain; secondly, they help to fill up gaps and to spread overheads; and thirdly, I believe there is attached to Government contracts a degree of industrial prestige which is very highly valued in the business world. I am told that at many company meetings in recent years chairmen have actually warned their shareholders that profits to be earned on Government orders are less than those which they can obtain on commercial work.

Photo of Mr Cecil Poole Mr Cecil Poole , Lichfield

Do the right hon. and gallant Gentleman's remarks apply to the aircraft industry as well, in which the bulk of the work must necessarily be Government work?

Photo of Captain Euan Wallace Captain Euan Wallace , Hornsey

My remarks apply to the field of the rearmament programme taken as a whole. I expressly said that they applied to the whole field and that I could not deal with particular contracts. I will give one example, which I hope and believe will interest the Com- mittee—and although I will not give the name of the firm, I should be prepared to give it in confidence to any hon. Member—simply to show that firms do not always make a large profit out of Government contracts. The case is that of an efficient and well-known firm of aircraft manufacturers. In their last published balance sheet, they showed a substantial increase in profits, and most people blandly made the assumption that this was made on Government work. It so happens that they had only one Air Ministry contract during that period, and on that they made a loss of £80,000. This particular aircraft was one which was, in technical phraseology, "ordered off the drawing board." The risk which was taken by the firm, and of course by the Air Ministry, to save delay, involved dispensing with the ordinary procedure of making a prototype and not going into production until the design had actually been checked and corrected by practical trials.

This particular design, although both the technical staff of the Air Ministry and the firm's very competent designers believed it to be satisfactory, developed a number of defects in the course of manufacture, and the alterations necessary to remedy them involved the firm in a loss. They contracted for a certain price and they had, so to speak, to stand the racket. During the same year, on their commercial side, they completed some large contracts in which they had precisely the contrary experience. The new and untried designs on which they were working for the commercial firm did not develop any defects, the whole thing turned out smoothly and satisfactory and they made much larger profits in that case.

Photo of Mr Albert Alexander Mr Albert Alexander , Sheffield, Hillsborough

May we take it that the Financial Secretary is quoting the case of a firm that was not in the ring to which Government orders were confined, and that it was therefore purely experimental?

Photo of Captain Euan Wallace Captain Euan Wallace , Hornsey

I could not say about that.

Photo of Captain Euan Wallace Captain Euan Wallace , Hornsey

There will be opportunities of discussing it later.

It will probably be agreed by the Committee that whatever rate of profit is regarded as reasonable must be calculated on the capital employed. The figure of the capital employed in any particular contract or series of contracts is very difficult to arrive at, especially in relation to a single contract or where a firm is only partially employed on Government work. I think that stands to reason. It is obvious that profits, merely expressed as a percentage on the nominal capital of a company, are in no way a reliable indication of whether that firm is securing excessive profits either on its business as a whole or on that part of its business which happens to consist of Government orders. [Interruption.] The right hon. Gentleman the Member for Hillsborough (Mr. Alexander) is behaving in very much the same way as he behaved towards my right hon. Friend the President of the Board of Trade the other day, and I only hope that the speech to which he seems to object so much now will turn out to be half as good as that of my right hon. Friend.

Careful inquiries over the whole field of these rearmament contracts—ships, guns, munitions, aircraft and all kinds of warlike stores—give no ground at all for believing that on Government orders as a whole, excessive or unreasonable profits have been made. I make that statement on the best information I can get and with a due sense of responsibility. The Government believe that the exceptional methods which have been adopted have, in the main, been successful in their dual object of securing prices fair to the taxpayer and the contractor, while not hampering production. But I certainly do not claim that there may not be individual contracts or even whole groups of contracts, where profits have been excessive.

There are, of course, cases where it would not be unreasonable and where I think the whole Committee will recognise that it would not be unreasonable, to allow a rate of profit larger than the normal.

Photo of Captain Euan Wallace Captain Euan Wallace , Hornsey

For instance there are cases where an article is experimental in character, where a firm has spent a large amount of money in developing it to the stage of manufacture or where a firm by strenuous efforts, or even if you like by good fortune, has succeeded in completing a contract more quickly or more cheaply than had been estimated as reasonably possible and consequently at less cost than had been anticipated. I hope I have time to give an example. In 1937 the Air Ministry placed a large order at a fixed price with a particular firm for one type of aircraft, to be delivered by a specified date. The price was negotiated in the light of technical estimates of the cost of manufacture, made both by the firm and by the technical costing officers and accountants of the Air Ministry, based on such experience as was then available. That firm by strenuous efforts, by skilful organisation, and with the fullest co-operation of the workers completed that contract three months before the due date—a highly meritorious achievement, greatly to the public advantage and adding considerably to the safety of the realm. Perhaps hon. Members will note the result on profits. The price was based on the best and most reasonable estimates of the period required for manufacture. The firm saved three months overheads which became an additional profit, and, even after deducting the handsome bonus paid to the workpeople, it was left with a profit which, if taken by itself, might well expose it to a charge of profiteering.

I should like to ask hon. and right hon. Gentlemen: Was that manufacturer a criminal or a public benefactor? And the House may rest assured of the fact that the profit which was made will, in accordance with the current practice of the Contract Departments, be taken into account in the negotiation of subsequent contracts. I have finished what I intended to say about this difficult question of profiteering, and I venture to reiterate, in concluding this part of my remarks, that His Majesty's Government are determined to keep this question under constant review. They have no sympathy whatever with profiteers, and they intend to take such steps as prove to be necessary in the light of fresh experience.

In the few minutes that remain I should like to deal very briefly with one or two matters raised by hon. Gentlemen in different parts of the Committee, or rather to draw attention to certain very comforting statements which have come from different quarters during the discussion. The hon. Gentleman the Member for Burslem (Mr. MacLaren), who always gives us an interesting speech, though I am sorry I did not hear him on this occasion, said that taxation would ruin the State if it became too heavy. I think that is a fact which we must all bear in mind. The hon. Member for Mossley coined a phrase which will go a long way beyond the walls of this Chamber, and that was that Socialism was simply living beyond one's means. I was glad that the hon. Member for Bishop Auckland (Mr. Dalton), who opened this Debate, agreed that the burden which the Defence programme is going to throw on us in the current year should not all be found out of revenue. I think that there is in the Committee very general agreement that we must do some more borrowing, and the only question is how much.

The right hon. Gentleman the Member for East Edinburgh (Mr. Pethick-Lawrence), who, if I may say so, was in particularly good form to-night, referred to a £1,200,000,000 Budget, and I think perhaps the best comment on that was made by my hon. Friend the Member for Tamworth (Sir J. Mellor). I am not attempting to quote him verbatim, but I think this is a fair paraphrase. What he said was that confidence would depend more upon national security than upon purely financial considerations. What I think he meant was that a country which pursued an austerely academic financial policy, and was in the danger of military or economic defeat, was in a very much worse state than a country where certain financial risks are taken, even of the kind to cause eminent statesmen, as was suggested from the opposite side of the House, to spin round in their graves, but where, because of those risks, the security of the country is thus assured.

One word about the credit of this Government. The right hon. Gentleman opposite pointed out the difference between the credit-worthiness of this Government and of the Government which was honoured to have him as Financial Secretary. Of course, it is very sad from the point of view of hon. Gentlemen opposite. It is true that one man may steal a sheep and another man may not look over a hedge, and it is equally true that one Government enjoys the confidence of investors and that another Government loses so much confidence that no one will lend it anything.

Finally, I would like to remind the Committee that this programme is flexible. It is no good looking too far ahead, and if and when it is realised throughout the world that this continued armament rate is devoting in every country to sterile and unfruitful purposes huge sums of money that might well be liberated to saner uses, such as would commend themselves to hon. Members in all parts of the House, our own programme can be suitably readjusted. We may regret the necessity of this immense expenditure, but our policy demands the complete safety of this country, so far as we can assure it, from aggression and certainly complete protection from a knock-out blow. I do not believe the price which the House and the country are being asked to pay for that security is one which they will regard as excessive, and I hope and believe that the statement from the Front Opposition Bench that it was not proposed to divide against this Resolution is another earnest of the determination of all parties and all classes in this country to face up to the realities of the present situation.

Motion made, and Question, "That the Chairman do report Progress, and ask leave to sit again," put, and agreed to.—[Captain Margesson.]

Committee report Progress; to sit again To-morrow.