Amendment of Law.

Orders of the Day — Ways and Means. – in the House of Commons on 1st May 1939.

Alert me about debates like this

Question again proposed, That it is expedient to amend the law relating to the National Debt, Customs, and Inland Revenue (including Excise), and to make further provision in connection with finance.—[Sir J. Simon,]

3.27 p.m.

Photo of Mr Hugh Dalton Mr Hugh Dalton , Bishop Auckland

We are living at present in a prolonged and sinister twilight between peace and war. In such conditions, and in these unhappy times, Budget Debates become more and more indistinguishable from arms Debates. In this coming year nearly half the total national expenditure, according to the Budget Estimates, and probably, as it will turn out in the end, substantially more than half, will be for defence. of the £ 590,000,000for defence shown in the Chancellor's Budget balance sheet—and I presume that the proposal for conscription will make a substantial addition, to which, I assume, the Chancellor will refer when he winds up to-night—of this minimum figure of £590,000,000, only £248,000,000, that is to say, less than half, is to be met from revenue, and the remainder is to be loaded on to the already monstrous total of our National Debt. And, such is the ironical whirligig of political history, the man who is presenting to-day this staggering bill for arms is the same man who, seven years ago, did more than any other to wreck the World Disarmament Conference, and by that act of almost incredible folly—looking back upon it now—contributed to break the heart of democratic Germany, to make easy the final stages of Herr Hitler's path to power, set in motion the arms race, the consequences of which this Budget demonstrates, and so helped to lead Europe down the tragic road which for 7½years it has been travelling. The hon. Gentleman who laughs was not in the House when these events took place and, therefore, perhaps, his knowledge of this matter is imperfect.

Photo of Commander Sir Peter Agnew Commander Sir Peter Agnew , Camborne

Nor was the hon. Gentleman himself.

Photo of Mr Hugh Dalton Mr Hugh Dalton , Bishop Auckland

I was here during the later stages. It is true that the major part of the damage had been done when hon. Members opposite were responsible, and so the responsibility was not mine. I have watched the later stages of this deplorable process, for the earlier events for which they were more responsible than I, but the hon. Gentleman to whom I am referring arrived only very lately after a by-election, and hence my observation. I ask myself, in what circle of the damned would Dante have put that statesman and his colleagues?

Photo of Sir Richard Pilkington Sir Richard Pilkington , Widnes

Is it not a fact that at the time of which the hon. Gentleman is speaking we were the only country which had disarmed?

Photo of Mr Hugh Dalton Mr Hugh Dalton , Bishop Auckland

No, Sir, and the very fact that the hon. Member puts such a proposition shows his ignorance of the facts. At the time that the right hon. Gentleman, in his previous incarnation, was mismanaging the disarmament negotiations, democratic Germany was very lightly armed indeed, and at the time when the Labour Government left office we had an overwhelming preponderance of arms which the National Government by their short-sighted diplomacy and by their incompetence in arms production, threw away. While the National Government has been in power the German Air Force has grown from small dimensions to a figure far greater than our own, from which growth to-day the chief menace to this country comes. I was asking in what circle Dante would have placed the right hon. Gentleman; perhaps some future Dante will give him his rightful place, and perhaps the right hon. Gentleman's White Papers might help to feed the flames down there.

In consequence of the policy pursued by the right hon. Gentleman and his colleagues, we are facing to-day no longer the happy-go-lucky peace-time economy of laissez faire and profits as usual, but we are not yet facing the problem of a full war economy. We have to face an intermediate problem, or what some journalist, writing in the "Financial News," has called a near-war economy. It is that problem, of how to organise a near-war economy, that these Budget proposals, together with the other connected acts of the Government, should solve, but they fail most lamentably even to approximate to a solution. As my right hon. Friend the Leader of the Opposition said on the day when the Budget proposals were announced, we need most urgently a national plan, but we do not find one here.

What should that plan provide? I suggest that there are five essential elements which it should provide. First, it should provide the necessaries of life for all our people and full provision for their effective defence both against bombs and against poverty. That is not provided here. Secondly, it should provide that there should be no cake for anyone until all have bread and the nation has a sufficiency of arms. But that is not provided for. Gross luxury continues and grossly luxurious expenditure. Large incomes, even after all deductions have been made by way of taxation, are still being received and are still spent upon objects quite unessential to the public welfare. In the third place, a national plan should provide in this national crisis an opportunity of work for every willing worker. It should provide, in the fourth place, social justice in the carrying of great burdens and, in the fifth place it should provide a deliberate and efficient scheme to mobilise men, money and materials for the common good and for the security of all. There is nothing like that in this Budget and in the connected acts of Government policy.

Millions of citizens are still short of the necessaries of life and have gone short for years, but the Chancellor proposes mean little additions to the taxes on sugar and tobacco, mean little cuts in the standard of living of the poor, which, when the time comes, we shall oppose. The Chancellor has said that all social improvements, including the development of pensions and other social services, must be indefinitely postponed. He told us that in his Budget Statement. My hon. Friends and myself do not accept that view. We believe that this country is amply rich, if the wealth were properly distributed and the production of wealth properly organised, to take much better care than we do now of the aged, the sick and the disabled. We challenge the contention of the right hon. Gentleman that improvements in this field must be indefinitely postponed. Immense tasks of production await us, notably in the field of arms, yet nearly 2,000,000 of our fellow-citizens are standing idle in the market place because neither any private capitalist nor the Government have hired them. That is a criminal waste of labour-power in this time of crisis. Huge incomes are still being received by a small number, in business, at the Bar and in other professions, and also by the idle receipt of unearned income in enormous sums. Huge profits are still being made by armament manufacturers and others. Huge fortunes are still being accumulated and transferred on the deaths of their owners after comparatively small deductions by way of taxation. [Interruption.] I intend to give figures in a moment to justify my statement.

Tax evasion by the rich is rampant, and the Chancellor has only played with the problem. With regard to the limitation of arms' profits, since the proposal to introduce conscription, it has been suggested by the Prime Minister that the Chancellor is working out some more comprehensive scheme than has yet been announced, concerning which I assume he will have something to tell the Committee later this evening. Meanwhile, I venture to say, using an old Parliamentary phrase, that up till now the Government's method of dealing with profits on arms manufacture has been no better than mess, muddle and make-believe. Profits are still accruing in enormous quantities to small numbers of selected people, manufacturers and shareholders. So far as direct taxation is concerned, the Chancellor in this Budget is making only paltry little additions to the Surtax and the Estate Duty. I shall have something to say on those subjects before I sit down.

We are spending some £600,000,000 upon defence under this Budget. My hon. Friends have asserted before, and I assert again, that for this vast expenditure the nation is not getting value for money. We are paying too much for the arms we get, and we are not getting enough arms. We are not getting value for the vast expenditure, which amounts to something like half of the total national outgoings. It is notorious, and it is common talk in the Air Force, in the Territorial Army and in the anti-aircraft formations, that splendid bodies of first-class volunteers are still short of equipment and training material. They waste their time forming threes—I think that is the modern formation—and marching round and round barrack squares and drill halls. They have not the material which is necessary to equip them to do the work for which they volunteered. On top of that you are now going to throw a mass of conscripts; equally, there is no effective plan for the early arming and effective equipment of those conscripts. My hon. Friends have put forward the view, which has been supported from other parts of the House, that a real Ministry of Supply might do two things; on the one hand, it might save the taxpayers very large sums of money by co-ordinating production and rationalising purchases. It might be a great instrument of public economy. It might also effectively organise the supply of the equipment which to-day is so deficient. In spite of pressure from all parts of the House, the Government have put up one long obstinate resistance to the creation of a Ministry of Supply, but at last—at long last—under heavy pressure they have created only a sham Department of Supply in the War Office. For this reason they are themselves directly responsible, through their failure to set up a proper Ministry of Supply, both for the extravagance of expenditure and for the poor result in terms of equipment and arms.

There is no plan in this Budget for deliberately checking on a large scale the production of luxuries which to-day are competing for labour and material which an; necessary for the production of arms. May I give two illustrations? Steel is still being used to build new cinemas in highly vulnerable areas—steel which would be much better used for the making of munitions—and soon there will be a shortage of steel and the price will soar. Again, there are still workmen engaged to-day in making engines for expensive high-powered motor cars—men who, by reason of their skill, could make engines for aeroplanes, and should be making engines for aeroplanes. Soon there will be a shortage of skilled labour, and you will begin to talk to the trade unions, quite unnecessarily, about dilution. The skilled men are there, but they are being mis-employed at the present time in producing the luxuries of peace rather than arms for defence in war.

One could multiply examples showing that the Government have no plan for allocating to the most urgent needs the skilled labour and essential materials that are necessary for the arms programme. This would have been well within the scope of the Budget, because the Chancellor could have imposed, and, we submit, should have imposed, heavy excise duties on luxury articles which absorb skilled labour suitable for arms production and materials which are used in the production of arms. For example, if, instead of imposing the increased horse-power tax upon private motors, a heavy excise duty had been placed on new cars, coupled with a heavy import duty on imported motor cars, that would have been much more effective from the point of view of diverting essential labour and materials from peace-time luxury production into the sphere of the arms production programme. The Chancellor might have found other examples equally beneficial from that point of view, by heavy excise duties on new production of luxuries coupled with heavy import duties on the imports of corresponding articles. This problem of bottle-necks, of which we hear so much, is a problem which would never have become urgent had the Government tackled long ago, with special reference to the arms programme, the question of priorities in production and in the calls to be made upon the skilled labour and supplies of material available.

So far as import duties are concerned, my hon. Friends have never been pedantic Free Traders, or pedantic Protectionists either; we have our own line of approach to these problems; but the present position is that our balance of trade, or rather our balance of payments, is adverse. It was adverse last year; it is more adverse to-day. This calls for certain remedial measures which are not to be found in the Budget. Although the balance of payments is adverse, there are certain necessary operations which, taken by themselves, would make it more adverse still. For example, there is need for increased food storage in this country on a much greater scale than anything hitherto attempted by the Government. The hon. Member for Oxford University (Sir A. Salter) has drawn attention to this matter in several very cogent contributions, and we on this side believe that the policy of storage of food and essential commodities, including oil, should be pursued on a very much more ambitious scale than hitherto. And yet, if it is so pursued, the tendency will be to make our balance of payments still more adverse.

Some shuffling answers were given a few moments ago from the Government Front Bench to questions from one of my hon. Friends about the supply of nickel from Canada to Germany. Surely, a common-sense solution would be that, if Canada has nickel to sell, and if nickel is useful for making arms, the Government of this country should buy up the Canadian nickel export surplus and not allow it to pass into the hands of those who, if they turn it into arms, will not use those arms otherwise than against us and our friends. Surely, therefore, here is an opportunity for the Government to embark on yet another process of storing essential commodities, in this case metals necessary for the making of munitions, and to cut out the Canadian export of nickel to Germany by intercepting it and purchasing it themselves. The same may be true of other commodities exportable from our Dominions, of high value for making arms. We have no nickel mines in this country, nor has Germany, and surely we ought to get hold of all the nickel and see that it does not go to the wrong quarter. But an operation of this kind would still further increase the tendency for our balance of payments to become adverse.

To take a third example, we have given political guarantees in Eastern Europe, quite rightly; my hon. Friends have supported the giving of them; but of what use are political guarantees unless they are backed up with economic and financial facilities? Certainly none of us on this side of the House will complain at very substantial payments or credit facilities afforded to Rumanians and others in the East of Europe for the purpose of purchasing what they require, either directly from us or from others, with whom we would facilitate their transactions by credit operations. I am told, and, indeed, it is common talk, that a departmental log-fight is now raging between the Treasury and the Foreign Office. The Treasury thinks£10,000,000 is enough for the Balkans, but the Foreign Office thinks that a larger sum is necessary for the purpose of supporting effectively the political guarantees given, and perhaps to be given, in that part of the world. Generally speaking, whatever may be said about the conflicts between other Departments, in departmental contests between the Treasury and the Foreign Office the Treasury is always wrong—always too parsimonious, too shortsighted, too little aware of the political advantages that may accrue in the sphere of foreign relations from larger financial contributions. But if as, I hope, the Foreign Office view in this case prevails over the Treasury view, that will be a factor tending still further to increase our adverse balance of payments.

Thus far I have been referring to desirable lines of policy which would still further increase our adverse balance. It is important, therefore, also to state the lines along which the balance of payments may be rectified, and I submit to the Committee four lines along which that rectification could be brought about. In the first place, in order to diminish our dependence upon certain classes of imports, it is more than ever necessary that here at home we should encourage the production of food on a larger scale than hitherto, under fair conditions of labour and without undue profiteering by middlemen, and to this end should organise distribution as well as production. We should be happier if the present Ministry of Agriculture were addressing their minds effectively to that task. In the second place, we should encourage our export trade by many devices which are open to us, and which are not open to the objection that they increase the adverse balance of payments, but which, on the contrary, would decrease it. If we could stimulate the cotton export trade and other export trades which have now fallen into decay, we should be doing something at any rate to provide effective finance for a large part of our imports in the most obvious manner, namely, by the export of British products. For this reason, any reorganisation of the cotton and other industries is of special importance if it can enable them to win back lost markets and enter new ones.

In the third place—and this is a point to which I have already referred—we should do everything we can to check unnecessary luxury imports into this country. The Chancellor has many lines of taxation open to him here. There are expensive motor cars; there are silk goods, which have already been mentioned by my right hon. Friend the Member for East Edinburgh (Mr. Pethick-Lawrence); there are wines. I am sure that our friends the French, who have taken, very naturally, so much interest in our internal affairs lately, would not grudge a slightly increased import duty upon wines, designed to diminish somewhat our total importations, in order the better to enable us to carry out our financial obligations in the directions I have mentioned. There are many other steps which the Chancellor could take in order to damp down and discourage the importation of luxury goods into this country. I would go as far as to say that no imports which are not serviceable, either directly or indirectly, for the manufacture of armaments, or to meet the necessary requirements of the working people of this country, should be encouraged.

In the fourth place, we should prevent all unnecessary exports of capital, and, in particular, take steps to check the panic and unpatriotic flight from sterling into American dollars which has been proceeding for some time. How far along the road towards complete Exchange control it would be necessary to go is a matter that, I think, the Chancellor should examine with his advisers. For my part, if there is no way short of complete Exchange control—such as our friends in New Zealand are now carrying out: setting us an excellent example—whereby unpatriotic exports of capital can be checked, I think the time has come when full Exchange control should be established. Along these lines, it would be possible, given intelligence and vigour, to redress that adverse element in the balance of payments which is showing itself already, and which it is necessary should be met by effective counter-measures.

Now I come to the question of the taxation of wealth. It will be recalled that in the days of Queen Victoria there was a famous agitator who went about the country crying, "What ransom will property pay? What ransom will the rich pay for the security of their possessions?" Those were days of peace in international relations, that deep Victorian peace, which passeth the understanding of this troubled generation. That agitator was the present Prime Minister's father. What ransom will property pay now, under the shadow of war, when the threat to those of great possessions is much more imminent, much more totalitarian, than it was then? It is indeed clear that if there is war and we are defeated, they will be stripped even of the shirts on their backs. The price of security has gone up since the days when the Prime Minister's father asked that question, and it is still rising. We hear much in these days of the phrase "Conscription of wealth"—the more insistently since the Government are now proposing the conscription of youth. My right hon. Friend the Member for East Edinburgh, in his very interesting speech, developed this point, and in a moment I intend to quote a passage from his speech. The conscription of wealth has become a much more urgent matter, to be pressed much more vigorously, since the Government have declared for the conscription of youth.

The Chancellor in this Budget is proposing only a mere fleabite of additional taxation of the rich. I will cite one or two figures to prove the truth of that statement, from the last issue of the Inland Revenue Commissioners' Report, issued this year: first, as regards Surtax, and then as regards Estate Duty. As regards Surtax, figures for the latest year for which particulars are given, allowing for the one year's delay in the assessment of Surtax, show that 96,000 people in this country had an income of £484,000,000—an average of just over £5,000 a year for that class. That average covers, of course, enormous inequalities. The incomes run up to £100,000 and £150,000 a year in certain cases. The Surtax paid in that year amounted to £57,000,000—to which, of course, we must add Income Tax at the standard rate. If you assume there were no allowances or abatements—and, of course, every Surtax payer has allowances and abatements in proportion to the marriage state, the number of his children, and whether any of the income is earned—and that the straight standard rate of 5s. 6d. in the £ was collected on all the Surtax payers' income, you have to add to that £57,000,000 a further £133,000,000, making a total of £190,000,000 to be deducted from the £484,000,000. That leaves £294,000,000 after the deduction of tax. If you take account of the allowances and abatements, there is clearly over £300,000,000 a year still accruing—an average of well over £3,000 after the payment of taxation, as compared with an average of just over £5,000 a year before the payment of taxation. Evidently the Surtax payers were not unduly impoverished by taxation on the pre-Budget level.

The Chancellor has scaled up the Surtax rates so as to take another £4,000,000 this year, and £5,000,000 in a full year. He is taking less than 1 per cent. of the total income of Surtax payers in addition to what had been taken before. Having regard to the needs of the time and the justice of the case, that is a miserable little nibble. The Chancellor gives a series of figures in the White Paper of the new effective rates after he has increased the Surtax. The effective rates do not on any income reach as much as 14s. in the £, however large the income. They reach 10s. in the £only on incomes of £30,000 a year, and 5s. 6d. in the £—that is, the standard rate—only on incomes of over £3,000. Therefore, it can indeed be said that there is still a large taxable surplus remaining in the pockets of the Surtax payers.

In regard to Estate Duty, the latest Inland Revenue report shows that the net capital values passing at death in 1937–38 amounted to £595,000,000. It is interesting to observe that £29,000,000 of this belonged to 16 millionaires. Sixteen millionaires died last year. The deaths vary in number each year and that fact upsets the regularity of the revenue. Another £22,000,000 belonged to 34 semi-millionaires with fortunes of between £500,000 and £1,000,000. The total sum collected in Estate Duty for the year 1937–38 was £79,000,000. If we subtract that from the £595,000,000 net capital value, it leaves £516,000,000 to be inherited after Estate Duty is paid, and when you make a further deduction under Legacy and Succession Duty of £10,500,000, you get a net inheritance, after all payments of Death Duties, of £505,000,000.

What is the Chancellor of the Exchequer taking in additional Estate Duty this year? He is taking only another £3,000,000 this year, and £5,000,000 in a full year; that is less than one per cent. of the total net inherited wealth after all payments of Death Duties. That also, I say, is a miserable little nibble. These fleabites do not make a rich man's ransom. They are altogether inadequate to the needs of the time. There is, even in times of deep peace with no threat of war, something indecent in an economic system where under one man may get 15s. or £1 or even £2 a week and another man, not in any respect a better man, gets £500 or £1,000 a week. It is indecent enough even in times of assured peace, and how much more indecent in this twilight between peace and war when our material possessions and our lives are equally threatened.

Therefore, the Labour party has made already in this Debate certain proposals for a special and additional levy on privately-owned wealth, a levy which in our view should continue at least throughout the period of crisis which we are now traversing, and should certainly continue just as long as the conscription of youth continues. My right hon. Friend the Member for East Edinburgh developed this subject in some detail in his speech the other day. He gave figures which have not been controverted and are based on the total wealth in private hands; and I am quoting only some of the more essential of the various statistics that he gave to the Committee. If you take persons having a capital wealth of more than £50,000 you have a total of £8.000,000,000 capital valuation at present levels. That represents stocks and shares and other forms of property owned by some 50,000 lucky persons each of whom has at least wealth of a capital value of £50,000. Carrying it a little further down the scale, if you take persons with £20,000 capital wealth per head, there are of these some 120,000, and they own in the aggregate £10,000,000,000. My right hon. Friend the Member for East Edinburgh, before the Government had publicly announced the conscription of youth, suggested that a contribution could be devised on a graduated scale, graduated perhaps from ½ per cent. to 2 per cent. per annum, on these private fortunes of great magnitude. A contribution averaging 1 per cent. would bring in, if limited to persons owning wealth of £50,000 and upwards, a sum of £80,000,000, and in the other case would bring in £100,000,000 a year. My right hon. Friend said that if we were to have the conscription of life a far larger contribution than that would be needed from those who own the vast wealth of the country.

Since my right hon. Friend spoke it has been announced that the Government are going to press through this House a Measure for military conscription of a certain class of young men. That adds immense strength to the moral argument put forward by my right hon. Friend and other speakers. I would put it in this way: At the very least, alongside proposals for the conscription of life you should put this special levy upon people possessing far far more than the average wealth in the community, in many cases wealth completely unearned, in many cases wealth obtained by inheritance and good fortune, or by lucky speculation, or by other methods which cannot be truthfully described as service to the community. Upon this small minority of persons a special levy should be imposed over and above the other taxes, an annual contribution based according to a graduated scale upon their individual holdings of wealth. There should be a compulsory register of these people. It should be kept up to date from year to year, and this levy should be imposed for such length of time as we are still in this continuing crisis, this state of affairs which I have described as a twilight between war arid peace, certainly as long as the provisions for the conscription of young men remain. The purpose should be to avoid as far as possible making any further additions to the National Debt during this time. The National Debt is rising to a figure which gravely endangers the future solvency of the national Budget. Further additions to the National Debt in these times are both an economic and a moral outrage. Up and down the country plain men ask how can it be justified that you should call on some to be prepared to give their lives while others are invited only to lend their money? That contrast is profoundly repugnant to the sense of decency of large numbers of people and even to many of the wealthy section of the community.

This proposal of my right hon. Friend the Member for East Edinburgh will provide that the special levy should be paid either in cash, or, probably for the greater part, by the handing over of securities to the amount covered in the annual contribution due to be made. The Government would thus obtain purchasing power for the purchase of munitions, for the payment of soldiers' wages and munition workers' wages and for other objects of public expenditure, just in the same measure as they would obtain it by an increase of the National Debt. At the present time the Government when increasing the National Debt issue new securities to the public, sell new Treasury bonds or Defence Loan or whatever it may be, and they get from the public purchasing power in exchange for that issue of new securities. Under this plan, as adumbrated by my right hon. Friend, if it could be carried out completely the Government would equally obtain purchasing power by cash payments or by the sale of existing securities which would be handed over. From the point of view of the Government the thing is the same; from the point of view of the community it is very different. By this scheme you avoid further additions to the Debt and instead of that you make a special call upon those who are best able to meet that call. The proposal is of the same family as the capital levy which was debated during and after the War, but it differs in certain essential features. The capital levy which was proposed during and after the War, and which had the support of Mr. Bonar Law and others and of most of the more clear-headed economists and many prominent financiers, was designed to clear away a large part of the dead-weight burden of debt arising from the War; it was designed greatly to reduce the burden of the National Debt. It was to be a once-for-all contribution designed to cut in half the National Debt as it existed at that time. If that proposal had then been adopted it would have made all the Budget problems of the present Chancellor and his predecessors far more manageable. It would also have satisfied the sense of justice of a great body of people in this country. It was not adopted.

The proposal to-day differs from it in two respects. First of all this proposal, which we make here and shall make outside the House at the right time and in the right manner, differs from that in that it is a proposal for an annual levy on large private accumulations of wealth, to be continued during the period of crisis finance. It is designed, not to reduce the present enormous burden of dead-weight debt, but merely to prevent its further appreciable increase. None the less it makes the same appeal to the plain man's sense of justice. I hope that, when he replies later, the Chancellor of the Exchequer will be able to indicate just how much further the Government are disposed to move towards a further conscription of wealth by way of balancing the proposals for the conscription of life which have been made since the intro- duction of the Budget. We have had discussions as to what is meant exactly by "conscription of wealth." Some hon. Members opposite have quibbled over definitions. They have suggested that we have conscription of wealth in this country as long as, say, there is a Id. in the £ tax on income, so long as, shall we say, there is some compulsory import upon commodities. That is not what we on this side mean and what most people outside mean by the conscription of wealth. If war comes it may be that we shall come to this in its extreme form—the conscription of wealth would mean that every member of the community would be given an allowance from the Government, on which he and his family would have to live, and all the apparatus for payment of dividends, rent, interest and profits, would be liquidated, at any rate for the period of the war. All luxury expenditure would be cut out altogether. That is the extreme and logical development of the conscription of wealth. I repeat that, if war comes, it may come to that.

The Labour party, traditionally moderate in all its proposals, is not to-day suggesting anything as extreme as that. We are proposing only a further step towards the elimination of the gross inequalities that still prevail, in order to obtain from those best able to pay a much more substantial contribution than the Chancellor has proposed should be put upon them for the urgent needs of the country. The right hon. Member for Epping (Mr. Churchill), on Thursday in another context used these words: You will find that when a great number of people go into danger they do look around them to try to find out whether everything is fair and square."—[OFFICIAL REPORT, 27th April, 1939; col. 1376, Vol. 346.] That is very true. The great mass of our fellow-countrymen to-day feel that they are very much in danger. They have been brought into danger, and they are looking around them to see whether everything is fair and square. They are looking at this Budget and the gaps in it, in particular the failure to control the profits of armament manufacturers and the failure to exact from those with far more than the average wealth a proper contribution to the needs of the time. They are looking at this Budget with questioning eyes, and I think that an increasing number of them have less and less confidence in those who sit on the Front Bench opposite. This Budget will be judged not upon any narrow and detailed discussion of the rather small measures which the Chancellor of the Exchequer is producing by way of tax additions and tax adjustments, but rather in the light of these large moral and economic issues which some of my hon. Friends have brought forward in the course of the Debate and to the discussion of which I have endeavoured to add something in these remarks.

4.16 p.m.

Photo of Sir Percy Harris Sir Percy Harris , Bethnal Green South West

We have just listened to a very interesting and critical speech. Whatever we may think of the alternative proposals, we have to recognise that we are considering a Budget of terrific dimensions which is unparalleled in the history of our country in peace-time, and equally unparalleled in any other part of the world. Such a sum for a comparatively small country should appal us. It is very significant and remarkable that this House and the country have taken it so calmly. I remember many Budgets during the last 20 years for much smaller sums which aroused greater interest and brought many Members to the House, and awakened and excited very great interest in the country. But it almost looks as if the House of Commons and the nation have been so dazed already by the serious international situation as not to be moved by the size of these figures. We may differ as to the way the burden is being distributed, but we must all agree that these figures are immense and a heavy burden to put upon our generation, and upon generations to come.

As I understand the position, the figure given by the Chancellor of the Exchequer of£1,032,000,000 is likely to be increased, if the proposals which are to be considered on Thursday and the other schemes which have been hinted at come into existence. Out of Revenue we are going to raise£942,000,000, and I would suggest to the hon. Gentleman the Member for Bishop Auckland (Mr. Dalton) that that is not a figure at which to scoff. It may be, as he suggests, that we could raise very much larger sums out of Revenue. All orthodox financiers would like to see as large a sum as possible put upon the present generation. In various ways, by Treasury Bills, and, we assume, in the autumn, by way of a new loan, we are to raise£380,000,000. It has been suggested that it would be right and proper, when that loan comes to be raised, that it should be raised at 2½per cent. or at as low a rate as possible. I believe that if an appeal were made to the country like that which was made by the Prime Minister in 1931 or 1932, the good sense and patriotism of the nation would respond, and the money would be forthcoming at such a special rate. But I am going to suggest, what perhaps is a little out of fashion in these days, that some contribution can be made in the form of economy. The word "economy" is out of fashion.

Photo of Sir Percy Harris Sir Percy Harris , Bethnal Green South West

I am glad that I have some support. Some people suggest the cutting down of our social services. That is not what I have in mind, whatever the hon. Member may think. I believe that large sums out of this vast total could be saved with proper machinery and proper scrutiny. There is a feeling abroad that the sums are so large and the expenditure so great under various heads that it is almost futile to talk of economies or savings. The reason—and I am glad that the hon. Gentleman the Member for Bishop Auckland referred to it—that for so many years my hon. Friends put forward the policy of a Ministry' of Supply was not merely to bring about efficiency and to speed up production, but to prevent waste, and, above all, to control profiteering. I agree with the hon. Member for Bishop Auckland that there are all sorts of stories floating about of ramps by private individuals who exploit the necessity in order to make excessive profits. One of the purposes of the Ministry of Supply that we had in view, and which was recommended by the Royal Commission on armaments, was to tighten up control and to introduce special machinery in the light of the national necessity to see that the State obtained real value for its money. The second purpose was to see that proper priority should be given so as to avoid competition between the Departments, which, incidentally, I know to be going on to-day. I have had more than one example of this brought to my attention. This tends to increase prices and results in the exploitation of the various Departments competing for the output of the various munitions organisations.

The third and equally important purpose of a proper Ministry of Supply conceived upon right lines and run under business management, would be to protect our export trade. I am glad that the hon. Member for Bishop Auckland accentuated the necessity for maintaining our export trade. It is vital in these times, and would certainly be even more vital should war eventuate. There must be the free flow of imports of raw materials and food supplies. We have to be assured that the best use is made of the labour and the material available. We must see that the industrial production is properly planned and organised.

The hon. Member refered to the cutting down of luxuries. It is always difficult to say what are luxuries. I think that most of us know luxury when we see it. The recognition of that principle has been accepted by the right hon. Gentleman in his Budget, by the extra tax on tobacco, which, I believe, will be accepted by the country with very little question, and also by the graduation of the increased taxation on motor cars. I agree that something more is wanted in this direction. The McKenna duties, which have now become part of our annual revenue, were devised, as the right hon. Gentleman knows, not so much to raise revenue—that was incidental—but for the purpose of discouraging luxury expenditure and to save tonnage. It should not be beyond the wit of man or the ingenuity of the Treasury officials to devise some new taxes in that way. Precious stones naturally come to one's mind. As soon as we begin to touch the importation of luxuries we begin to tread upon the toes either of our allies in France or upon one of our Dominions beyond the seas. South Africa would immediately be a sufferer from any attempt to stop the importation of precious stones on a large scale. But I feel that it is the spirit of the country and of this House that everything should be done to concentrate upon production, first, of the necessities of the people, and, secondly, and the main purpose, upon making the nation strong for war. In so far as a Ministry of Supply will bring about that purpose, I hope that the right hon. Gentleman and the Government will not be satisfied with the present truncated proposal of a Supply Department of the War Office—because that is all it really is—but will, in the light of the serious economic position of the country, and the lag in the supply of essential materials, which has been admitted by the Government, devise some larger conception of what a Ministry of Supply should be.

In addition, I still think that there is room for closer control of our expenditure. There are at present two excellent committees in existence and functioning which discharge part of that control most efficiently—the Public Accounts Committee and the Estimates Committee. In normal times they do all that is necessary, but in the present exceptional position, and faced with this terrific liability and immense expenditure, something more is wanted. The main responsibility and the most insistent duty of the House of Commons is to control expenditure. In 1917—this was referred to last year and I am going to reiterate it this year—in the most serious and critical phase of the War, Sir Godfrey Collins moved a Motion, which was discussed, I think, on a Wednesday afternoon, asking the Government to set up a Select Committee to consider the whole problem of national expenditure. There was in power at that time probably the most powerful Government of the last 50 years. The right hon. Gentleman the Member for Carnarvon Boroughs (Mr. Lloyd George) was Prime Minister, and Mr. Bonar Law was Chancellor of the Exchequer, and the Government had tremendous authority because of the exceptional position in which the country was at that time. They had only to lift their finger and the proposal could have been turned down, and it would have received short shrift, but in these days the Government took the wider view.

As a result of the proposal moved by Sir Godfrey Collins, afterwards Secretary of State for Scotland, a Select Committee was set up. It came into existence on 25th July, 1917. It was appointed: To examine the current expenditure defrayed out of moneys provided by Parliament, and to report what, if any, economies, consistent with the execution of the policy decided by the Government, may be effected therein. Lord Samuel, who was then a member of the Opposition in this House, became the chairman. The committee were given authority to sit in the Recess, and for the last 15 months of the War it pursued its purpose. I speak particularly of that committee because I was a member of it. It worked very differently from the Public Accounts Committee or the Estimates Committee. It worked through subcommittees. There were three main sub committees—one for the War Office, one for the Admiralty and one for the Civil Service. In those days there was no Air Ministry. The committee sat in the Departments for two days a week, and continued through the Recess. The situation was so critical that there was no time for holidays. I remember that in the early days members of the Government viewed this committee with some suspicion; I might almost say that some viewed it with a little hostility, but so useful was the committee in controlling the expenditure of the Departments and preventing waste that, far from hostility being shown, Ministers sought its help and co-operation. I sat on the War Office sub-committee, which was a small committee of five, and I remember Lord Derby, who was then Secretary of State for War, coming to us to help him in unravelling various problems, various scandals and rumours about waste, extravagance and profiteering, somewhat on the lines of the rumours we hear to-day.

From my own knowledge—and the records of that committee will bear me out—we literally saved the country millions of pounds. We not merely exposed many extravagances, but we prevented many schemes coming to fruition which would have involved the country in vast expenditure. I will mention one instance of the kind of thing that becomes inevitable in a time of war or panic. It came to my notice that there was a vast expenditure going on in Ayrshire at Loch Doon. Some nitwit at the War Office—we could not bring home the responsibility—devised a scheme to extend the Midland Railway from its nearest branch in Ayrshire to Loch Doon, and which was to be used as a training place for pilots. They got as far as the building of a switchback, and if hon. Members visit that beautiful part of the country to-day they will see traces of that switchback. We got on the track of this scheme just after the switchback had been constructed. The genius who had devised the: scheme had the idea that before men went across to France they should get training experience in bombing. They were to go by express train to Loch Doon and, in order that there should be no waste of time, a few million pounds were to have been ex- pended in extending the railway there. They were to go to Loch Doon for a couple of days and get experience in bombing, the idea being to bomb the switchback railway. They did not, however, realise that the switchback was not fast enough and that there was no land suitable for a landing place for aeroplanes. We were finally able to stop the scheme just in time to save the country spending millions of pounds.

There was also an ingenious scheme to build a large factory in Scotland for the production of peat fuel. That was to involve several millions of capital expenditure. They had bought the land, but had not started the factory. We found that it would be two years before there could be any output which would be of any service. Then there was the great Rich-borough scheme and the Slough scheme. Richborough is now used for refugees. Both at Slough and Richborough we see examples of some of the mighty schemes and wild proposals of officials in Government Departments which this committee, with its authority from the House of Commons, was able to stop. Hon. Members will recollect, too, the great staffs that were organised. Every day a new hotel was taken over and thousands of men were recruited for the staffs. I have a suspicion that the same sort of thing is going on to-day. Great blocks of flats and great hotels are being taken over. The busy Minister and his overburdened officials were not able to keep control, but this committee, with its authority from Parliament, was able to stop waste in a way that the Minister and his officials could not do.

I remember a great conflict that we had with the War Office staff. The Government, in recruiting man-power, were greatly concerned about the enormously swollen staffs at the War Office. We made every attempt to get information, but the Adjutant-General at the time defied us. He defied Lord Derby the Secretary of State for War, and Lord Derby in despair came to us and asked us to investigate and do what he was not able to do. It is a rather interesting story. The Adjutant-General made it clear that he did not care anything about a Select Committee of the House of Commons. We were mere civilians. We failed to get the information that we wanted. Ultimately, we reported to the House of Commons, and we were backed by a leader in the "Times." In due course the Adjutant-General was changed, and a new member of the Army Council was put in his place. That shows what can be done if Members of this House are allowed to take a share in the responsibility of administration in times like these.

I know that the right hon. Gentleman and his friends think that they have a monopoly of the brains of the House of Commons. They feel that they are such great, competent, able and efficient Ministers that ordinary back-benchers are of little importance. That is not my view. I believe there are many Members of this House of great business capacity, administrative experience and knowledge of accounts, who could do really useful work on a similar committee. What a great and mighty Government could do in wartime the present Government should be prepared to do in these times when, although we may not be actually in wartime we are—to use the phrase of the Prime Minister—certainly not in peacetime. The taxpayer has a right to know that everything is being done in this direction, and the House of Commons will be failing in its duty if it does not press the Government on this point. I do wish the right hon. Gentleman would listen to what I am saying. He has been talking all the time. I have no doubt that what I have to say may appear to him unimportant but if he has the courtesy to remain in the House he might listen. He might treat as a constructive proposal my suggestion that the House of Commons should become more direct partners in administration, and that they should be allowed to do in 1939 what was successfully and efficiently done in 1917 and 1918 when an even greater Government was in charge of the country's affairs than there is to-day.

4.39 p.m.

Photo of Mr Maurice Hely-Hutchinson Mr Maurice Hely-Hutchinson , Hastings

I feel considerable diffidence as to my ability to make any useful contribution to this Debate, more particularly as the hon. Member for Bishop Auckland (Mr. Dalton) was at some pains to point out to me that my opinion could not possibly be as valuable as his own, as I had not been in this House as long as he has.

Photo of Mr Hugh Dalton Mr Hugh Dalton , Bishop Auckland

I hope the hon. Member will not think that that was what I suggested. I recognise that the hon. Member has had special experience.

Photo of Mr Maurice Hely-Hutchinson Mr Maurice Hely-Hutchinson , Hastings

I am very much obliged to the hon. Member for that assurance, and I might in reply remind him that he and I left the same school about the same time, some 35 years ago. The Budget proposals have been so overshadowed by the issue of conscription and have aroused so little political controversy in them selves, that it is difficult to see how we can expect this Debate to be prolonged. Indeed, I think that many people regard the present Budget more in the light of an interim statement. We are expecting something more later on. As far as the proposals themselves are concerned, I think it is fair to say that my right hon. Friend the Chancellor of the Exchequer has once more succeeded in accurately gauging public opinion. There was an article in last week's "Economist" which may have come under the notice of hon. Members, which traces the change which during the past 60 or 70 years has accompanied the progressive democratisation of the nation. It shows how the ideal—the Gladstonian ideal—that money can fructify best in the pockets of the people has been forced, with the extension of the franchise, to give ground to the notion—a notion which is not yet fully proven—that perhaps it may fructify just as well in the pockets of the State itself. I think the latter is a view which is held by hon. Members opposite.

A parallel development may be expressed with fairness to both views in these terms, that the rock of sturdy individualism is gradually being submerged by the rising tide of social conscience. Whichever of these views we may hold, there is no doubt that under conditions of universal suffrage, Government finance —and this must particularly apply to the Budget proposals—must accurately reflect the temperament of the nation. I think there is little doubt that the proposals now before us reflect certain determinations of our people—the determination of all sections of the community to maintain and improve their standard of living, the determination to maintain our social services, the determination to restore and maintain our defences, and the even stronger determination on the part of every single one of us that somebody else shall pay the bill. This is the principle of collective security, of reliance on the strength of somebody else, applied to Government finance.

A year ago I suggested that we must accustom ourselves to a thousand million pounds as the average Budget for the future. I am afraid that we shall never see that figure again. I beg to claim for the suggestion only the merit of understatement. But if it is fair to call last year's Budget a warning Budget, I think the words that may properly be applied to this year's Budget are words familiar to every motorist—"You have been warned." Perhaps the most important statement of the year in regard to our national finances was the statement that was made by the Prime Minister in the course of the Debate on the Defence Loans Bill, when he called attention to the possibility that when rearmament was completed we might find ourselves in the position that the cost of maintaining our increased armaments would exceed the amount that we were able to collect annually in taxation.

I also ventured last year to ask how we might hope to finance another major war. A year ago, in times which seem happy by comparison, that appeared to be a somewhat academic question. We are brought to-day much nearer to it as a reality, and I think we all realise that if we are to maintain our currency, and therefore the value of our social services and the value of the savings entrusted by the people to the nation, the only way we can hope to finance a major war is by the conscription of men and material on a scale unprecedented in our history. The article in the "Economist" to which I have referred quotes Disraeli as having said: There is no fleet and no army which gives England such power and influence in the councils of Europe as the consciousness that our Income Tax is in a virgin state. Income Tax now is at a level of 5s. 6d. in the and in the case of larger incomes Income Tax and Surtax take 14s. 6d. in the £. It will, therefore, take the most determined apologist—it would take (if I might borrow a phrase from my right hon. Friend the Chancellor of the Exchequer) the most hardened imagination to apply the term "Virginity" to the present condition of the Income Tax paper. I would like to make some remarks regarding the suggestion of the right hon. Member for East Edinburgh (Mr. Pethick-Lawrence) in the course of the Debate last Wednesday. I refer to his proposal for a capital levy. Whenever I hear the suggestion of a capital levy I am always reminded of the conversation between Betsy Prig and Mrs. Gamp about a certain Mrs. Harris, in which Betsy Prig, if I remember aright, scandalised Mrs. Gamp by saying "I don't believe there is no such a person." That is rather my view of the capital levy. Capital is only valuable for the income it produces, and all taxes, however they may be assessed, must ultimately be paid out of somebody's income. Therefore, a capital levy merely forms a sort of notional basis on which it is possible to reach a figure which the State determines that some particular man shall pay as tax. In the same way, Death Duties, which some people regard as a capital levy, have to be paid out of somebody's income, and when the State values a person's estate for the imposition of Death Duties it is merely a notional basis for the imposition of a tax and the collection of a sum of money to celebrate the occasion of his passing.

Looking at the matter from that point of view, when we analyse the suggestion of the right hon. Gentleman for a capital levy, what we must do in the case of each individual tax-payer is to consider what relation the amount he will have to pay in Income Tax, Surtax and capital levy will bear to his total income. If the result is that the holding of capital means that more than the total income produced by that capital is taken away in taxation, and that that condition is likely to continue for a period of years, the first thing he is going to do is to get rid of the capital by giving it to somebody else. I do not know whether the person who gives away his property in order to avoid being taxed upon it is to be regarded as evading taxation. If so, the nation is going to witness the most gigantic game of hunt-the-slipper with the Chancellor of the Exchequer as the principal cobbler. But if we examine the suggestion of the right hon. Member for East Edinburgh a little more closely, there are a number of practical difficulties which arise. I assume for the moment, in spite of evidence to the contrary, that the suggestion was made solely as a practical suggestion for the raising of revenue, and was in no sense connected with a doctrine aimed at rich men as such, or in any sense intended as part of a scheme for the redistribution of wealth. I am assuming the right hon. Gentleman made the suggestion as a practical contribution for raising revenue.

First arises the difficult problem of valuation, which has been the rock on which all these proposals have been shipwrecked in the past. In connection with valuation it must be borne in mind that quite a proportion of the property which it will be necessary to value is property which only has a value when there are other equally wealthy men to whom it can be sold, such as large houses and valuable personal effects and all the paraphernalia generally associated with wealth. Then, too, there is the great disturbance of employment and the destruction of income which would accompany such a redistribution of wealth. In the third place, there is the problem of the physical liquidation of the property. This is an aspect of the problem for which there is an historical precedent of which I have no doubt the right hon. Gentleman is aware. In fact, in his speech he gave some indication of this precedent when he said: I hope no one will be so stupid as to imagine that I think that by any alchemy, still less by anything we can do in this House, we can convert a piece of land into guns, or stocks and shares into, shall we say, army clothing."—[OFFICIAL REPORT, 26th April, 1939; col. 1185, Vol. 346.] In the wars of Edward III in Flanders the King went to the hard-pressed citizens of London and asked them for what was then euphemistically called a benevolence. The citizens voted him a tithe or it may have been a twentieth part of their capital goods. But Edward III soon found that a twentieth part of a dining-room table was not the slightest use to him in carrying on his wars in Flanders, and the city had to fall back on a tax based on the more normal source of the annual produce of the country. There are other aspects of a capital levy which must be considered. There can be no doubt that it will vastly increase an incentive not to evade taxation by clever methods of concealment, but to transfer wealth to other people and so very largely to reduce that part of the Income Tax and Surtax which arises from the higher Income Tax brackets. Yet even more is this to be noticed when we consider the effect on Death Duties. Every year—I think the figures were quoted by the hon. Member for Bishop Auckland—about £600,000,000 comes under assessment for Death Duties, and of this £600,000,000, about £250,000,000 comes from estates of £50,000 and upwards; and I understand that it is on the estates of £50,000 and upwards that the right hon. Gentleman the Member for East Edinburgh is thinking of collecting a levy. This £250,000,000 of assets which are the property of people who own £50,000 and more, produces in the course of the year something between two-thirds and three-quarters—it is nearer, I think, to three-quarters—of the total produced by Death Duties, that is, somewhere between £50,000,000 and £60,000,000, and nearly all of this annual produce of £50,000,000 would be jeopardised by the imposition of a capital levy which showed any signs of enduring.

On the most optimistic assumptions of the right hon. Gentleman we cannot collect more than £80,000,000 through a capital levy on property in excess of £50,000, and meanwhile we see that at the other end of the scale he is jeopardising a revenue of £50,000,000. When we consider all these things, the physical difficulties and the threat to other forms of revenue, surely his suggestion is not a practical contribution to the raising of revenue. I wonder if hon. Members opposite have not thought out these consequences of their proposals. I can hardly believe that to be so, and one is forced to the conclusion that they are so firmly wedded to the doctrine of the distribution of wealth that they are more concerned with the establishment of their doctrine than with the raising of revenue.

What I like about the proposals of the Chancellor of the Exchequer is that they are related to the present times. Here we are faced with a deficit of altogether £400,000,000. Anybody who has had experience of Government finance knows that it is not possible to raise the money for any large sudden increase in the annual expenditure by means of taxation. A large proportion of this £400,000,000 must inevitably be raised by loan. The Chancellor of the Exchequer has concentrated on making it possible to attract the £400,000,000 which we require by loan, rather than on wasting too much effort on attempting to raise £25,000,000 or £30,000,000 by taxation. I think we may congratulate ourselves on having a Government which approaches these problems on the principle of "first things first," and for that reason, if for no other, I support the proposals of the Chancellor.

4.48 p.m.

Photo of Mr Morgan Price Mr Morgan Price , Forest of Dean

The hon. Member for Hastings (Mr. Hely-Hutchinson) is always interesting on financial matters, but I do not think he has succeeded in answering the case which has been put forward from these benches for a further contribution from accumulated wealth towards the financial necessities of the country. He argued that any step in this direction might have the effect of causing these large accumulations of wealth to be distributed in smaller units, and possibly he is correct in that assumption. That does not matter very much. If it had the effect of distributing wealth into smaller units that is socially desirable. The hon. Member would say to me that it would not give us the money. That may also be true, but we must regard methods of this kind as having manifold effects. It would help to give us some of the money and it would also be socially desirable. There is both a social and a financial aspect of the matter. The hon. Member was not altogether accurate when he put forward all the difficulties which might arise in regard to valuation. Surely we have the same principle involved in Death Duties? The Inland Revenue authorities are able to value property when it comes to collecting Death Duties.

Photo of Mr Maurice Hely-Hutchinson Mr Maurice Hely-Hutchinson , Hastings

I would remind the hon. Member that the valuation for Death Duties very often takes a year and a half or two years. What is required in the case of a capital levy is an annual valuation of many thousands of estates, far more than the number of estates which are valued each year for Death Duties.

Photo of Mr Morgan Price Mr Morgan Price , Forest of Dean

I am aware of that. Of course, I am prepared to admit that it would not be easy in the case of properties that could not be easily liquidated. However, I would go further and say that there would need to be something in addition to that which I have suggested. We have to face the possibility of there being some form of State mortgage on all property, so that if a property could not be easily liquidated for the purposes of tax, the State would have the first charge on it. We are reaching a stage when it may be that direct taxation will not be able to provide us with everything that is necessary, and we must pass over to the position of direct State participation in the wealth of the country.

Photo of Mr Frederick Macquisten Mr Frederick Macquisten , Argyll

Will the hon. Member consider this, that many people who cannot find the money would prefer to hand over an estate to the Exchequer and take the balance in cash? With such a system, land could be nationalised very quickly.

Photo of Mr Morgan Price Mr Morgan Price , Forest of Dean

The State would be entitled to say that it would not take over such a property, or to refuse to take over the whole of it. What I am saying is that the State would be entitled to say that it held the first charge upon the property. I think this would be a possible method, and it is one which I believe will have to be looked into in future. After the right hon. Gentleman the Chancellor of the Exchequer had made his speech introducing the Budget, I went into the Library and looked up the speech of Mr. Gladstone, in 1853, to which the right hon. Gentleman referred—a speech which lasted for four and three-quarter hours—and I found that Mr. Gladstone ended that great speech with a quotation from Virgil: —immensum spatiis confecimus aequor.Et jam tempus equum fumantia solvere colla. This may be translated: "We have covered the whole world in our course. Now it is time to unyoke the steaming necks of the horses." I fear there is going to be no unyoking of the steaming necks of our horses when we survey the whole world, armed to the teeth, with all the sinister forces and alignments which we see there, and when every year we have to look for those silver bullets which are to enable us to meet these dangers. Mr. Gladstone had an easy time when he surveyed the world in that four and three-quarter hours' speech, and he was able then to unyoke his horses for another year, although, as the Chancellor reminded us, he had the Crimean War coming upon him a short time later; but even that was a mere nothing as compared with that with which we are faced. The Victorian statesmen and Chancellors were able to unyoke their horses for several years after that slight unpleasantness in the Crimea. Certainly, the Chancellor has a serious problem in raising the silver bullets to meet the ever-increasing dangers in Europe, but I do not look with the same fear on the very large Budgets of these days.

Budgets of £1,000,000,000, and even more, are not in themselves very serious. It is much more important to consider for what purpose these moneys are raised. If they were used for the purpose of developing the wealth of the country, if State borrowing of money were largely for the purpose of national development, for the improvement of our various economic activities, we should be increasing the national wealth. Indeed, I would go as far as to say that in these days the Capitalist system cannot function without large investments every year by the State in some form of public works. That has been proved in the United States of America, where a very close connection has been observed between public expenditure and industrial production. In the Budget Debates last year, I quoted some figures indicating tendencies in that direction. When in the United States there was a serious depression, the pump-priming policy of the Administration at Washington tended to increase industrial production, with a time lag of from six to eight months. The Capitalist system in these days seems to be incapable of keeping the machinery of industrial production at work without there being some kind of pump priming. In this country, there are rarely fewer than 2,000,000, or thereabouts, unemployed, which is in itself an indication that the industrial machine cannot work fully and effectively under private ownership.

After the big depression from 1929 to 1931, we passed into a period of relative industrial activity. This was based very largely on house building and low rates of interest, and to some extent also on public expenditure. When the first scare of economy had passed away, there was expenditure by the local authorities on house building. All this had a very important effect upon the various trades connected with building, and in turn had an indirect effect on the consuming trades. Now, we are faced with another kind of expenditure, the expenditure on armaments. The building "boom" seems to be passing away to some extent. We are again spending very largely upon public works. Personally, I should not see any serious danger in that, for there is nothing to be said against the State borrowing or the local authorities spending largely for public works, such as housing, roads, and electricity, which would increase the national assets; but when we spend the money on armaments, we are raising a national debt and at the same time not increasing the national assets.

It may be argued that we are spending the money on an insurance policy—insuring peace, insuring that international law will be observed in Europe; but if that be so, I think it is very undesirable that a large portion of the money should be borrowed. If a large part of a private income went in payment of premiums to insurance companies, there would have to be economies in other respects. Although I do not think it would be impossible to borrow some£380,000,000 in one year if it were used for productive purposes, it is another question as to whether it is desirable to do that for the purpose of something which is not productive. I do not say that there will be any serious difficulty in raising the sum which it is proposed to borrow. I understand that the gross investment in industry, in all its various forms, in this country fell from £900,000,000 in 1937 to about £600,000,000 in 1938, owing to the temporary slump in industry and trade, and consequently, the £300,000,000 can be easily made up by State borrowing. The figures which I have quoted refer to the activities of all forms of industry, reinvestment in industry by companies money raised on the Stock Exchange, and so forth.

The objection of hon. Members on these Benches is to the raising of this money for unproductive purposes. We maintain that there is a very strong case for taking steps to see that this debt shall not become unmanageable and that measures shall be taken at an early date to handle it. I think it is agreed on all sides of the Committee that there can be no measures of economy of such a kind as would in any way interfere, with the social services—on the contrary, they must rather be extended. With regard to the measures of economy suggested by the hon. Baronet the Member for South-West Bethnal Green (Sir P. Harris), although they may be useful in some ways, I do not feel that they would really provide us with a serious contribution towards meeting this enormous bill; but I do not wish to belittle the possibilities of economies of some kind. It seems to me that there are various measures that ought to be taken if we are to deal successfully with this new expenditure. If the Government are determined to borrow this money, they must see that there is no inflation of prices or of unbalanced industrial activity as a result of the borrowing. I suggest that there is a serious danger that that may take place, owing to the fact that no real measure of State control is being introduced at the same time.

For instance, this large expenditure by the Government will have the effect of stimulating certain industries. In the absence of proper control over those industries, in the absence of a proper rationing of raw materials, in the absence of a proper price control over those raw materials, there will be a tremendous rush for certain types of material, a shortage of skilled labour, and rises in prices, in other words—the usual symptoms of inflation. This will take place in certain industries, but in other industries which are not directly connected with armaments, there will be the same stagnation as there has been for several years past—more particularly in such as the cotton industry in Lancashire and the industries concerned with the exporting trade. Therefore, we may get a kind of one sided inflation, with stagnation going on also, if we do not take strong measures to deal with the situation. Here I maintain that the Socialist solution is the only one. The State must take an increasingly active interest in and the control of all forms of industrial production, otherwise we shall be landed into an unbalanced state of affairs in which we shall have inflation in one part of our industrial economy and stagnation in another. The appointment of a Minister of Supply, for which we on these benches have long agitated, may be regarded as a step in the right direction, provided he has proper powers to insist upon priority for Government contracts. In my opinion, even that will not be enough. The Minister must have power to ration raw materials in such a way that none of those materials will go into luxury trades which may compete with necessity trades. That is bound to lead in time—and the sooner the better—to State control over the prices of certain raw materials. It will be direct participation by the State in industry.

There is another measure which, I think, might have been adopted. I understand that proposals are to be made for dealing more effectively with profits in the armaments industry. The whole of the industrial profit system ought to be subject to closer inspection. For the past 12 months we have, apparently, been in a small depression, not as serious as the great one of 1931, but serious enough to cause a drop in the yield of revenue from Income Tax and Super tax. It appears, however, that we are passing out of that depression, partly as a result of the spending of large sums on rearmament and there is the likelihood of a considerable rise in industrial profits in the next 12 months. I am rather surprised that the Chancellor did not make use to a greater extent of the National Defence Contribution, having regard to that prospect. If the right hon. Gentleman had looked ahead boldly, he might have decided that there was likely to be an increase in industrial profits in the next 12 months, and that some further contribution was to be expected from those who are profiting by rearmament. It would not be unfair that industrial profits, generally, should be asked to make a further contribution by means of the National Defence Contribution. Personally, I am sorry that the original proposal of the present Prime Minister when he was Chancellor of the Exchequer two years ago, to tax increases in profits had to be dropped. No doubt there were many practical difficulties, but at a time like the present something of that kind would be useful, and there would be less hardship in imposing it now than there was then. Then, a large number of industrial concerns were just pulling themselves out of the trough of the great depression and these would have been heavily hit, while other firms which had been making good profits for along time would have got away with them. But I wonder whether the right hon. Gentleman could not provide for a tax upon increased profits, in connection with the present National Defence Contribution on the lines then proposed. That is a matter to which consideration should be given.

If all this money is to be spent there is bound, as I say, to be greatly increased industrial activity in the next 12 months. Again, if we are to meet the situation properly, it is essential that steps should be taken to prevent capital going out of this country to the United States, through investments in American securities by individuals here. I know the Treasury have been taking steps to make that difficult and I am sure the Chancellor has his eye upon those investments, and appreciates the gravity of any consider- able export of capital at a time like the present. If he has any reason to think that investments of this nature are being made, and that there is a resulting pressure on sterling, I hope he will not hesitate to take drastic steps to stop it.

Another point is the rate of borrowing for the new loan. Whatever form it may take, whether that of Treasury bonds or of a long-term loan, it is very important that steps should be taken to prevent any rise in interest rates. We must not have a repetition of what happened in the last War, when the Government were borrowing at rates of up to 5 per cent. and even more. I am inclined to agree with Professor Keynes in something which he wrote recently to the effect that the Chancellor of the Exchequer should state openly that for some considerable period ahead, he was not going to pay more than a certain rate of interest for borrowed money.

Photo of Mr Herbert Williams Mr Herbert Williams , Croydon South

Suppose he does not get the money, what will happen?

Photo of Mr Morgan Price Mr Morgan Price , Forest of Dean

He will get it all right. The hon. Member for South Croydon (Mr. H. G. Williams) need not worry. There is plenty of money going about seeking investment. I am certain that such a step as I have suggested would steady the gilt-edged market and prevent the continuance of any fall which has been taking place. Finally, there is the point to which reference has already been made but which cannot be over-stressed, namely, that a country like ours must continue to extend its export trade. We cannot finance these tremendous rearmament programmes, and assist our friends and allies on the Continent, and feed our people, and keep up our present standard of living unless we make a big push in our export trade. I know that it is difficult to do business with the totalitarian States and perhaps we may leave them out of account but we have the American Continent, North and South, the Dominions, and South-Eastern Europe, where it is possible for us to do an increasing business. There again, the Socalist solution is the only solution. There will have to be a larger and more active participation by the State in export trade. We must organise publicly-controlled corporations or export boards, on which each export trade would be represented.

Certainly, we cannot allow things to go on as they are going. Private ownership still seeks to apply the old principle of ploughing the lonely furrow, but that will not do in these days when our export trade has become a matter of national concern in which the State has to take a practical interest. If it is clear that private enterprise cannot "fill the bill," then it is the business of the State, through the Board of Trade, to see that our export industries are brought together, that they speak with one voice, and that they deal with foreign markets in an organised and effective way. If these things are done, we may look forward to the future without those grave fears which otherwise we are bound to feel, having regard to the increasing dangers and difficulties in the situation abroad and in our financial affairs at home. In such a situation courage and still more courage, is needed by those in charge of our economic organisation.

5.25 p.m.

Photo of Mr Stuart Russell Mr Stuart Russell , Darwen

This afternoon His Majesty's Opposition, in the two speeches which have so far been addressed to the Committee from that side, have indeed given of their best. The first speaker on the Opposition side was, I understand, educated at Eton, and the second at Harrow, and no doubt they vied with each other as to which would make the more interesting speech. I do not intend to pursue the speech of the hon. Member for the Forest of Dean (Mr. Price), but I think that of the two speeches from those benches, I enjoyed his the better. I am rather surprised at the very small attendance in the Committee on both sides this afternoon considering the great importance of the subject under discussion, but no doubt, in one sense, it is a tribute to my right hon. Friend the Chancellor of the Exchequer for having presented a Budget which, if it be a hard one, is nevertheless a fair and equitable one, and has been accepted in that spirit, I think, by all parties. I should like straight away to add my congratulations along with those which my right hon. Friend has been offered already, on the bold and courageous manner in which he has faced and tackled the serious financial situation which confronts the country to-day.

When we reflect on the size of the amount which he has to find—no less than £1,322,000,000, of which £942,000,000 has to be found out of revenue—we can appreciate how difficult it must be for anybody at the Treasury to find, out of the revenues of the Crown, the moneys with which to meet those enormous demands. But great as those demands are, I think they are very largely welcomed on all sides as reflecting the growing speed with which armaments and equipment of war are now being delivered to the Defence Departments. In finding the extra money required I feel that my right hon. Friend has struck a very fair balance between direct and indirect taxation. I, for one, am glad that he did not find it necessary to increase the standard rate of Income Tax in the current year. Had he done so, I feel that that, more than any other tax, would have increased the apprehensions of industry and would, to a certain extent, have undermined confidence.

I want to say a few words on the question of armament profits. There is nobody in this House who believes more than I do that the profits of armament firms ought to be strictly controlled, and that they should not in any case exceed what is a reasonable return on capital, taking into account the risks involved in that particular enterprise, and I welcome the statement which has been made by His Majesty's Government that although a great deal has already been done in this direction, they are going to review the matter afresh with a view to seeing whether something still further cannot be done. At the same time, having said that with complete frankness, I wish to go on to say that I think there is a great deal of muddle-headed thinking on this question of the profits of armament firms. These firms are entitled to the same reward for the hazards of their enterprise as any civil or commercial firm in this country. Furthermore, let it not be forgotten that in the years preceding 1930 and 1931 many of the great armament firms in this country had deliberately kept going large works, tools, and machinery which were not productive at that stage, and in fact in some cases they were losing money, but they did it with the eye of faith, and for that this country does owe to-day a very great debt of gratitude to those firms which kept their machinery and productive capacity in being and which were therefore ready when the moment came to give their services immediately to His Majesty's Government.

A great deal has been said in these Budget Debates on the question of the conscription of wealth, and although hon. Members on the Opposition benches keep on saying that wealth is not conscripted, that will not deter me from once more stating with great emphasis that the wealth of this country to-day is being conscripted. It is no good hon. Members of His Majesty's Opposition saying it is not being conscripted because of the tremendous lot that there is left. That is not the point at all. The Financial Secretary to the Treasury, in that very happy speech which he made last week from the Treasury Bench—a maiden effort in the very important office which he now holds—pointed out that in the case of large incomes no less than 14s. 6d. in the £is being taken as a contribution to the State. That amounts to 72½per cent. and I say there is not a single hon. Member of the Opposition who, if the Government came down and took 72½ per cent. of his income, would not stand up and say that it was definitely the conscription of wealth; and many of them, I think, would go even further.

Photo of Mr Wilfred Paling Mr Wilfred Paling , Wentworth

There would not be so much left.

Photo of Mr Stuart Russell Mr Stuart Russell , Darwen

I have tried to point out that it makes no difference what the income is. I am talking about percentages which are taken away, and I am not interested in what is left. I am not sympathising with the Super-tax payers—they have plenty left—but I am saying that it is manifestly a fact that their wealth is being conscripted. I now pass to the proposition which was made in the Debate last week by the right hon. Member for East Edinburgh (Mr. Pethick-Lawrence) and which was supplemented to-day by the hon. Member for Bishop Auckland (Mr. Dalton).It amounts, as far as I understand it, not to a capital levy, but to a series of small capital levies year after year. While I realise that many things may have to be done in the years immediately ahead of us to enable the Treasury to get the money which it requires, I should be very reluctant ever to accept the idea of a capital levy, if only because of the very great administrative difficulties involved. If the money has to be found, it must be found in some form or other, and if you do not find it in one form, you will have to find it in some other form, but when it comes to having, not a levy for one year, but a series of capital levies year after year, which, in the words of the hon. Member for Bishop Auckland, are to last throughout the crisis—and that is something quite indeterminate—nobody knows how long it is to go on. I can think of nothing more calculated to undermine confidence throughout trade, industry, and finance of this country. If there be one thing which is more certain than anything else, it is that if my right hon. Friend is to be able to balance his Budgets in the future, many of which will be far more difficult to balance than they have been in the past, it will only be through the continued and, I hope, increased buoyancy of the revenue, which must depend in its turn upon confidence throughout the country and upon the prosperity and general activity of trade and industry.

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

Do I understand that the hon. Member objects to the acceptance by the Prime Minister on Thursday last of the principle recommended by the 1920 Select Committee on War Wealth?

Photo of Mr Stuart Russell Mr Stuart Russell , Darwen

Certainly not. I was trying to explain that I thought this particular form of levy was one which was most calculated to undermine confidence. It seems to me to have been tacitly assumed by the right hon. Member who put forward that idea that the amount which the Treasury would receive year by year would be a constant figure. It would not be a constant figure. If the Treasury is going to take 1, 2 or 5 per cent. as a capital levy from the resources of the individual every year, obviously year by year the individual's resources will be to that extent diminished, and the Treasury will have to impose every year a larger and a larger percentage on the wealth of the individual in order to obtain a similar result. This particular scheme has been put forward in all seriousness by His Majesty's Opposition, and I hope that the Chancellor of the Exchequer will leave the House and the country in no doubt that he rejects the scheme as one which is unlikely to help him in future to balance the Budget and which would most seriously undermine confidence.

The one most pleasing and gratifying feature, not only of the present Budget, but of all the Budgets which have been introduced so far, is that while we have been carrying through this immense scheme of rearmament, we have also been able at the same time to carry and to increase the social services of this country. That is not only important inasmuch as there is no hon. Member in this House who would wish to see the social services reduced, but because in the event of trouble or of an emergency there is no greater national asset than a happy, prosperous and contented people. But I must confess to a certain measure of alarm at the increase which is taking place in the Civil Votes. This was a subject of comment in the speech of my right hon. Friend when he introduced his Budget. He pointed out that pensions had increased by £4,000,000, that education had gone up by £1,500,000, that housing had increased by very nearly £1,000,000 and the roads by £2,000,000, and that the increase on the Civil Votes was £12,000,000 over last year. My right hon. Friend continued in words which showed that he appreciated to the full the very serious nature of what was going on, and I must say that it seems to me to be imperative that we should not overload the ship. If there is one thing which we do not want in this country, it is that the present standards of the social services should ever be reduced. We do not know what the future has before us, but certain it is that if we overload the ship now, and if we go on increasing these social services at a time when we are super-imposing this vast burden of rearmament, we are increasing the danger and the likelihood, if rearmament has to continue, of having to reduce these social services at some time, and that would be a very sad, tragic and deplorable thing.

I particularly wish to refer to the expenditure which is going on at present on roads and education. I feel that this country, burdened as it is by this vast expenditure on rearmament, can ill afford a great deal of the present expenditure on road construction and on the new central schools for education, and I find a growing consciousness of this feeling among the people in the country. I feel that the present system, whereby these spending Departments go down and offer a percentage grant to the local authorities, is a particularly vicious one. In fact, what they are doing amounts to bribing the local authorities almost to the point of compulsion—I use these words advisedly—to undertake schemes which in many cases they do not themselves wish to undertake, and if this policy is to be pursued, it is not only a very serious matter for the central Government and their finances, but also it will threaten to' undermine the finances of local government in the country.

I now come to two rather important points, and I make no apology for mentioning them, firstly because I regard them as the most important things which face us at present, and secondly because I do not think any very great attention has been paid to them so far in the Budget Debate. Although I know that my right hon. Friend the Chancellor of the Exchequer, when he comes to wind up the Debate, will find many questions to which he will wish to devote himself, nevertheless, if he has a few minutes to spare, I hope he may be able to say a word or two on the two questions which I am now going to raise. The great question which faced my right hon. Friend when he was drawing up his Budget was this. He had to find a certain sum of money. How much was he going to find out of revenue and how much out of loan? I do not know—and it would be fruitless for any hon. Member of this House to pursue the matter—what really made him make up his mind as to how much he was going to get from one source and how much from the other. I have no doubt that, at any rate to a large extent, it was conditioned by the amount that he thought he could reasonably get out of revenue without seriously undermining confidence. But easy, or relatively easy, as it may be for His Majesty's Government to borrow these large sums of money year by year for the purpose of building up and re-equipping the Defence Services of the Crown, the day will come when the maintenance charges and the recurring charges of these great Defence Departments will have to be met out of revenue.

My right hon. Friend himself has on many occasions spoken from the Treasury Box with great persuasion, and has said that he can borrow these moneys under certain conditions, for specific purposes, for a specific time, and with definite conditions laid down for repayment. That is true, and I should like to ask him what view he is taking of the future. Before the announcements last week were made the House knew that we were building an enormous Air Force and Fleet and that the Territorial Army was to be increased These were, obviously, going to burden the Treasury very heavily. Many of us have wondered what estimates the Treasury have made of the recurring maintenance charges which they will have to find for these purposes, and whether they thought they could reasonably meet them. Since then far more has happened. Now we have this Measure of compulsory national training, and we are to build up a much larger Army. That will throw fresh and grievous burdens on the British finances. I would ask my right hon. Friend whether the Treasury have really faced the problem of how they are to maintain these increased services. I know that my right hon. Friend, more than anybody else, will be the first to recognise that if we once started to try and meet the maintenance of these services out of borrowed money, it would lead immediately to the bankruptcy of the State.

I have been so far looking into the future on the assumption that there will be peace, but suppose that all human endeavours are thwarted and that we are confronted with a European war, what about the position of our finances from that point of view? I have endeavoured to press at every stage since I have been in the House for sufficient armaments to make this country secure. At the same time, I want to suggest that my right hon. Friend the Chancellor of the Exchequer will be just as important if war broke out as any of the Defence Ministers. While, on the one hand, we must have sufficient forces to prevent a potential aggressor from breaking through in an initial thrust, we must, on the other hand, have and retain that unique and priceless power which this country has always had of being able to harness its resources for a long-drawn-out war, and to beat any potential enemy because of our superior economic and financial power. In the shocking circumstances in which we are to-day do not let us run away with the idea that the only thing we have to do is to build up more and more armaments regardless of the effect it will have on the national finances. I know the serious sustained and conflicting pressure to which my right hon. Friend is exposed. On the one hand, there are the demands by the Defence Departments for increased armaments, and, on the other hand, the proper and natural restraint of his own Department in face of the increasingly grave financial position. If this country in any war in which it might be engaged should come to a point where it was unable to sustain its efforts and to keep it up of its own accord financially and economically, I believe that that day, and that day alone, would mark the decline and fall of this country and the British Empire. Of all things we have to see that we can outdo the enemy in keeping up and sustaining our effort.

I hope my right hon. Friend will not, therefore, think that the only thing he has to do is to pay for a larger and larger amount of armaments regardless of the effect which it may have upon the national Exchequer. It is a difficult balance to find, but I hope he will be successful in paying for all the armaments that are necessary, without destroying that financial strength which is the unique and priceless asset of this country. However, come what may, and whatever lies before us—and I have considerable misgivings, both on the international account and internally in relation to our finances—if the Chancellor of the Exchequer comes forward with courage to ask the British people to sustain their burdens, and any further burdens which are necessary for Defence, he will receive their support at all times. The people of this country are prepared to make any reasonable sacrifice in order to diminish the risk of war, and if human endeavour fails, and a European war should break out, it will be met in this country by a people whose courage will not flinch, and whose unity will not be broken until the hour of victory.

5.52 p.m.

Photo of Mr George Ridley Mr George Ridley , Clay Cross

One of the most significant contributions to the Debate in the last hour or so was not made in a speech, but in an interjection by the hon. Member for South Croydon (Mr. H. G. Williams). My hon. Friend the Member for the Forest of Dean (Mr. Price) was advancing an appeal to the Chancellor of the Exchequer that he should limit to 2½per cent. the rate of interest on the loans to be raised, when the hon. Member for South Croydon inquired, "Suppose he did not get his money?" It is extremely interesting to my hon. Friends on this side to know that

on that side of the Committee there is the idea that even in moments of crisis and financial stress the financiers will not lend their money unless they are as generously rewarded as they think they ought to be. The hon. Member for Darwen (Mr. S. Russell) will not, I am sure, mind my saying that if I closed my eyes while I listened to his stern and declamatory Toryism I could imagine that I was back in the days of Gladstonian debate. I will not enter into an argument about what confiscation means, but it is an interesting thing that wealthy people should make themselves more uncomfortable than they need be because they think their wealth is being confiscated when it is only being taxed. What my right hon. Friend the Member for East Edinburgh (Mr. Pethick-Lawrence) means is that we are indebt and must get out of debt and that the people who have the money with which to pay the debts must be compelled to pay them. The hon. Member did not like the idea of confiscation, and apparently he does not like the idea of further borrowing, so what he thinks the Chancellor ought to do when placed between those two dilemmas I do not know. We on this side do know; we would like a capital levy, for we do not like this borrowing process.

I am glad the hon. Member for Hastings (Mr. Hely-Hutchinson) has returned to the Committee, because there are one or two words I would like to say about his extremely interesting speech. I always listen to what he says with great interest, but always with a slight sense of disappointment. The Committee was not only interested in listening to what he had to say in general, but more than interested in the intimate revelations he made about the educational association of himself and my hon. Friend the Member for Bishop Auckland (Mr. Dalton). Many hon. Members must have ruminated on the strange processes of an educational system which produces results so curiously diverse. The hon. Member for Hastings catalogued in what was the true Tory way all the objections he could think of to the proposals made by my right hon. Friend the Member for East Edinburgh. They were fitting successors to all the objections that have always been raised whenever it has been proposed to make any kind of change in the instruments of national taxation. My right hon. Friend suggested a notional basis, but it was obvious that the hon. Gentleman did not even like the notion of a notional basis. He reminded me of Douglas Jerrold, who said that the Conservative party was so conservative that it failed to recognise the new moon because of its love for the old.

Hon. Members must have listened with interest to the opening passages of the Chancellor's speech on Tuesday. It was a very clever opening, done in the style of a man who hopes to last the full 18 rounds. Hon. Members below the Gangway must have been filled with a mixture of pleasure and amusement when they observed that the right hon. Gentleman still remembered even the names of the Liberal giants of the nineteenth century. They must have been disappointed that he did not seem to remember some of the standards which they set themselves. Mr. Gladstone observed rectitude in all his ways, even in matters of national finance, and I cannot help thinking that this Budget must even now be a matter of very grave concern to Mr. Gladstone. There was, a little after Mr. Gladstone's time, and not long before the time of the right hon. Gentleman whose career I have followed with special interest, something called the Newcastle programme, which declared that we should take our hands off the people's food and that there should be a free breakfast table. I cannot, therefore, believe that either Mr. Gladstone or Sir Henry Campbell-Bannerman would have lent themselves to the devices which the right hon. Gentleman thinks proper to adopt.

Both last year and this year he has taxed tea and sugar in the most paltry fashion. From the Sugar Duty £4,000,000 this year is being extracted from people so poor that sugar is a luxury to them, although, in terms of nutrition, it is a necessity. By the right hon. Gentleman's tax, small as it is—and it is all the more paltry because it is so small—that insufficiency is increased. The right hon. Gentleman has a Parliamentary record which I have never seen referred to elsewhere. He once fought three Parliamentary elections in one constituency in one calendar year in order to defend the principles of Liberalism. I think he wasted his money. One of the strangest things in the last seven or eight years has been the varying views which hon. Gentlemen opposite have managed to take about the standards of rectitude in national finance. Eight years ago it was a crime on Mr. Snowden's part even to dream of borrowing less than£100,000,000 in order to maintain the standard of unemployment benefit. The right hon. Gentleman still thinks he is treading the paths of financial virtue even though during the last eight years, including the proposals he now makes and taking into account the further proposals he must make in the next month or two because of the Prime Minister's statement on Thursday, there has been added to the National Debt no less than £1,000,000,000.

It is true that the debt service figure has been reduced by conversion, but it remains true that the debt service figure of about £230,000,000, which might be more happily employed in expanding the social services and uplifting unhappy lives and unhappy people, is not being so employed because it has to be used to maintain the debt service. The more the right hon. Gentleman borrows, the more the amount of the debt service must be raised, and the less there must be available for desirable social services. Just as hon. Members opposite have come in the last year or two to talk, though in the most hesitating and timid tones, about the iniquities of the Versailles Peace Treaty—though we here were talking about them 20 years ago, and in danger of our lives from some of them and their friends—so I am quite certain that before long we shall have Tory Members, hesitatingly and timidly if you like, but Tory Members notwithstanding, regretting that the capital levy proposals made by the Labour party 20 years ago were not adopted and that we did not free ourselves in one surgical operation from all the financial difficulties and entanglements which have encompassed us in the ensuing 20 years.

We are facing the prospect of a new war with the debt of the old war still round our necks, and we are improvidently adding to that debt, and in any case I join with my hon. Friend in saying I believe it to bean immoral and indecent thing that after 20 years of peace men should still be profiting out of what was for millions of other people the dreadful, the terrible and the bitter experience of war, and that we should be holding out to them even now a brighter prospect still. Only one of two things could justify the borrowing policy of the Chancellor: (a) that further taxation is undesirable on economic grounds or (b) that borrowing is justifiable for the purpose of expanding employment.

Mr. Maynard Keynes has recently contributed two articles to the "Times," to which several references have been made in this Debate. Mr. Keynes believes that, as a result of the borrowing, there will not only be substantial re-employment but that a position will be reached when there will actually be a minus quantity of labour available. The hon. Member for East Aberdeen (Mr. Boothby) referred to that the other day, and I think he would not care to remember that he said that he did not think we were in danger of reaching that "dangerous" position when everybody would be employed and nobody would be unemployed. But, on the assumption that Mr. Maynard Keynes is correct, and that the Chancellor's borrowing policy will have that result, how much bigger is the crime of the Government in refusing to engage in a public works policy over the last seven or eight years and denying to men the opportunity of working in a capacity which would have yielded productive capital assets? The Government are willing to be unorthodox in spending money which produces no creative capital assets, but are unwilling to spend money when it could produce houses or roads, or electrify railways, or supply the rural deficiencies in the matter of either water or electricity. The fact of the matter is that the Tory party does not care "tuppence" about any of these things and nothing at all about some of them; it cares only for the armed protection of its own property rights.

I regret, and I fear that my regret will live with me for a long time, that I did not hear the opening passages of the speech made by my hon. Friend the Member for Bishop Auckland. I understand that I missed a treat, as the man said at the temperance lecture when the lecturer said he had never been drunk. Why the need for this vast expenditure? In 1924–25 we were spending£114,000,000 a year on defence services. In 1939–40 we shall be spending at a minimum£630,000,000. I turned up yesterday the speech made by the then Chancellor of the Exchequer in introducing the Budget on 20th April, 1937. The right hon. Gentleman, who is now the Prime Minister, said: I cannot help thinking that the taxpayer, although he may groan and grumble at the fresh demands which are being made upon him, will find some consolation in the thought that his additional contributions represent an ever quickening approach to the goal of safety."—[OFFICIAL REPORT, 20th April, 1937; col. 1612, Vol. 322.] Not only are we not approaching the goal of safety but we are retreating, for we are being led by the Prime Minister in a constant retreat from safety through all the capitals of Europe. We are not, even on the basis of an expenditure of £630,000,000 this year, as safe as we were eight years ago on the basis of an expenditure of £120,000,000. The Chancellor of the Exchequer, Home Secretary as he then was, when addressing a meeting on 1st May, 1937, said: I tell you this with the greatest deliberation and as my own confirmed judgment. We all want to promote agreement for general disarmament. I have"— I beg my hon. Friends not to be amused— broken my heart in an effort to do what I could to promote disarmament. I am confident that the decision at which we have arrived, facing manfully this additional expenditure for our own defence, is going to produce a situation which is more likely to produce general agreement between the nations of the world about disarmament than we could ever have done by continuing alone the process of disarmament. We have got neither the Prime Minister's goal of safety nor the Chancellor's hope of disarmament. We are farther from safety and farther from disarmament than we have ever been in any of the post-War years.

How much are we paying for the new insecurities of the world in terms of Budget expenditure? How much of this new astronomical figure of £630,000,000 to £700,000,000 is accounted for by the insecurities in the Far East, insecurities for which the Chancellor himself has some personal responsibility? How much is included in this Budget figure because of the swollen vanity of the Italian Dictator, because we conceded our recognition of his barbarism in conquering Abyssinia? The Prime Minister said in this House that that recognition was only morally justifiable if it led to the pacification of Europe. As it has not led to the pacification of Europe perhaps even he does not think it is now morally justifiable. How much is included in this tremendous figure because of the Prime Minister's own incapacity last September? How much are we now having to tax ourselves because we then threw away the magnificent defences of a brave and valiant people? And is not Spain, because of the policy which has been pursued, what we on these benches have for two years insisted it would be, a grave menace to France across the Pyrenees and a graver menace to our sea routes to the East through the Mediterranean?

Do not all these insecurities that come out of a blundering foreign policy inevitably reflect themselves in the terrific figures we have to face this year? Hon. Members opposite talk platitudinously about national unity. In this matter they know little of working-class opinion. There is a widespread absence of confidence in the ability of this Government in foreign affairs to know the right thing when it sees it, or even to want to do it when able to see it.

My hon. Friend the Member for Bishop Auckland, speaking with a capacity that no one on these benches can excel, addressed himself to the problem as to the way in which these new commitments should be met. I have been browsing a little in the annual report of the Inland Revenue Commission, not, I admit, with the same capacity as my hon. Friend, but one or two interesting things revealed themselves even to my not-too-tutored mind. The Tea Duty in 1929–30 raised £43,000. The next year we raised nothing from tea, and the following year nothing, but this year we are raising£10,000,000. We are raising £15,000,000 from sugar this year. On those two essential food items in every working-class budget we are raising £25,000,000. Food taxation is, I believe, an unspeakably mean kind of theft. I do not share the opinion expressed by the hon. Baronet the Member for South-West Bethnal Green (Sir P. Harris) about the Tobacco Duty. It was Disraeli who said, I think, that the luxuries of one age become the necessities of the next, and although a Corona-Corona may be a luxury for some Members of this House the cheaper forms of tobacco are not luxuries in a working-class budget. For serious reasons they become much more necessities than luxuries, and in any case I resent the very basis of this non ad valorem type of indirect taxation. On the cheaper forms of tobacco, to-day is. 0½d. an ounce, the rate of taxation is 200 per cent. on the value of the tobacco. On the class of tobacco that most hon. Members smoke the tax burden is much less than it is on the cheaper sorts of tobacco.

One other word about the problem of inherited wealth, about which my hon. Friend the Member for Bishop Auckland also spoke. I concede for the sake of argument that there may be some case for allowing a man to become a millionaire by his own exertions, but there is no case for allowing him to lead the luxurious life of a millionaire because of the exertions of somebody else, and the Death Duties should be steepened not only as a form of revenue but as a healthy corrective to what I regard as the evil of inherited wealth. The Estate Duties last year raised £70,000,000 and this year are estimated to produce £80,000,000, and yet, according to page 16 of this report, out of the total death-population, so to speak, there were only 153,000 taxable estates, and of these only 95,000 exceeded £1,000. Of the 700,000 who, on the average, die every year, 600,000 leave nothing at all. This indicates a grossly inequal distribution of wealth and is entirely indefensible, and it is even more indefensible when the greater proportion of it is inherited wealth. I am indebted to the hon. Member for Bishop Auckland for reminding me of this extract from "The Life of William Clissold": No energetic directive people are deeply in love with inheritance. It loads the world with incompetent shareholders; it chokes the ways with their slow and aimless lives; it is a fatty degeneration of property. There are people in this House who have inherited large wealth. There was once many years ago—I had better say that it was many years ago in order to make the case as unobvious and obscure as I can—a very well-known Member of this House who, upon inheriting a very considerable fortune, changed his name. When he was taking part in such a Debate as this he declaimed, somewhat rhetorically: And what is unearned income? An impertinent hon. Member on these benches replied: The hyphen in your name. There are people in this House who have not only inherited large wealth but have gone one stage better; they have married vast inherited wealth. I should like to send each of them a copy of a wonderful book by Josiah Wedgwood, called "The Theory of Inheritance." It is now available, price 6d., in the Pelican series. In every case they should pay heavily and steeply for their luxurious conditions in whatever form they have them.

I conclude this point by stating that in my view the proposals made by my right hon. Friend the Member for East Edinburgh on Tuesday, and so ably underlined by my hon. Friend the Member for Bishop Auckland this afternoon, are desirable; and not only because only in that drastic surgical fashion can we escape from our burden and lift our heads once more when we shall be nationally paying our way, but because only in that fashion can we correct this terrible evil of the maldistribution of wealth and make it possible for unhappy people to live the happy lives to which they are naturally entitled.

I say therefore that my case against the Budget rests on these grounds: it imposes grave burdens on our people because of a foreign policy against which we have vigorously protested and as to which events have now proved us abundantly right; it leaves untapped large reservoirs of taxable wealth and stores up for future Governments—perhaps this might be one of the dodges of the game—the responsibility of balancing a badly unbalanced account; it gravely imperils, meanwhile, the development and extension of those social services by the medium of which the lives of millions of our depressed people are made more tolerable than they would be; and it makes no provision at all for the grave economic problems of the future, because it shows no sign of understanding them. It is a Tory Budget and it is the worst form of class Tory Budget.

6.18 p.m.

Photo of Mr Herbert Williams Mr Herbert Williams , Croydon South

The hon. Gentleman who has just sat down has thoroughly enjoyed himself.

Photo of Mr Edward Dunn Mr Edward Dunn , Rother Valley

You are not going the deny him the right to that?

Photo of Mr Herbert Williams Mr Herbert Williams , Croydon South

I am glad he has enjoyed himself, only he was rather miserable in the process of contemplating the unhappiness of people who know nothing of the delights, to which he referred, of a Corona Corona. I was hoping he would go on to give us further information on that subject, because the tobacco he went on to mention is precisely the same price as the tobacco that I have in my pouch. I hope that some day he will tell us more of the delights of those Corona Coronas, about which he was talking. The Chancellor of the Exchequer has had a number of compliments and I think they are legitimate. He was face to face with a problem of the profoundest complexity. It is much easier for us to criticise him than we should have found our task if we had been in his place. The hon. Member who has just sat down appears to be an enthusiastic devotee of the capital levy. There was a time when his party went to a General Election on the capital levy, but they have very carefully avoided any reference to that subject ever since, except in the last few days.

Mr. Silver-man:

When was that?

Photo of Mr Herbert Williams Mr Herbert Williams , Croydon South

It was in the 1922 election.

Photo of Mr George Ridley Mr George Ridley , Clay Cross

As a matter of actual fact, it has been our political experience that the people who have more vigorously advocated the capital levy have been more successful at the polls than those who have been more diffident on the subject.

Photo of Mr Herbert Williams Mr Herbert Williams , Croydon South

That may be true, but it is significant that the subject was subsequently dropped. I was one of the unsuccessful in the 1922 election. [AN HON. MEMBER: "The capital levy."] No, I do not think so, because a year later when the issue was not a capital levy I was again unsuccessful.

Photo of Mr Hugh Dalton Mr Hugh Dalton , Bishop Auckland

I would point out to the hon. Member that propaganda for the capital levy was just as active in the election of 1923, which was immediately followed by the first Labour Government, as it was in 1922.

Photo of Mr Herbert Williams Mr Herbert Williams , Croydon South

It may have been in those rare parts which the hon. Member inhabits, but in the parts I inhabit it was not. If the hon. Gentleman will take the trouble to study the election manifesto of the 1922 election and that for the 1923 election he will find that his recollection has slipped somewhat.

Photo of Mr Herbert Williams Mr Herbert Williams , Croydon South

The reason why we had a Labour Government in 1924 was that, without sufficient preparation, our side urged the adoption of a general protective system for which the public were not ready. As a result, we lost control of the House of Commons. That was the reason, and the capital levy played no part in 1923. I am going to make a forecast that it will play no important part in any future election, despite the speeches that have been made here to-day. It is easy to talk about a capital levy, but it involves elaborate administrative processes of valuation, a most complicated process of realisation on the part of those who are assessed and it introduces all kinds of economic shocks. The inevitable effect is a substantial increase in unemployment. I should hope for no subject better than that of a capital levy on which the party opposite should choose to fight a General Election, because it is the one issue on which I am certain we should win. I do not blame them for attempting to exploit the present situation. It is suggested that great war fortunes are going to be made, and everyone would resent that, but at the moment hon. Gentlemen opposite are banking on what they believe to be a very easy wicket. Later on they will find it a very sticky one.

The Chancellor of the Exchequer has produced a well-balanced Budget. [Laughter.] I mean balanced in the sense of its general economic distribution. [Laughter.] I do not mind hon. Gentlemen opposite having a laugh out of the fact that the word "balanced" can be used in two meanings. They appreciate the meaning in which I was using the word, namely, to indicate that the new burdens, so far as they are borne by taxation, have been evenly distributed. I think that is true. The hon. Member for Clay Cross (Mr. Ridley) was very angry about the Sugar Duty, just as last year he and other hon. Members were angry about the Tea Duty. The public remained totally unimpressed by their eloquence, and will remain equally unimpressed by their eloquence on the subject of the Sugar Duty. Sugar is one of the strangest commodities in the world. It has been heavily subsidised by every Government and is one of the few commodities which is sold below the cost of production in nearly every country. The price of sugar before this tax was put on was only 24 per cent. above the pre-war level and it will now be roughly 50 per cent. above that level. It will be one of the cheapest commodities in relation to its pre-war price.

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

How does the hon. Member get his percentage of 24, when the tax on sugar in 1914 was is. 10d.?

Photo of Mr Herbert Williams Mr Herbert Williams , Croydon South

I mean the price to the consumer. I formed my impression by looking up the prices and I find that in July, 1914, the price was 2d., while at the beginning of last year it was 2½d. for granulated sugar. I see that I have rather overstated the percentage because, if the price is 2¾., the increase will be only about 37 per cent. I was making my calculation rather hastily. It will remain cheap in relation to other commodities, and in the circumstances I do not think that the general mass of the British public will complain. That is a fair statement.

There is one tax which I think will cause the Chancellor of the Exchequer a certain amount of trouble and that is the horse-power tax on motor cars. I am not now thinking of it from the point of view of the user of the motor car. Most Members of this House own motor cars and they are all consumers and will have to help to bear this new burden. They are in a position to understand the point of view of other users of motor cars. I do not think the protest will be a heavy one, though naturally the increase in tax will press heavily on some people of moderate incomes who have to use motor cars largely in their business, and it will represent the equivalent to them of perhaps an increase of is. in the Income Tax. This tax may have an important effect on the manufacturing activities of the motor car industry, not only in supplying the home market but in supplying the export market. For years, as our postbags have borne witness, motor car manufacturers have pressed upon Members of Parliament to bring about a reduction in the horsepower tax, even though, in those days, the alternative were some higher tax on petrol. Ultimately, some three or four years ago, the horse-power tax was reduced from£1 to 15s. and I believe that the effect of that reduction was most marked. It was most helpful to the manufacturing industry and in various ways to the export trade.

It was always the view of the manufacturers that the horse power tax prejudiced them in the export market. Naturally, if a horse power tax is in operation, you design your vehicles so that for every real horse power they attract the minimum taxation. As hon. Members know, the horse power that is taxed is not the horse power that is understood by engineers but is based upon a Treasury calculation. The higher the speed of the engine the greater the horse power is in relation to the legal horse power, and accordingly manufacturers devoted their minds to the design of vehicles which attracted the minimum of taxation. Such vehicles are admirably suited for our roads which, if you take the whole mileage, are probably the best roads in the world, but they are not so suited to people who have to face the more difficult road conditions. If you design motor cars for use here they are not the most suitable vehicles in other countries where road conditions are inferior. There is not the slightest doubt that for years our industry in the manufacture of motor cars has been gravely prejudiced in the export market by the high horse power tax.

Whether things have sufficiently changed throughout the world to make this argument no longer of importance I do not know, but I cannot think that they have changed to that extent, and therefore the increase, not merely back to the£1, but to 25s., may in the long run have a grave effect upon the motor manufacturing industry and will affect employment. I know that the Leader of the Liberal Opposition said on Budget day that it was a very good thing, because he did not want people to buy motor cars. He wanted all the people engaged on motor car manufacturing to be turned on to the production of instruments of defence and he rejoiced at the increase in the horse power tax. I cannot take that view. I remember that out of the 1,700,000 people or thereabouts that are out of work, and though they are not all skilled, there is a substantial number of skilled engineers without employment.

The difficulties in regard to the shortage of labour in rearmament arise from the fact of orders being concentrated in too few firms. If there were a spread of orders we should overcome that problem and also the risk of people making large war fortunes. If there were more competition for the orders distributed by the Defence Departments the risk of unduly high prices being charged would be sub- stantially reduced. I was one of those who rejoiced when the present Secretary of State for Air appeared to have enormously speeded up the process of extensive sub-contracting, in order that there might be a much wider spread of orders. If we are to deal with profiteering in wartime—which we all dislike—the best thing to do is to stop it happening, and to a large extent that can be done by exercising greater care in the placing of orders, and also, incidentally, by the avoidance of inflation. A great deal of the profiteering in the War days was literally thrust upon the beneficiaries through the abnormal rises in prices which were the result of the inflationary policy that was then proceeding.

The hon. Member for Clay Cross is a purist; he suggests that in no circumstances should the Chancellor of the Exchequer, when he is seeking to borrow money, pay more than a certain rate of interest. When I interrupted the hon. Member for the Forest of Dean (Mr. Price) and asked, "What happens if you do not get your money?" he thought my question indicated a great want of patriotism on the part of people with financial interests. of course, anyone who possesses half-a-crown has a financial interest, but, when remarks about financial interests are made, the implication is that they refer to rather rich people. An enormous proportion of the contributions made to loans during the Great War came from allsorts of people, many of them people of quite moderate means, and a large proportion came through collectivised institutions like insurance companies and soon, whose business represents thrift on the part of great masses of people of very humble means. Millions of people are insured in these institutions, like, for instance the Prudential, which deals with a great deals of industrial insurance and all sorts of other life insurance —

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

Have you read the book of the hon. Member for Hitchin (Sir A. Wilson)?

Photo of Mr Herbert Williams Mr Herbert Williams , Croydon South

I am not saying that they are perfect, but we all know that their expenditure ratio has been reduced in recent years. If, however, people pay their contributions once a week, it is naturally a most expensive form of insurance, the administrative expenses being unduly high as compared with those of a company to whom people pay their premiums once a year, or once every half-year. That, however, has no bearing on what I am saying, which is that very large contributions to Government loans come from these powerful institutions, which are not the representatives of big wealth, but are essentially representatives of little wealth. It is their duty to invest their funds in such a way that they can discharge their obligations to the people who are insured with them. Most Members of the House are insured, and I think they would be very disappointed with the terms of their policies if their companies could never earn more than 2½per cent. Therefore, the hon. Member, when he tries to imply-that I was indicating a kind of meanness on the part of a few rich people when I asked what happened if you did not get your money, was not realising the problem that may arise.

As you get loan after loan, it becomes more and more difficult to raise money. You have to attract it in various ways, and very often from other countries. Whether a loan succeeds or not may depend somewhat on the extent to which people abroad are attracted to subscribe. Only a little time ago the London County-Council had some difficulty over a loan, and the interest was not 2½ per cent., but, I think, 3½per cent. But for the fact that the loan was underwritten, the money would not have been raised. I think about three-fourths was left with the underwriters. For a variety of reasons people were not willing at that moment to lend money to the London County Council. I agree that in time of war the impulse to lend to the State is very powerful, but to suggest that you can go on raising loan after loan without ever enhancing the rate of interest is to live in a world of delusion. On the other hand, the criticism of the finance of the Great War was to some extent a legitimate one. I think the Chancellor of the Exchequer of those days allowed the interest rates to run away. Some of the loans could have been raised a good deal more cheaply, and, in fact, were, but you cannot just dictate to people the price at which they will sell something.

Associated with this Debate and the discussion on compulsory service is the thought of conscription of wealth. I have never quite understood what that phrase meant. I understand that the hon. Member for Bishop Auckland (Mr. Dalton) defined it as a series of capital levies. I was not here at the time, as I was attending a meeting in another part of the building, but I understand that was his definition. One capital levy is bad enough, and a series might be worse unless they were so moderate in amount as to be in fact merely an alternative form of Income Tax; but, if words have any meaning, surely our system of taxation is always conscription of wealth. It is not voluntary service, at any rate. What you pay to the local hospital is voluntary service, but what is taken from you in rates and taxes is conscription of wealth. I do not think that some of those who have used that phrase know what it means. This conscription is fairly steep to-day. What Mr. Gladstone would have thought I do not know. If he had introduced this Budget, he would never have introduced another; it would have destroyed him.

If you push taxation far enough, you come to a point at which you produce undesirable results. The level of unemployment in this country since the end of the Great War—it has been persistently high except for the short-lived boom which immediately followed the War, when people were trying to make up deficiencies in stocks of various commodities and when there was a lot of rebuilding of one kind and another—has remained at about 1,000,000. I know that supporters of my party when we were in office, and supporters of the party opposite when they were in office, always tried to write the figures down, but, analyse them as you may, it remains true that the published figure represents substantially the real unemployment that prevails, and it continues to do so. In pre-war days, in times of good trade, the unemployment figures dropped to about 350,000 or 400,000, and that roughly represents the kind of figure that comes about from seasonal changes in employment and the great mass of transitional unemployment which must always happen under whatever system you may live. We have been running with an unemployment figure of at least 500,000 more than that, even when things have been at their best; and the one outstanding factor in which our conditions have differed from those of pre-war days has been an abnormally high level of taxation. I believe that that is the cause of unemployment, and I have always advo- cated making the burdens as moderate as possible. After all, the greatest social service you can render to an unemployed man is to get him a job. There is nothing more pathetic than the existence of great masses of people whose employment is casual to a large extent, or who are unemployed for substantial periods. The most demoralising, degrading thing that any one can suffer is long unemployment. Our burden is very heavy. You impose very heavy burdens on rich people and rejoice, but, if you carry your taxation to the point at which, in the higher ranges, a man retains 3s. 6d. out of £1, which is the combined effect of the National Defence Contribution, the Surtax and the Income Tax—

Photo of Mr Herbert Williams Mr Herbert Williams , Croydon South

At the £50,000 level what is the economic effect upon such people? They are just ordinary human beings. When you get to the point at which, out of every extra £1, only 3s. 6d. is retained, what is the effect on the ordinary person? He sometimes speculates whether a new enterprise, which from its very nature is hazardous, is worth undertaking, when he knows that if it fails he loses his £1, while if it succeeds and he makes £1 he only gets 3s. 6d. of it. At that stage you destroy the possibility of certain enterprises being undertaken, and it has been speculative enterprises, undertaken by people with large margins, that have started many new industries. If you destroy that incentive, you may say it does not matter; the individual will still have plenty of money left. That is quite true. You have not hurt him very much; he will still live a happy and comfortable and even luxurious life. But you may destroy the employment of great masses of people. The same effect is produced in various ways by very high levels of Estate Duty. The changes in the Estate Duties will not make any difference to me, and I am not particularly concerned with the change in the rate of Surtax, but I think it is a mistake not to realise the ultimate effect of a level of taxation which is too high.

During the War, when the Excess Profits Duty, the Super-tax and the Income Tax meant a 2s. margin on every extra £1, even in the case of people with relatively moderate incomes, the results were demoralisation, waste, extravagance —evils from which it took industry a long time to recover; and that is a word of warning which I would address, with great respect, to the new Financial Secretary. The Government have announced a proposal to prevent the accumulation of war fortunes. With that aspiration we all sympathise; but we have doubts as to whether, when it comes to be put into operation, great difficulties will not arise. We are not only discussing what is in the Budget; an addition to the Budget was made by the Prime Minister on Thursday. A tax on war fortunes, whatever form it takes, is going to be a matter of profound difficulty and complexity. Accountants and members of the legal profession will do very well out of it, because they will be extensively consulted, as they have been in the past.

We are carrying an enormous burden, and I am certain that the nation will face it, because they realise that it is necessary; but some people rather wonder why at this time, when we have to face this appalling burden of rearmament, we should still think it necessary to be extravagant in every other direction. I have no doubt that an examination of our civil expenditure, would disclose a considerable measure of expenditure that produces no result comparable with the amount of money spent. Civil expenditure in this country has increased by nearly £200,000,000 in the last 10 years, taking the expenditure of the central Government and that of the local authorities. That is a very large increase. I see that in the last year the amount raised by local rates increased by about £13,000,000. The total raised in rates was reduced, round about the year 1929, by the Local Government Act, which transferred the raising of a block of money from the central Government to the local rates, and accordingly a comparison with that year is misleading. The local rates, which had fallen to £164,000,000 in 1932–33, are estimated, for the year which has just finished, at £210,000,000. That is a very large increase in a short period. I know that in the latter figure something is included for A.R.P., but, as the bulk of the A.R.P. expenditure is a central Government charge, it cannot be a very large proportion of the total local expenditure, and, judging by reports that I see of the amounts which have been decided upon for rates for the coming year, we shall probably see another increase of £10,000,000 when we get the Budget a year hence, provided that no other disturbance occurs in the meantime.

These burdens are becoming oppressive. If anyone protests against the magnitude of our civil expenditure, he is represented as selfish and mean-minded, but there must be a balance. It is a matter for debate whether a half-crown is better in my pocket or in someone else's —whether it is better expended by the private individual or by the State or the local authorities. I am quite certain we have raised the burden of rates and taxes to such a level that, but for the patriotic sense of our people that they must bear these burdens because of other dangers, the public would not tolerate them. Although they realise that it is right to make sacrifices at this moment, many of them think they have been called upon to make undue sacrifices, and I see the possibility of a revolt against burdens which they think are oppressive and sometimes unnecessary.

6.46 p.m.

Photo of Mr James Ede Mr James Ede , South Shields

I can only say, in answer to the speech of the hon. Member for South Croydon (Mr. H. G. Williams), that it confirms the doubts that we have on this side of the Committee as to whether any announcement by the Prime Minister or the Chancellor about taking any adequate toll of wealth, in the matter of war fortunes is very well founded. I could not understand why the hon. Member had any doubt as to what the thing meant, because I believe he was in the House the other evening, when the Secretary of State for War said, with regard to the question of dealing with wealth in war time: The principle of the conscription of wealth has long been accepted. … My right hon. Friend has indicated that we are going to conscript wealth still more. If you have conscription of industry in the manner that I have described"— that was, through the Ministry of Supply— if you have conscription of profits and conscription of wealth, why should you not also have conscription of the men who use what both the conscription of industry and the conscription of wealth can provide?"—[OFFICIAL REPORT, 27th April, 1939; col. 1453, Vol. 346.] He went so far as to reverse the argument that had been made all day, and said: "We have granted you conscription of wealth, and, therefore, how can you deny us conscription of men." I do not think the efforts he made to answer my hon. Friend the Member for Clay Cross (Mr. Ridley) and the speech of my hon. Friend the Member for the Forest of Dean (Mr. Price) have influenced us much. In view of the statement that the Government did not mean to allow increases of wages of workpeople, it is not too much to say that the wages of money—that is, interest—should be similarly controlled. I am using not the argument that I should like to advance, but the arguments made from the hon. Member's own side. The hon. Member referred to the frame of mind that results from continued unemployment. I have noticed since the severance of the hon. Gentleman's connection with the Treasury Bench the same bitterness, and I have no doubt that if he were still on the Treasury Bench he would find no difficulty in mouthing the usual formulas.

Photo of Mr Herbert Williams Mr Herbert Williams , Croydon South

Does the hon. Member not think that if my place were different, the formulas might very likely be different?

Photo of Mr James Ede Mr James Ede , South Shields

I cannot imagine that the hon. Gentleman's fertile mind would ever be allowed seriously to influence a Government in which he might be included. It is one of the evidences of what Milton called "the calamitous aspect of our times" that this colossal Budget no longer excites any interest in the Committee. Everyone realises that the control of the Budget has long passed from the Government. The figures are just brought here —£1,322,000,000 when they are announced. The next day the Prime Minister gets up and makes an announcement with regard to military policy, and it is quite clear that £1,322,000,000 is now not even a rough approximation to the figure the country will have to raise. During the course of the financial year £100,000,000 or £200,000,000, even if there is no war, may be added, and no one will feel that the Government can control events. We have long since got past the day when the Government even pretended to control the Budget.

Several of my hon. Friends on this side have been inquisitive as to how the amount to be provided by loan and the amount to be provided by revenue are fixed. There is no indication that there is any science about the matter at all. As much is loaded on to the taxpayer as the Government think he will stand without jibbing, and the rest has to be provided by loan. If they thought he would stand another £30,000,000 or £40,000,000 or £100,000,000 or £200,000,000 by taxation, it would be put on. In the present case it is not settled on any basis other than the belief that£942,000,000 is as much as you can expect to squeeze out of the pockets of the people this year without some reaction that might be damaging to our prestige in foreign countries.

The hon. Member for Darwen (Mr. S. Russell) asked what they were going to do with regard to the financing of these enormous armaments when we have secured them and have to maintain them. I thought the answer to that had been given in advance by the Prime Minister some time ago, that these armaments were now so huge that it would not be possible to maintain them out of revenue. When we have these armaments there is no sign that we shall have reached the maximum, but if it is possible to imagine a state in which we have reached the maximum, we shall still have to maintain them out of loan. The whole business is like the piling up of a snowball. If that policy is to be pursued there must come a time when the snowball will crush the people who happen to get in its way. I see no indication that any serious thought has been given to the financial problems which are confronting us. We are financing ourselves just as recklessly as we did between 1914 and 1918. I recall that on the first day on which the late Mr. Asquith made a demand on the House for men and money the "Daily News" recorded the fact that the Prime Minister had asked for 100,000 men and £100,000,000 of money. The "Daily News" said: With one breath he wiped out all the savings in the National Debt of eight years of Liberal Government. Now, £100,000,000 is neither here nor there. We propose that this Budget shall be made workable by raising £380,000,000 out of loan, and no one believes that we shall get through the year without substantially adding to that figure. The hon. Member for South Croydon, in his allusion to my right hon. Friend the Leader of the Opposition and his attitude towards motor cars, has not quite followed the statement that my right hon. Friend made. The correction which is necessary is so important that I hope the House will allow me to read what my right hon. Friend actually said.

Photo of Mr Herbert Williams Mr Herbert Williams , Croydon South

I referred to the speech made by the Leader of the Liberal Opposition. I thought I made that clear. [HON. MEMBERS: "NO."] Then I apologise.

Photo of Mr James Ede Mr James Ede , South Shields

That may clearly have been a slip, but no one can imagine that the Liberal party, from the interest they are taking now, have any strong views. I understand that the other night, like Gaul, they divided into three parts; one supporting the Government, another opposing them, and a third desiring to think things over. Now they have lost interest altogether, and we have not even an ex-Liberal on the Treasury Bench—and I am sure it looks all the better for that. Although I accept the hon. Member's explanation, I am sure he will not mind my reading what my right hon. Friend said, because it represents a point of view that I was going to put forward myself. My right hon. Friend said: I would have liked to have seen a heavy tax on the very expensive motor car; I would have liked to have seen the tax on horse-power graded so as to fall more steeply, and with ever increasing steepness, on the highest-powered cars than on the ordinary working car which is used for business or for the purposes of the simple pleasures of very humble people. It would have had a far better economic effect."—[OFFICIAL REPORT, 25th April, 1939; col. 999, Vol. 346.] I desire to support that point of view. I do not know what the experience of other hon. Members is, but if ever I reach the stage at Petty Sessions where I have to consider whether there are special reasons why a driver's licence should not be suspended, I am almost inevitably told by the driver that he requires the car for the purposes of his business. It is astonishing the number of quite small people, men clearly with incomes of £4 or £5 a week, and men with very fluctuating incomes, commercial travellers and others working on a commission basis, who find a car essential for the carrying on of their business under modern conditions. There is no doubt that the discovery of the internal-combustion engine is responsible for a lot of the evil in the world to-day, but it has made it possible for the kind of persons to whom I have alluded to be able to see a large number of people in the course of a day and to link up a considerable number of districts quickly and economically. The increase in the tax proposed is, for those persons, a staggering addition to their expenses.

If there was a desire on the part of the Government—and I gather that may have been in their minds—that the production of cars should, to some extent, be restricted, so as to leave a certain amount of the skilled labour now used on the production of private cars available for producing vehicles and other mechanical equipment for the Army and for other processes for which the labour was suitable, they have considerably overdone anything they proposed to do by the injury they have inflicted on this very deserving and very struggling section of the community. Most of these people are living on a very narrow margin, and even this very small tax will mean a substantial addition to their expenses, which they will find it very difficult to meet. I sincerely trust that during the course of the later proceedings on the Finance Bill it may be possible in some way or other to graduate this tax, without the Treasury losing any of the money they expected to get, so that this particular section of the community can receive some relief from the oppression that at present appears likely to fall on them.

It is very noticeable that both the hon. Member for Darwen and the hon. Member for South Croydon made an attack on the amount of money that is being spent on the social services. True they do not want to harm them at the moment, but it is quite clear that, if they had to choose the expenditure to be cut down, that would be the first they would sacrifice. They are not even dissembling their love; they have not decided to kick the wretched victim downstairs, but if the victim is capable of doing it, it will be well to make sure that the seat of its trousers is well padded, because there is no doubt a good kick will come, if some of these people have their way.

I was particularly struck by the two services that the hon. Member for Darwen selected for cuts—roads and education. With regard to roads, anyone who is connected with highway administration in the country must realise that we have very few roads that are capable of carrying a mechanised army, if it is to be moved from place to place with anything like speed and safety. Although it was never admitted in the House, I think all of us felt at the time that the Trunk Roads Act was an effort to ensure that the great military highways of the country should be properly constructed, and that there should be no doubt about their being ready in time. As I see these various projects that the Ministry of Transport favours in various parts of the country, I am bound to say it seems to me that at the moment the requirements of military transport are very much in the minds of the Ministry of Transport, and that any effort to economise there would really mean that we should be lessening our military preparedness. I remember in one of the great speeches of the right hon. Gentleman the Member for Epping (Mr. Churchill), before he had converted the Government to his point of view, he was summing up the military expenditure of Germany and, referring to its new highways, he asked, "To what points do these highways lead?" and he replied, "To the frontiers."

Well, if we examine the trunk roads that were scheduled to the Trunk Roads Act of a few years ago, we shall find that those roads also lead to the frontiers. The roads that go through the constituency of the hon. and learned Member for Ashford (Mr. Spens) go to the ancient frontiers of the country, to the Channel ports; and, quite clearly, the improvements that are being made on them are designed with a view to linking up London, Chatham, and the military centres in Kent, with the ports from which the embarkation of mechanically-propelled vehicles would have to take place in the next war, as they did in the last. It does not seem to me then that there is much chance of any real economy on highways unless we are going to interfere with the military preparations that are being made. In fact, one of my fears is that we are so concerned with these matters that we are disregarding every other consideration with regard to highways. I see that in the County of Surrey and elsewhere proposals are made for constructing these great highways across commons and other places, quite regardless of the beauty of the scenery or anything else, in a determination to get military traffic by the quickest possible routes to the ports.

Then the hon. Member for Darwen selected one particular form of education against which to declaim, and that was the new central schools. I should have thought that if there was one piece of education—again, from a military point of view—which we could not afford to neglect it was that; because under the Act of 1918 every central school has to have regard particularly to the provision of what is called there practical education, that is to say, education in handicrafts; and if there is one thing that appals me it is the fact that, although we have for a long time had a very large number of unemployed men in this country, we have heard from time to time that the munitions programme has been delayed because of the lack of available skilled workmen. Anything which tends to give skilled handicraft an equal position with other forms of skill in education is a thing to my mind greatly to be welcomed. From that point of view any attempt to slow down the provision of central schools, where these forms of education can be provided, is a thing that from a social and educational point of view, is greatly to be deplored. I cannot imagine, therefore, that the Government are likely to be attracted at the moment by anything that those two hon. Members have said this afternoon.

I feel, with regard to this Budget, that as my hon. Friends have said more than once, we are witnessing the working out of the failure of the whole policy of the Government. The Member for Clay Cross made some quotations which I was going to make myself—and therefore I will spare the House the repetition of them—from the Budget speech of the Prime Minister in 1937, and from the speech made by the right hon. Gentleman the Chancellor of the Exchequer with regard to the future if we would only embark on the policy of rearmament that they then commended to us. They have during their term of office deserted the policy of collective security. For at least three years of this Parliament collective security, even when the Front Treasury Bench was still nominally committed to it, was gibed at by the hon. Members behind them who were supposed to be their supporters. They won the General Election by a statement that support of the League of Nations was the keystone of their policy. They have destroyed collective security, -and now we are financing collective insecurity, because they are giving pledges only to people who feel insecure. One almost gathers that if you feel secure you will not be admitted to this privileged group. There will be no reason to think now that anyone who feels secure will have any fellow-feeling for a person who is temporarily insecure. I do not know that they have yet issued any note of warning to people who are secure that they had better keep away, but when I see the list of people whom they have tried to get in, I am sometimes reminded of an eighteenth century rhyme that used to be quoted against the Dissenters: We are God's chosen few.All others will be damned.There is no place in Heaven for you,We can't have Heaven crammed. I sometimes feel that this new policy is being pursued from that point of view. We have got collective insecurity, as opposed to collective security. When we left office in 1931 it was collective security allied with a policy, that then looked hopeful, of a substantial diminution in armaments throughout the world. Now we have collective insecurity and everybody promising to build bigger and bigger armaments as collective insecurity grows. And with all that growth of armaments there is no feeling that we are nearer safety than when we started it. We feel a great deal less secure to-day than we did two years ago, and each of the great peace missions of the Prime Minister has been followed by a quickening in the development of armaments in this country.

It is a sad commentary on the events of the past eight years that, while all this money is being spent, there is no one anywhere in the world to-day who feels as secure as he did eight years ago before this mad race was started. I cannot imagine that Herr Hitler or Signor Mussolini, or any other person who may be supposed to be disturbing the peace of the world, is animated by a selfish desire to share the possesions and homes of the people who live in the back streets of my constituency. I really do not think they desire to do that. I am quite sure that if there is any attempt made on this country it will not be on the poverty of the country, but on its wealth; and while that remains true hon. Members opposite must not be surprised if we oppose these additional taxes placed on the poor, the sugar tax and the tobacco tax, and think that those who have great possessions to be saved should shoulder an ever-increasing share of the burden of providing the defences which, if they are ever used, will be used in defence of them.

The hon. Member for Darwen said that wealth is conscribed at present to the tune of 72½ percent. on the higher ranges of income. May I say that that leaves 27½ per cent.? From that useful little book "Dod's Parliamentary Companion" I gather that to the hon. Member for Darwen the last War must be a matter of history. He could have taken no personal part in it. But those of us who did take part in it know that when a man is attested for the Army, whether it is under conscription or as a volunteer, he completely signs away his whole will and life while his enlistment lasts. There is no 27½ percent. left to him to do what he likes with. He may be among those groups whom we propose to conscribe, a man who will be sent in a forlorn hope against the Siegfried line. He may reflect as he waits for zero hour, as many men did during the last War, that only by a miracle can he survive, and miracles rarely happen in those circumstances. And it is quite futile to suggest that anything that wealth has so far been asked to bear is comparable to the obligations placed on a man when you take him out of civilian life and place him in the military machine, where he has to obey every order, even when he knows that the order is stupid and mistaken and must lead to disaster for himself and those with him. I have not yet heard anything from the Treasury Bench which convinces me that in the coming year, if we manage to avoid war, or during the course of any war that may arise, any comparable sacrifice to that is going to be asked for from those who are in the possession of great fortunes.

The speeches of the hon. Member for Darwen and the hon. Member for South Croydon convinced me that, no matter what is said on the Treasury Bench, there is a great belief among the supporters of the Government that great wealth in the next war will be able to evade and to avoid its responsibilities just as it did in the last War. We have only to bear in mind what the right hon. Gentleman said in introducing his Budget. In spite of all the care that has been taken by the present Chancellor of the Exchequer and by his predecessor to stop up the leaks in the Income Tax law, he tells us that the ingenuities of his own profession are still sufficiently wily to enable men to provide fresh means of avoiding the taxation which this House intends to place upon them. He proposes this year to introduce fresh measures to prevent the evasion of taxation and to make it retrospective. We on this side of the Committee regard that as one of the best proofs that, while the present Government remain in office, we are unlikely to see the fulfilment of the pledges given during the course of the past few days with regard to making wealth pay its proper share for its own protection in this country, and we are bound to regard the year that lies ahead of us as one in which no satisfactory arrangement has been made or is likely to be made for the financing of the country. We must hope that, at as early a date as possible, the right hon. Gentlemen who might adorn the Treasury Bench, if they would only pay the House the compliment of attending it, and the hon. and gallant Gentlemen who temporarily fill their places, will be transferred to places where their responsibilities will be less and their opportunities for doing evil will be considerably circumscribed.

7.17 p.m.

Photo of Sir Adrian Baillie Sir Adrian Baillie , Tonbridge

I do not want to follow, at least in a controversial sense, some of the observations which have just been made by the hon. Member for South Shields (Mr. Ede) as far as security or insecurity is concerned, but I for one definitely feel that our country is a great deal more secure to-day than it was six months ago. Every hon. Member who has spoken this afternoon has referred to the question of the conscription of wealth. It has at least been established that there is some form of conscription of wealth in this country, and it is merely a question of how much. The hon. Gentleman the Member for Bishop Auckland (Mr. Dalton), in opening the Debate this afternoon, seemed to feel that the Chancellor of the Exchequer in his Budget Resolution had not increased that conscription of wealth sufficiently, that he had not raised Surtax sufficiently nor were the Death Duties sufficiently high. After referring to one of Mr. Gladstone's expressions, "the rich man's ransom," he said that all the Chancellor of the Exchequer produced was a few fleabites, and he seemed rather pleased with this expression that the only way that he could refer to this extraction was that it was a "miserable nibble." If he would refer to the leading article in one of the popular papers last week he would see that at least the leader writer did not quite agree with the hon. Member. On the contrary, he said that the Chancellor of the Exchequer had seen to it, by raising the Surtax, that the rich would pay in this life, and that by raising the Estate Duties he would have then borrowed words from the burial service, "We brought nothing into this world; it is certain that we can take nothing out."

The Debate has ranged over rather a broad canvas and on very general lines, with a few exceptions, and I would like to come down from the general to the particular, in one instance. At the conclusion of the Chancellor of the Exchequer's Budget Statement a week ago I was very pleased to be able to agree with the great majority in this House that it was a very fair Budget, especially in that it created a fair balance between direct and indirect taxation. An increase in direct taxation at this time would have been a direct increased burden on industry. On Thursday of last week the Prime Minister referred specifically to my right hon. Friend the Chancellor of the Exchequer's statement in that regard, that my right hon. Friend did not desire in any way through his taxation to hamper or hinder the revival of industry which had recently been going through a small recession. Bearing that statement of intention in mind, I have been encouraged to draw the attention of the Chancellor to a new industry which will probably have to be closed down if the resolutions in regard to the Customs and Excise duties on cinematograph films are applied to it. I refer to a comparatively newly formed industry in this country, which operates a process of motion picture colour photography known as technicolour. The process was originally American-owned, and until the licences were acquired for a British company, the benefit of technicolour photography was not available to British producers. But as the result of the formation of this company a short time ago, there have been such outstanding British productions in colour as "Sixty Glorious Years," "The Drum," "The Mikado" and "The Four Feathers," which have been made possible only by the establishment of this new industry in this country.

I want to make no bones about it, and I confess right away that I am a director of that company, and for personal reasons I would willingly have preferred another Member to raise this point, but I am the only Member of the Committee who has a first-hand knowledge of the facts and circumstances. I hope I shall be allowed, with apologies, and with the tolerance of the Committee, to draw attention to the specific case to which I would ask my right hon. Friend to give attention. This company has been in operation for only two years, but, on the basis of operations equivalent to the year 1938, the import duties and excise duties under the new Schedules would amount to approximately £50,000 import duty, and £26,000 excise duty. The total duty charged last year was nearly £29,000. So there would be a rise in one year of £47,000 in Customs and Excise duties taken together. I was further encouraged to take the earliest opportunity of drawing the attention of the Chancellor of the Exchequer to this, because in announcing these duties he expressly stated that he had no wish to hamper the production of British pictures. I submit that if the Finance Bill is in a form which may be anticipated, colour film productions will probably have to cease entirely in this country. These particular duties do in fact bear very much more heavily—eight times more heavily—on colour film production than they do on the ordinary black and white. Whereas the British importer of foreign films pays effective import duty only on one copy of black and white film, from which any number of prints for distribution can be made in British black and white laboratories, Technicolour would have to pay import duty on no fewer than eight copies in order to make one print. This results from the necessary use and manufacture of technicolour prints of intermediate film materials between the negative stage and the final film stage, all of which intermediate materials are obtainable only in America.

In 1938—and this is of some importance to the Committee—the foreign sales from the Technicolour laboratory amounted to 4,210,000 feet, or about 30 percent. of the total sales of the product of that laboratory, and the net proceeds of these foreign sales was £48,000. It is obvious that the foreign distributors of American or British pictures who can obtain exactly the same quality of product from Hollywood will take that course in order "to avoid payment of the increased cost of our British product resulting from additional import and excise duties. There can be no doubt that the substantial export market which we have been building up during the last two years will be wholly eliminated. In addition to the anticipated loss of our export business—and I stress this point, having regard to the importance which is attached to increasing export trade in all possible directions—it is reckoned that these increased duties will in one way or another, in the home market as well, bring up the total loss of trade to approximately 50 percent. It is estimated that these duties will therefore increase the cost of one foot of film by more than 2.2d., which in itself is greater than the actual duty which it is suggested should be put upon the importation of foreign film.

I realise that I am rather a lone voice and that a proper presentation of this case is bound to involve a lot of technicalities. I had thought of putting down an Amendment on the Paper, to be discussed on the Report stage of the Resolutions tomorrow, but it seems to me that even an Amendment would be so complicated and technical to argue that I would rather take this opportunity of drawing the attention of my right hon. Friend to this matter in the hope that he will see fit to discuss it with his officials. I hope also that a meeting may be arranged between the appropriate officials of the Government and the technical directors of the company itself, so that some relief from these burdens may be worked out. Otherwise it is almost certain that this small but new and vastly important component part of the industry will, if these duties are insisted upon, have to close down, and skilled employéwill lose their employment. In addition to that, the Exchequer will lose the value of import and excise duties, which, I hope, as the result of the renewed study of my right hon. Friend, will not even be decreased, but will be increased in the future.

7.30 p.m.

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

In these Debates there is a danger of repeating stock arguments. It is becoming increasingly the habit of Chancellors of the Exchequer to come to this House and to present taxes in a very peremptory way, without giving any economic reason for them or reviewing their consequences in the country. That was most obvious when the motor duty was suggested. The Sugar Duty was introduced pretty much on the same lines as the Tea Duty, on the pretext that by putting a tax on the common commodities used by the common people you were in that way receiving from them a contribution towards the expenses of the State. Perhaps I shall be forgiven for repeating a reply which I gave to that kind of economic sophistry once before, and it is this, that all taxation is a deduction from wealth produced by the community, and that it is only the producers of wealth who produce the wealth. Therefore, all taxes deducted, whether they be Super-Income Tax, Tea Duty or any other kind of tax, are drawn from the producers of wealth. It is necessary to say that, because the fallacy seems to run current in almost every speech of Chancellors of the Exchequer that there are what is termed wealthy people and poor people in the State, that the heavy taxes fall upon the wealthy and that the wealthy pay nearly all the taxes and the poor pay very little.

Not infrequently, before the Chancellor of the Exchequer comes to a tax on tea or sugar, he says, "We will now call upon the poorer section of the community to make their small contribution." The fact is that it is the work, by hand and brain, of the producer of wealth that pays all the taxes. The people who are called wealthy people and who, according to current conception, are the great contributors to taxation, are, owing to some malformation or ill-adjustment in our social structure, able to have vast incomes because they are able to extract fortunes from the common pool of wealth. The real truth is that it is the working class, by hand and brain, the organisers of labour as well as the worker, who are the people who produce the wealth and, therefore, pay all the taxes. I would appeal to Chancellors of the Exchequer not to insult the intelligence of the average reasonable person by going along the old lines and suggesting that the rich pay all the taxes. The fact is that the rich, the Super-Income Tax payer has taken the money out of the common pool of wealth. When the Chancellor of the Exchequer says that he is putting a little extra on tea or sugar so that the working classes may contribute, let him remember that it is they who pay all the taxes. The man who produces nothing really pays nothing. If he is in a position to pay something of taxation and he is not a producer, it can only mean that he is in a favoured position, where he is able to extract a vast fortune without doing any service.

There are only two bases upon which taxes can fall. I know that I am reiterating an old doctrine, which the present Chancelor of the Exchequer may deem it impertinent on my part to repeat. He knows all about it, just as I do. I was brought up in the same school of thinking as the right hon. Gentleman. You can levy taxation only upon the value of things produced by human labour, be they commodities or income, or you can levy your taxes upon the value of land. These are the only two bases upon which taxation can fall. When are our Chancellors of the Exchequer going to face the central fact that if you put taxes upon the value of things produced by human labour you make them dearer by the amount of tax you levy upon them, you hinder production, and as a net result you give rise to unemployment? That is the result of the canons of taxation which prevail in the minds of Chancellors of the Exchequers here and in other countries.

Taxing the results of human labour and the value of things produced by human labour has a disastrous economic effect upon the community. The Chancellor of the Exchequer knows that, and in saying this I am, as it were, teaching my grandmother how to suck eggs. But there the right hon. Gentleman sits, "cabin'd, cribb'd and confin'd" in this vortex of a so-called National Government, representing Liberal opinion, if you please, in that Government. What I am telling him now he knows to be pure Liberalism. I hope he will forgive my giving him this elementary lecture on things which he knew so well years ago. As he is no longer present, may I in his absence say that I hope he will read in the Official Report to-morrow my statement that the whole aim and object of Liberalism was to untax the people, to untax the product of industry, to throw off the shackles that tended to stop the enterprise of man in producing more wealth. That has been the whole doctrine of Liberalism. If we are to pursue the policy of placing taxes upon industry and upon human efforts, we shall find increasing difficulty in raising the taxes that we need.

That brings me to this point, which, I am sure, would be appreciated by the hon. and learned Member for Ashford (Mr. Spens).He will know exactly what I mean. The only other basis upon which taxes can be levied is the value of land. The owner of land who takes rent is a parasite upon society. In any intelligent community that ought not to be tolerated for five minutes. I remember an old Irish lady saying: "In Ireland we have shot landowners for 700 years, but in England they put them into castles and call them gentlemen." The landowner as a rent receiver draws not in proportion to any honest effort he renders to society, but in proportion to the pressure and necessity of the community in desiring to use the land which he says is his. Here is a value which if taxed would not hinder production. He is a value created not by the person who receives it but by the community. Here is a providential fund that can be taxed, instead of taxing tea, sugar, incomes and the fruits and results of industry. But in this House of you mention it it almost suggests a smile. It is looked upon as a sort of crank idea.

Conform to natural law in your canons of taxation, or outrage natural law by continuing the way you are going, and there is only one result, which has been self-evident in some of the speeches delivered from the other side to-day. If you go on piling up these mountains of taxes upon industry and enterprise, sooner or later the whole structure is bound to collapse. Why should we have all this trivial talk and nonsense about saying we will tax motors now, we will tax sugar to-morrow and we will tax lipstick the year after? One hon. Member said that taxation has now got no science about it. It would seem that the Chancellor of the Exchequer walks round a multiple store, with eyes wide open, to see the commodity that can bear a tax. It is tantamount to childish madness.

The hon. Member for South Croydon (Mr. H. G. Williams) to-day made a speech, with a good deal of which I agree. What was the main burden of his complaint? Before the War, he said, the Budget was about £250,000,000 and today it is £940,000,000. That shows the upward rise of taxation. Add to that the fact that before 1913–14 the local rates collected in England, Scotland and Wales totalled £73,000,000, compared with £200,000,000 to-day. There, again, as the hon. Member for South Croydon pointed out, we have an indication of the terrible pressure that is being brought to bear upon industry and enterprise, and upon local funds. He told us that the enormous weight of rates was bound to bring about a reaction in the local authorities, and he said something that was quite true, that there is a state of affairs arising now that even the Government are afraid may mean a violent reaction against the whole of our rating laws. The hon. Member for South Croydon seemed to suggest that we should stop spending money on the social services, if we are to avoid the bankruptcy of local government. He also stated that much of this money was needless expenditure.

The hon. Member said something with which I entirely agree, that two things are running hand in hand in national taxation—the constant increase in national taxes and at the same time over 1,000,000 unemployed. The hon. Member rightly deduced from that fact that taxation had something to do with the constant presence in our society of over 1,000,000 unemployed. It stands to reason that if we lay these heavy burdens upon industry we are bound, sooner or later, to cripple industry and discourage enterprise and that will express itself in increased unemployment. It was a counsel of despair of the hon. Member to suggest that the only way out of the local government problem was for the local authorities to cut down local services. I noticed that he had no solution for the problem of national taxation and its disastrous effect upon the industries of the country. It is no good getting up and protesting against the increase of taxation and its bad economic effect unless you have some positive policy to suggest other than the present.

Let me draw these rather stray threads of my argument together. We have had the proposal of conscription, and, as a consolation for the conscription of human beings, we are to have what is called the conscription of wealth. I sometimes wonder what is happening to the reasoning faculty of men in this House. If there is anything that is necessary in order to arrive at a logical deduction, surely it is necessary to get one's terms and premises correct. What is meant by the conscription of wealth? Can any hon. Member opposite tell me? So far as one can gather from their speeches, and particularly from the brilliant speech of the Secretary of State for War, it is clear that they mean the conscription of profits. The Government think that by making a declaration that they are going to conscript profits, it is hoped that there will be a greater eagerness on the part of young men to have their bodies conscripted. What are profits? How are we going to find out the amount of profits there must be before there shall be this measure of conscription? You will require a very large army of financial sleuthhounds to find out what profits are being made, and what shall be deemed to be the margin of profit which can be safely expropriated by the State without endangering industry. And the expense of ascertaining these details will largely be deducted from whatever you get out of it.

It is the most fatuous proposal to which I have ever listened. It means nothing and I am not so sure that those who make it are not of the same opinion as I am. It is a. good enough card to play in order to satisfy, as they think, the Labour party, so that they will not oppose the conscription of men into the Army. It is pure guff from beginning to end. What is this enormous expenditure on armaments for? Why are we asking men to join the Navy, Army and Air Force? It is to defend the land of England and Scotland, and may I include Northern Ireland? We are not so sure about Southern Ireland these days. This demand for the conscription of the youth of the country into the Army and Navy is to defend the land of Great Britain—for that and nothing else. Who has got it? Is it the men you are going to conscript? Does the land, in fact, belong to the common people whose bodies are to be conscripted to defend it? That is the question I want to put to hon. Members opposite who are enthusiastic about conscription, and who think that by conscripting profits they are making a great advance towards the demand put from this side of the House. Why cannot they be honest about it if they really mean business? I suggest that the Government should be honest and declare the land of this country the common property of the people if they have to defend it. But no. We will talk about conscripting profits, because by doing that you do not disturb the landowner.

Just the same game was played in 1914 to 1921. All sorts of schemes for attacking profits and for keeping down a rise in wages were suggested, but the only person who was not called in for conscription was the gentleman who owned the land, the rent receiver, in fact, the gentleman whose fortune became inflated because of our victory. If we had lost the war the Germans would have been collecting the rents. It is an utter disgrace on the part of any Government to talk about conscripting profits or conscripting wealth. If the Government really believe that we are facing war, or that it is inevitable, their first duty should be to proclaim that the land is the common property of the people and that its resources should be subject to State requirements, before they call upon the common citizens to defend it. It is mean and contemptible to go into the slum areas of the cities of this country and into the impoverished areas in the countryside and conscript young men, who have no stake in the country, to defend the land and then still hold the land as the private property of a few. During the last War most of us remember the posters on the walls appealing to the young men to defend their country: "Your King and country need you." The young men were told that it was their country, but when they came back they had to pay £5,000 and £10,000 an acre if they wanted land to use. It is their country when there is a war on, but it is the landowners' country when they come back. One remembers pictures of the Highlands with the words: "Is not this worth fighting for?" They did not show the slums of Birmingham and Leeds and the Potteries.

The Government of that day, like the Government of the present day, knew that even in the poorest of men his attachment to his own country is instinctive, despite the fact that he has not as much of it as would fill a flower pot. How can we be really honest about conscription? Not by levying this taxation upon industry or this £200,000,000 in rates on the houses of the people, making housing impossible; not in one breath encouraging healthy children and then penalising any man or woman who has an increased family by more rates if they have a larger house. You can conscript in the real, just and scientific sense by putting this taxation and these local rates on the value of the land of the country. In that sense you are appropriating the land of the country on behalf of the people, treating it as the common heritage of the people, removing taxes from their food and necessaries of life, easing the rates on their houses and giving back to the people the value of the people's land.

That would be a conscription of wealth and a just balancing of society through the Budget machinery. But no. We must go on in the same old way, taxing motor cars and sugar, or something else, but leaving the' Ark of the Covenant alone. At a moment when you are conscripting young men to defend this land, speculations in the value of land are an utter disgrace. Cases of this have happened quite recently. We wanted camps in order to take the children away from the congested areas. What happened? Even the "Times" called attention to it. As a result of the Government going into the country districts looking for sites for evacuation purposes the value of land rose enormously, and it became a question with some local authorities whether this speculation would not stop the whole development of evacuation camps. Now the scheme of evacuating the population from the cities is going to have the same effect, but nothing must be said about it. Let us waste our time in talking about pettifogging little taxes, but do not mention the taxation of the value of land. I am doing it now in no uncertain way, but I do not suppose it will have any effect. We shall still have the taxation of industry, the taxation of the poor; the Chancellor of the Exchequer drawing attention to the enormous amount of taxation he is putting on the higher incomes and how little he is putting on the poor. It is the sheerest hypocrisy.

All wealth is produced by the working classes, and it is the working classes who will pay every penny of the taxes now being imposed. It is extracted from their labour; it is a deduction from the amount which should have remained in the hands of the people. I have not the slightest objection to Death Duties, although in some forms I think they are detrimental. There are certain results of Death Duties which have to be faced. There are many landowners in this country who do not wish to see their estates turned into quagmires of bungaloid development, but when Death Duties have to be met there is a hurried attempt to realise on their estates to meet them. What has happened recently has been very disastrous. The jerrybuilder and the speculator come on the scene, and it has had a very detrimental effect on large areas of the country. It is an objectionable result, but it is not one which could not be overcome by a readjustment of the whole machinery of Death Duties.

The main point I want to criticise is this. It has been argued that Death Duties in some way or another are beneficial to the community, and that they should be made heavier than they are. If I were to take from a millionaire by Death Duties all that he had left, if I were to sweep his estate into the coffers of the Treasury, I should not have effected in the slightest degree a proper distribution of the wealth, I should not have removed the causes which make one man die a pauper in a workhouse and another man die a millionaire. Many people labour under the delusion that if you put taxation on certain forms of estate you are in that way bringing about in a rough-and-ready way the proper distribution of wealth. You do nothing of the kind. I have no objection to taking something which is left by someone at death. Under the unbalanced state of present society there is no reason why it should not be taken for some time, but it must not be believed that Death Duties are a scientific form of taxation or that there is anything beneficial in them. They are predatory in their instincts and in their object. All it does is to give the State some satisfaction that it has got something out of that fellow before he hopped into another plane. When I resume my seat, you may feel, Colonel Clifton Brown, that you knew perfectly well what I was going to say and that you could have made my speech for me. It is indeed pretty much the same speech as I made when I first came to the House in 1922, and I dare say that if I lived long enough, it is the same speech that I should make if I were here for 1,000 years.

Photo of Mr Pierse Loftus Mr Pierse Loftus , Lowestoft

Is the hon. Member so hopeless?

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

When I see the people I am talking to. [An Hon. Member: "You are short-sighted."] If I were blind, I should feel it by instinct. Let me say this, that whether it be in the field of economics or in other fields of human activity. I have always observed that simplicity and truth are closely allied. The causes of poverty are very clear and simple, and the solution of the problem of poverty is simple; but when I turn my attention to the writings and advice of those who claim to be authorities on the subject, I find nothing but complexity and fanciful ideas that lead nowhere. Therefore, if the speech I have delivered has the characteristic of simplicity, I commend it to the Committee on that ground alone. Its very simplicity brings it closer to fundamental truths, for, as I have observed, the more complex men become, the more they are divorced from the fundamentals of economic law itself. I do not know that I have done much more than entertain the Committee, but at least, when the Debate is finished, no one will be able to say that hon. Members did not hear something about fundamental laws and land values.

8.3 p.m.

Photo of Mr William Spens Mr William Spens , Ashford

During the last four or five hours, I have listened to some of the most challenging speeches from the benches opposite that I have ever heard during my time in the House. Not a single subject of Government policy has been left untouched. We have heard a great deal about foreign policy, a good deal about the policy of the Ministry of Transport, a good deal about education, and finally, there has been put forward a theory of taxation which I would willingly spend five hours in answering. I have one point in common with the hon. Member for Burslem (Mr.MacLaren), in that I agree that the difficulties which confront any Chancellor of the Exchequer in these years can be attributed in the long run to the fact that we have ceased to be a rural nation, solely dependent on our land, and have become a huge industrial nation, whose industry is dependent not only on our own country, but has connections all over the world. It is in relation to that fact that I want to deal with one or two points arising out of the Budget.

There can be no doubt that, whatever may be our view as to the method of meeting our present expenditure and preparing for possible future expenditure, every hon. Member agrees that it is desirable that we should leave no stone unturned to conserve every source of wealth on which we can draw—I say "draw," and leave it vague as to whether it be by capital levies, taxation or other means—should the worst come to the worst within the next year or two. During the last few years, there has been going on a great battle between the Exchequer and certain people in this country, some of whom have very large incomes and some of whom have smaller incomes, in connection with the avoidance of Surtax. During the last three or four years, we have passed all sorts of provisions to try to deal with those who think they are entitled to reduce their liability for Surtax to the State. But during that battle, the people who have been fighting with the Exchequer, while wanting to reduce the amount of Surtax they had to pay, have been very desirous of retaining for themselves, or their families, or some other persons in this country, the use of the capital; and therefore, for a long time there was no inducement, from that particular point of view, for the capital to be sent abroad. As the battle developed, however, and as each year my right hon. Friends on the Front Bench became keener—quite rightly—in their pursuit of those people who tried to reduce their liability to Surtax, the people concerned increasingly discovered that if they wanted to succeed it was necessary for them to send their capital abroad. In many cases they had to put that capital in the hands of foreign persons or foreign companies. Although it is true that recently it has been made more difficult for them to do that, nevertheless the desire to avoid that taxation undoubtedly has been one of the main driving motives in sending a certain amount of capital into the physical and legal possession of foreign persons and foreign companies.

Now, during the last few days, we have spent a great deal of time in the Committee in discussing a capital levy. Hon. Members opposite have suggested the capital levy as being a desirable form and manner of meeting the present situation. There is in this country a good deal of capital that is very volatile. Very often it is capital which comes with people from abroad and remains here for a period, but can very easily be sent abroad again. From the point of view of the worst possibilities, I do not believe that, as long as the owner of the capital remains in this country, it is undesirable that the capital should go to certain foreign countries. As anybody can see, as long as the owner remains here, there are obvious advantages, should war come, in having here, subject to the control of the Government, a certain number of persons who have possessions abroad; but if those persons are induced, as they have been because of the attack with regard to Surtax, not only to send their capital abroad, but also to put it into the physical and legal possession of individuals or companies abroad, then, of course, one gets a situation which ought to be remedied at the earliest possible moment.

With regard to the sending of capital abroad, I know that my right hon. Friend the Chancellor of the Exchequer is watching the situation very closely. I am inclined to think that he has left matters somewhat uncertain as regards the present situation, but what I want to say is that now, not only is there the old factor of the desire to avoid Surtax, but there is a new factor which consists in the fact that during the last few days we have, in the Committee, been discussing the possibility of a capital levy, which will inevitably, and no doubt at the present moment, have the result that a certain number of persons who can easily send capital abroad will do so, or will be likely to do so in the near future. I feel that, in the national interest, it is desirable that something should be done to regulate that situation.

What can be done? With regard to the original question of Surtax, I am still completely unrepentant. I do not believe that we are year by year succeeding in stopping up the holes. We are always two years too late. Two or three years ago, I suggested—and I still believe in this—that we ought to try to pass a general provision to the effect that any financial operations the effect of which is to deprive the Government of taxable revenue, and which cannot be justified on ordinary economic or commercial grounds, shall not be valid against the Crown as far as the reduction of taxation is concerned. I made that suggestion when my right hon. Friend the present Prime Minister was Chancellor of the Exchequer. I know that it was felt that it would be very difficult to get the wording right or to get a tribunal which could safely and properly administer such a provision, but I cannot believe that those points are insuperable. When, in addi tion, you have the possible imminence of war, as another factor leading people to send capital abroad, solely for the purpose of escaping what may happen in this country in the future, it seems to me that there is further reason for the reconsideration of this matter by the Government. We should see whether there is not some way in which we can deal with those people who have been, and still are, to a large extent, desirous of reducing their liabilities at a time when the country requires the services of every patriotic citizen.

Let me point out in justice to a class of people about whom a great deal has been said, that, as far as my experience goes, a great number of those who have attempted to reduce their taxation liability have not been of British nationality. They are people of other nationalities who have been resident in this country, and, generally speaking, what I have said earlier does not apply to people who have been born and bred in this country. But if people of other than British nationality who are resident here, are taking advantage of the country's needs at this time, then surely they ought to be made to bear their full liability for taxation and not attempt to evade it either in part or in whole. I suggest to my right hon. Friend that these are factors worthy of further consideration, to see whether anything more than is indicated in the present Budget proposals cannot be done to deal with that aspect of the situation. We all feel that at this moment we are entitled to expect that there shall be at the disposal of the Government, should war come, all those assets on which any Government would have to rely to win the war for this country.

8.17 p.m.

Photo of Mr Edward Dunn Mr Edward Dunn , Rother Valley

The hon. and learned Member for Ashford (Mr. Spens) always speaks with frankness and clearness, and, I believe, with a fair amount of sincerity, but never have I heard him speak with such remarkable sincerity as he has done to-night. If there is one Member in this Committee who knows where the holes are, and what people are getting through the holes, and what people are evading taxation and doing all these unpatriotic things in the hour of the country's need, it is the hon. and learned Member. No one is more qualified to speak on this subject than he is.

Photo of Mr William Spens Mr William Spens , Ashford

Except the Law Officers of the Crown. For every case of which I know, they probably know ten.

Photo of Mr Edward Dunn Mr Edward Dunn , Rother Valley

The Law Officers of the Crown dare not speak with the same frankness as the hon. and learned Member, and I am sure that if he were to be as frank with the persons who are evading taxation in this country and with the Law Officers of the Crown as he was, or tried to impress this Committee with being, this evening, he would make a real contribution to the Exchequer at this difficult time.

I desire to raise one or two matters which, up to now, have not received the same attention in this Debate as certain higher technical points which have been engaging attention. I am afraid I cannot be as enthusiastic as some other hon. Members who have been passing congratulations to the Chancellor of the Exchequer on his introduction of this important and, indeed, tremendous Budget. I read the right hon. Gentleman's Budget statement, and I heard him speaking to the country afterwards, and I am bound to say that when the right hon. Gentleman broadcast his statement about the astronomical figures of revenue which the country had to raise, and how this was all necessary in the interests of security and peace, the expressions which I heard from those who were listening with me were not as congratulatory to the right hon. Gentleman as some of the expressions we have heard to-day.

The first point I wish to raise to-night is one to which, I hope, the Financial Secretary to the Treasury will give some attention. A good deal has been said about stopping up holes and preventing the tax evasion which has been, and is, taking place. I have been asking myself, however, whether some leakages did not take place before the Budget statement was made. Two or three years ago, the country was stirred upon this question of leakages. Some of us remember the historic scenes which then took place. I have been visiting my constituency, and some constituents of mine are seriously disturbed as to whether there have been any leakages. I wish to give the Committee the circumstances of the case which was put to me. I am informed that between Manchester docks and Nottingham, from 17th April to 25th April—I am particular about the dates because I do not want to make a wrong statement—there were taken full train loads of 40 to 50 wagons, of approximately eight to nine tons each, of tobacco. That was taken from the Manchester docks to Nottingham and I am informed that, in addition, sidings at Nottingham were full to capacity and that the siding outside Woodhead tunnel on the London and North Eastern Railway was also packed with wagons containing tobacco.

The railwaymen working on the London and North Eastern Railway are very much concerned about this. They took the view, between 17th and 25th April, that there was going to be a substantial tax put upon tobacco, and it was common conversation and common talk among them. I bring that to the Committee because if that is true, according to a limited calculation which I have made, there would appear to have been a saving on this tobacco of anywhere between £150,000 and £200,000. I think this is an important case and ought to be investigated. There ought to be an explanation given if tax evasion of that kind has taken place and if some Budget secrets have leaked out. I hope the right hon. Gentleman who is to reply will make some statement with regard to that matter.

The second point that I wish to raise is this. I am not here to theorise about the taxation of land values, although I must confess that I subscribe very largely to the views which the hon. Member for Burslem (Mr. MacLaren) has put before the Committee to-night. I do not think he will have to take 1,000 years, as he suggested, to get converts. I rather take the view that he and the party are already making converts in connection with this matter, because some of us who have had to do with local government in this country are appalled at what is taking place in regard to the price of sites that local authorities and other people require for building throughout the country. I do not want to stress that too far, but I want to mention a notable omission from the Budget Statement. It is all very well to talk about the people who pay Surtax, Super-tax and high Death Duties, but I always console myself with the thought that if the money was not there, the Super-tax, Surtax, or Death Duties would not apply. I am concerned about the omission from the Budget of any in- creased assistance to the old age pensioners of this country.

I know that the Chancellor of the Ex-chequer told the House and the country of the enormous burdens that the country is having to bear because of the dread of war and because of the Defence programme, and I know that his Budget was unbalanced to the extent of £350,000,000, but if he could not balance the Budget within the normal canons of taxation and it became necessary to borrow in order to balance the Budget, it seems to me that he might just as well borrow money in order that the people who have created the wealth—and I submit that the 3,000,000 people who are concerned in this reasonable request for an increased old age pension are the real people who have created the wealth of the country—should get some further assistance. I have heard hon. Members arguing high finance, but I make no apology for coming here to-night to plead for an increased old age pension.

Last Wednesday I attended a meeting of the old age pensioners in my constituency, where we have a petition which has been signed by between 10,000 and 20,000 people urging the Government to give consideration to the old people of this country, and I know that in the city of Sheffield there are bordering on 100,000 signatures to a petition on this same question. The local authorities are feeling the distress of having to raise money to make it possible for their old people to live, and I refuse to believe that if we can raise all this money for the purposes of war, we cannot raise the extra money in order to increase the old age pension for men from 10s. to £1 per week and for women from 10s. to 15s. per week, making 35s. in all. I entered into this Debate in order to state our anxiety with regard to the did people of this country, who, after all, have made the biggest contribution to the astounding wealth of the country, and I hope that when the right hon. Gentleman replies, he will give some word of comfort and some solace to the 3,000,000 people in this country who are asking that their old age pensions should be increased.

8.30 p.m.

Mr. Gurney Braithwaite:

Before passing to controversial matters, I should like to add a very few words of my own to the references which were made on both sides of the Committee in the earlier stages of this Debate last week to the late Member for Caerphilly, Mr. Morgan Jones. He and I were very near neighbours for a very long time, and I would say of him that he was a neighbour in the best sense of that word. I very much regret his premature passing, which, I am certain, was due to the very great efforts which he made on behalf of his party, particularly during the last Parliament, when they were so undermanned, and to the services which he rendered to this House as a whole.

The last Budget Debate in which I had the honour of taking part was when I was last here, in 1935, when we had a Budget with expenditure at £734,000,000, which was balanced by revenue. I think the measure of the events which have taken place since cannot be more eloquently expressed than by the fact that this year we have to find £1,322,000,000, of which £380,000,000 is being met, not out of revenue, but by loan. I notice something more than that in returning here after four years. I notice this change of sentiment among my hon. Friends, that whereas four years ago a Minister bringing forward a Supplementary Estimate of £5,000,000 was subjected to criticism, at any rate from his own side of the House, in these days a right hon. Gentleman introducing a Supplementary Estimate for £25,000,000 is generally attacked on the ground of being niggardly and cheeseparing and is asked why he cannot do the job properly. That, I think, is an enormous change which has overtaken the mentality of hon. Members compared with four years ago. All the taps now seem to be turned full on and to be running at full spate, and nobody seems to be unduly concerned about the consequences; and it is of those consequences that I want to speak for a few minutes.

I remember very well the Budget speech of the present Prime Minister, when he was Chancellor of the Exchequer, in 1934. He then told us that we had finished "Bleak House" and were starting on the first chapter of "Great Expectations." I conceive that the present Chancellor of the Exchequer is also, like myself, a lover of the works of that great man Charles Dickens, and he will agree that perhaps it was not altogether an inappropriate selection, when he recollects that the hero of "Great Expectations," Pip, who at the end of that book is left with many of his hopes in ruins, had a habit which I think we can apply to the present situation to some extent. When he and his friend Herbert Pocket were in lodgings in London they sometimes derived comfort from making out a neat list of their debts, which they added up and then put the list in a pigeon hole and retired for the night with a feeling of much greater solvency than they enjoyed before.

John Bull is, I think, behaving a little bit like Pip at the present moment. In the last tour years we have seen an increase in the standard rate of Income Tax from 4s. 6d. to 5s. 6d. and I am very glad the Chancellor of the Exchequer has been able to leave that standard rate alone this year. Knowing his distinguished record in the learned legal profession, I had a fear that the right hon. Gentleman was, perhaps, being irresistibly impelled to a standard rate of 6s. 8d. It would at least have had an advantage from the point of view of the chartered accountants and those who make dividend deductions, for it would have been one-third of income. That would, of course, have put a great strain upon us all. I am glad that one evil rumour has not been fulfilled, as it was suggested in certain quarters that the right hon. Gentleman would scale down the family allowances of the Income Tax payer. I am glad that he has resisted that temptation, if it ever existed, because I was one of a small group of Members who fought for an increase in those allowances. Any scaling down of them must have an anti-social effect which would have unfortunate consequences to the country. The consequence of the present situation, as I see it, may well be that, taking the standards of Gladstonian purity in finance, none of us will live to see another balanced Budget. I am not one of those who believe that war is coming upon us, for I am an optimist in that matter, but I think it likely that we are now entering upon a considerable period of fully armed peace in the Continent of Europe which will put a strain from the economic point of view upon this country not far short of actual war itself.

One or two of my hon. Friends have referred to the social services, and I would like to do the same, but I want to make clear the angle from which I. approach the subject. I am one of those who believe it to be absolutely essential to maintain at their present state of efficiency and generosity the great social services which have been built up since the War. To fail in that would be in its way a victory for the totalitarian States. We are facing a situation, population statistics tell us, in which we shall see an increase in the coming years in the number of old age pensioners and a decrease in the number of those in the prime of life who are able to earn the necessary revenue for the country and the social services. That revenue will decrease still further if there is any large conscription of capital which will reduce revenue from dividends. If capital raids are to be made upon wealth and upon the funds of great corporations such as the insurance companies, trade unions and co-operative societies, for the purpose of meeting a capital levy, it will decrease the revenue available through the medium of dividend distribution, and the like. I was glad to hear the hon. Member for Rother Valley (Mr. Dunn) make his plea on behalf of the old age pensioners. As he said, they are not a large body, but they will increase over the coming years. I think he will agree with me that, as I said at the by-election which I recently fought, what is even more important than an increase in the nominal amount of the pension is to see that we are able to retain and maintain the purchasing value of the pension in terms of real money. The purchasing power of the £ may find great strains and stresses placed upon it in the days which lie immediately ahead.

That brings me to a subject which is relevant to the present situation. It refers to the activities of what I will call Herr Hitler's sixth column. We hear references from hon. Members opposite to what they call the fifth column, and I am going to refer to the sixth. I mean the existence in Amsterdam of a large financial pool financed from Germany for the purpose of making periodical attacks upon sterling and our gilt-edged market. It is all part of the Nazi campaign of what is called playing on the nerves of the democracies to depress the value of gilt-edged securities and to attack the £, as one obvious method of adding to the general insecurity and nervousness of the democratic States. In 1931 it would, in my view, have been a wiser and better policy, instead of losing £200,000,000 in attempts to maintain the Gold Standard, to have supported the gilt-edged market. I believe that more effective results could be obtained for a smaller outlay by that method. Hon. Members may remember the effect upon the market shortly before the announcement of the Conversion Scheme in 1933 of a mysterious option that was taken up giving the right of call on £1,000,000 3½ percent. Conversion Loan a fortnight before the announcement of the Conversion Scheme. That operation had a marked effect upon the gilt-edged market. Just as we have the Exchange Equalisation Account for the purpose of protecting sterling from sudden attacks and depression, I would submit to the right hon. Gentleman that when we have, as we have had frequently in recent months, deliberate bear operations in the gilt-edged market instigated from Germany via Amsterdam—and I do not think it is untrue to say that such a position exists at this moment—it would be possible, by a mass of monetary manoeuvre such as exists, and is provided for in the use of the Exchange Equalisation Fund, to make a surprise attack upon those who are deliberately selling short in our market. I believe it would recover the situation and deal them a severe blow. If I may use a colloquial expression, I would commend to the Chancellor the need for bear raid precautions to be taken at the present time.

May I pass to the question of financing rearmament? I imagine that there are Members like myself and many members of the public, who are puzzled at the manner in which Hitler and Mussolini are able to go on rearming when we know their countries to be economically exhausted by all the rules of arithmetic which we were taught when we were young. How is it possible for these great countries to continue to rearm at this pace? I suggest that they have built up, and are building up, an export trade on non-existent credits, very largely by some very clever and successful propaganda—a kind of mental magnetism which seems to have its effect upon the smaller States which border on Germany. I should be surprised if the right hon. Gentleman the Secretary for Overseas Trade did not encounter something of that sort during his recent trade tour. We find Germans and Italians with an extraordinarily complete knowledge of market technique. I do not think that the children of Israel, when they were groaning under the tyranny of Pharaoh, performed greater miracles in making bricks without straw than the totalitarian States have done during recent months, largely owing to this psychological process, which has proved so successful.

That brings me to a suggestion which I should like to make to the Chancellor of the Exchequer in connection with the decision to set up a Ministry of Supply. It is a decision which I am glad has been taken, and I do not in any way join in the Press sneers which have been directed against the right hon. Gentleman the present Minister without Portfolio, the Minister of Supply elect or select, whichever is the correct phrase. I had a great deal for which to thank him when he was at the Board of Trade and when I was representing the Hillsborough Division of Sheffield, and I formed a very high opinion of his ability. I should like to see the new Minister in the closest possible contact with the Treasury, housed in the Treasury if that were possible, with a large staff, because I do feel that in these times, and with this totalitarian competition, value for money is of the very greatest importance to this country.

Our armaments are costing us infinitely more than those of Germany and Italy for the very excellent reason that there is a disparity, and a very proper disparity, between the wage standards here and in those countries, and we do not want to see our wage standards reduced to any extent, quite apart from being reduced to the standards ruling there. That is all the more reason for the closest scrutiny of expenditure on rearmament. With the conscription of production, which is what the Ministry of Supply presumably exists for, to secure priority for Government orders, so that production is directed through the channels in which we desire to see it go, I hope there is going to be the greatest co-operation between the Chancellor and the new Minister.

One word upon the borrowing powers which the Government now have and the question of raising loans. Some reference has been made to it this afternoon, and I think we are rather inclined, although we are borrowing £380,000,000, to say that all is well without troubling to give very much attention to the methods by which we are to raise the money. In present circumstances, it would not be easy by normal methods—I am not going to get at cross purposes with the hon. Member for Burslem (Mr. MacLaren), whose speech interested us so much just now—to raise that loan without paying interest in the vicinity of 4 percent. which would mean an interest service of some £15,200,000 a year, leaving sinking fund arrangements out of account altogether. But as we are reminded by nearly everyone who speaks in these Debates, we are not living in normal times, and there have been departures from cherished traditions.

One important departure is military conscription, and I am going to suggest a departure from strict financial rectitude which I feel may produce the results required in a very simple manner. I am not going to follow the Senior Member for Oxford University (Mr. A. Herbert), who greatly entertained the Committee on Budget Day with a speech in which he gave an account of some remarks said to have been made by a monkey in high ecclesiastical circles, and in which he suggested that he could produce some £20,000,000 of revenue from a betting tax. I would return to a topic which we debated in 1934, when the Betting and Lotteries Bill was before the House. It may be recalled that my hon. Friend the Member for South Kensington (Sir W. Davison) suggested national lotteries for various purposes, and that we had an interesting, if not an exciting Debate. The proposal was rejected, although it had received unanimous endorsement at the Bristol Conference of the Conservative party and although we enjoyed the distinguished support on that occasion of the right hon. Member for Epping (Mr. Churchill). It was at a time when the present Financial Secretary to the Treasury had been appointed to ministerial office for the first time as Undersecretary to the Home Office, and I remember that he frowned upon that suggestion in the most approved ministerial fashion, which perhaps has additional severity during a first appointment.

Nevertheless, I want to repeat the suggestion in this form: that the Chancellor of the Exchequer might issue a loan bearing interest of between 1 and 2 percent., on tap at the Post Office as well as available in the market, and redeemable by "drawings." That is a more respectable phrase than the word "lottery" and I use it because there is a highly-respectable precedent, a first-class precedent, for the proceeding. The Victory Bonds of 1919 were redeemable by drawings at par although British credit had so improved that by the year 1934 they had reached a market price of £115, so that it became a kind of inverted lottery, in which it was better at that time to draw a blank than a prize. Nevertheless, in their early days, when they were redeemable by drawings at par, they were standing at the market price of £77 or £78. If Victory Bonds in 1919 why not Liberty Bonds in 1939? I suggest in all seriousness that they would attract millions of pounds which are at present being poured into the most stagnant of football pools—I speak as one who has erred and sinned in that respect. It would be a popular form of loan, and I am certain that the people would rally to it in a manner which would save the Government quite 2 percent. in interest at a time when we have to count our pence very carefully.

There is one other suggestion which I would make to my right hon. Friend, and I do not think it raises a pedantic or theoretical question of Free Trade or Protection. There are goods coming into this country—primarily from the totalitarian States, but not only from those countries—which are subsidised, which means a depression in their valuations. I do not think that point will be argued. Their valuations are depressed, and I suggest to the Chancellor that they might reasonably be subjected to an anti-dumping duty when they enter under subsidy and are sent here below the cost of production in the country of manufacture. Finally, I congratulate the Chancellor of the Exchequer on having produced with such admirable clarity a Budget which must be, by the nature of things, a Budget of expediency, at a time when, for good or ill, world events are moving to a climax. I am confident that the nation will not shrink from producing the necessary sinews of war, whilst hoping and praying that in the end they may yet prove to be sinews of peace.

8.53 p.m.

Captain Cazalet:

It is rather difficult to find anything very original to say about the Budget. To-day I have listened to some very old arguments for and against a capital levy, which take me back in memory to Debates of many years ago, and no doubt the arguments will be repeated often in the future. One reason why it is difficult to say anything very original about the Budget is that on the whole the people have accepted it as inevitable, fair and reasonable. When we contemplate the astronomical figures involved we must be impressed with the soundness of the financial structure and system of this country and with the relative measure of prosperity in trade which can sustain those figures. The Financial Secretary to the Treasury said, last week I think it was, that in contemplating astronomical figures it was as well for us to keep our feet on the ground. I hope that in saying that, he meant that the Treasury have not lost sight of their true duty and character in financial methods, of being the watchdogs of the taxpayers of this country and of the expenditure of other Departments. When certain Departments are spending millions of pounds there must be a tendency for other Departments to be extravagant as well. How often have we heard it said in the last few months: "You are spending £1,000,000,000 on rearmaments; why cannot we spend £2,000,000 on something else?" Once such expenditure has been allowed by the Treasury it is almost impossible to recall it.

What portion of our prosperity to-day is due to rearmament it is difficult to calculate. If that expenditure were to diminish, as we hope it will in the future, whether compensation for that expenditure would come about by a return of world confidence is, of course, an interesting but at the moment, alas, a profitless inquiry; but, at any rate, the general financial situation of this country demonstrates that energy, enterprise and power of invention are still alive among our people. This is especially true, as one sees upon considering certain factors. Hon. Members upon the Socialist benches have declaimed to-day, as they have often done in the past, against profits and capitalists in general; I wonder how many failures and losses there are, in comparison with the successful, profitable and dividend-paying concerns? I should say there are at least six to one. The same people who lose in these enterprises are no different from those who make the profits. They lose because they are supporting and subsidising some new invention or new enterprise which, in the long run, would make for the efficiency and prosperity of industry, but there is neither sympathy nor interest for those people. Again, hon. Members forget what vast sums of interest and capital have been lost by the people of this country in the last few years in South America and in the Far East, and indeed in Europe. Those are tremendous losses, if the sums involved are added up, but in spite of them the revenue to-day, if not buoyant, is at any rate producing close upon £1,000,000,000. I believe that that is due to the inherent advantages of the capitalist system, whatever may be said of its drawbacks, coupled with the spirit of our people.

The division of expenditure between loan and taxation has been arrived at by the Chancellor with a very happy mean between the two. If he had borrowed it all there would be an element of truth in the idea that we were approaching an inflationary period; if, on the other hand, he had raised it all by an increase in taxation, taxation would have reached the point at which it would be defeating its own ends. We have listened to-day to speeches from hon. Members of the Opposition demanding additional direct taxation, and I am compelled to make the elementary observation, the truth of which no one knows better than my right hon. Friend, that unless conditions are created in which profits are made and dividends paid there will be no revenue on which to impose direct taxation. The more you do to destroy profits and individual enterprise the more taxation in the long run you have to put upon the indirect taxpayer. In this respect, again, the Budget of the Chancellor has found a happy mean between the direct and the indirect taxpayer.

I cannot but admire the neatness with which my right hon. Friend has balanced the contribution which he has made to the living stage with the duty that he has put upon imported films. So neatly has he balanced them, and so great is the help that he is giving to the living artists in this country, that one hopes the process will go further. I hope that my right hon. Friend will bear in mind the observations made by my hon. Friend the Member for Tonbridge (Sir A. Baillie) in regard to the colour film industry of this country. I have had representations made to me on the subject, and I believe that it is just as efficient in this country as is the colour film industry of the United States of America. It would be a great pity if almost in its infancy, we took such steps as would spoil the progress of this new industry.

I would say a word about the motor car tax. I very much wonder whether the Chancellor will get from it the full revenue that he expects. Up to a point it is a tax which is avoidable, and taxpayers who can in these days avoid any tax will probably do so. The increase of two-thirds in the rate of tax is very high and it may do harm to our export trade. I realise that there is one good aspect of the increase, which is that industries making the more expensive cars are also engaged in armament work and that what they lose in the production of motor cars they may from the point of view of the country, profitably and usefully do in regard to armaments, but I should have thought that some form of sales tax on motor cars old and new would have been a more certain way of raising this revenue. The Chancellor said that he was reserving a certain sum of money for the benefit of agriculture. As a humble farmer and a representative of an agricultural constituency I was glad to hear that. I believe that no class of the community spends money so wisely or quickly as does the agricultural community, if it can get hold of it.

Lastly, there is the question of Death Duties. A tax of 55 percent. on a man's estate would, in Victorian or even in Edwardian times, have been considered little less than pure Bolshevism. The one advantage to those on whose estate it is levied is that they are not those who will suffer. It the Chancellor finds himself unpopular among certain sections of the community during the succeeding year perhaps he will remember that one section will look upon him with favour, and that he may be known to them as the children's friend. I am sure that many farmers in the course of the next year or two will be glad to hand over a portion of their estates during their lifetime so as to avoid the very heavy Death Duties which this Budget imposes.

Like other Members, I hope that this will be the last of what I may call war Budgets in peace-time. Of course, if war comes, all of us will be faced with personal considerations which will outweigh all financial problems, and in that case all of us are prepared to contribute every- thing we possess towards the common cause and towards common victory. But even if war does not come, we have to realise that our Defence Services in the next few years must require a very much larger expenditure than has been the case in the past, and if we are to meet that out of revenue, the necessary funds can come only from what I may describe as an increased velocity of money.

No doubt new methods will have to be found to encourage our export trade in order to meet the new circumstances that are arising in Europe almost every day, but the revenue to meet our future expenditure will not be there, and cannot be there, if to-day we destroy confidence by imposing any such schemes as have been put forward by some Members of the Opposition. I am one of those who believe that taxation in peace-time has now reached its productive limit, and I hold, with the old Gladstonian theory, that every farthing or shilling that is left in the taxpayers' pockets is better spent and is more productive for the general good than when it finds its way into the Exchequer. I hope the day will come when the Chancellor will be able to leave a little more money in the pockets of the taxpayers instead of taking a little more out, but, having uttered that pious hope, there is nothing left for us to do but to grin and bear our present burdens with as much fortitude as we are capable of, comforted with the reflection that they are a contribution, and will be a contribution, towards the maintenance of the peace of mankind.

9.8 p.m.

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

We are always pleased to listen to the hon. and gallant Member for Chippenham (Captain Cazalet), because he can be so controversial in such a gracious way, but in winding up his speech he fastened upon one of the points on which we shall always be in fundamental disagreement with him. One does not need to argue as to the correctness or otherwise of the Gladstonian theory that money left in the taxpayers' pockets will fructify more than if it is handed to the State. What we on these benches are most concerned about is with which section of the taxpayers the money is left. We have submitted throughout, in out-agitation for political emancipation of the workers who do most of the work to produce the wealth of the country, that, if more of those money resources and that purchasing power is put into the hands of the masses, the real demand for more production, and the consequent expansion of wealth, will be very much greater than if the money is left, as at present, in large blocks in the hands of the well-to-do classes. I hope the hon. and gallant Member will see that there is no difference between us on political and economic theory at the top, but that there is a fundamental difference between us as to who is to have the spending of the money which the workers produce by their toil and work.

I suppose it would be true to say, at the end of this two-days Debate on the Budget proposals, that as usual the very large Press all over the country which supports the Government has been endeavouring to create the impression that the Budget statement has not been, and will not be, seriously challenged. The speech of the new Financial Secretary to the Treasury, who, I thought, made a very graceful entry into his position last week, seemed to be set upon following up that idea that really there was no real challenge to the Budget statement of the Chancellor of the Exchequer, and so anxious was he to carry on that impression that he ignored nearly all the points that were made on behalf of the Opposition by my right hon. Friend the Member for East Edinburgh (Mr. Pethick-Lawrence). While it is true to say that all parties in the Committee will support any really necessary financial position for the defence of the nation and the promotion of collective security, it would be a very grave mistake to suppose that the Chancellor's proposals as he outlined them to the Committee last week are regarded as adequate to the occasion, fair in their incidence, sound in their basis, or constructive for the future. That is the reason why my hon. and right hon. Friends have attacked the proposals in the way that they have. As the Financial Secretary has now returned, I should like to say again that, however much he may have regarded the reception of the Budget last Wednesday as a general chorus of approval, he will have realised. having sat, as I myself have, through most of the Debate to-day that there is a great deal more criticism to be made on the Budget Resolutions, and, later, on the Finance Bill, than up to last Wednesday he had anticipated.

I would like to address myself to-night to the reasons why the Opposition challenge the Budget proposals. In what I thought was a brilliant speech by my hon. Friend the Member for Clay Cross (Mr. Ridley), and also in a speech by my hon. Friend the Member for South Shields (Mr. Ede), references were made to the colossal figure of expenditure for which we are asked to provide in this Budget. I would repeat that all parties in the Committee will support whatever is really necessary for the defence of the nation, but the mere provision of a colossal figure of expenditure in the aggregate, and a specially high figure for expenditure on defence in particular, does not necessarily make the Budget adequate to the occasion. While the Chancellor's Parliamentary effort in introducing his proposals has been acclaimed, and rightly so, for its lucidity, it seemed to me that it lacked one vital essential which the Committee ought always to be entitled to receive when the annual Budget proposals are dealt with, and that is a really comprehensive survey of the financial problem to be met, a statement as to whether the Budget proposals would be really effective in meeting it, and a statement of the action to be taken by the Chancellor of the Exchequer and the Government to secure that the huge expenditure on armaments would be wisely and carefully used to secure the maximum result from the citizens' sacrifice, and the prospects for the national economy as a whole as a result of the Budget.

The total figure to be met is a staggering one. The £1,322,000,000 which we are asked to vote is without precedent in peace-time, and, as speakers in all quarters of the Committee have pointed out, there is no prospect, as we meet on this last day of the Budget discussion, that this figure is final for the current financial year. The conscription proposals may bring us much nearer to a figure of £1,400,000,000 for the ensuing year, and I should like the Chancellor, in winding up the Debate, to tell us roughly what he estimates that the new proposals for conscription will require. My right hon. Friend the Member for East Edinburgh has asked what the right hon. Gentleman proposes to do about that extra cost if it is not included in those Supplementary Defence Estimates, which will bring the figure for Defence needs up to £630,000,000. This calamitous situa- tion is the price we have to pay for the misguided weakness, for the complete lack of principle, in the National Government's foreign policy for the last seven years. We submit to the Committee, and to the nation, that if they had wished to do so they could have obtained peace and security without putting this nation into the bondage which they are asking for it to be put into to-night; for they need not have sacrificed the freedom of other democracies, nor lost those important strategical safeguards if they had followed Labour's advice, and, in the general conduct of their foreign policy, adhered to moral principles instead of immediate expediency. Their policy has already cost the people of this country hundreds of millions, and the end of that cost is not in sight.

I think we have some reason to complain that the Chancellor did not make a sufficiently comprehensive survey of the general problem. He made no reference in this Budget—although I think he made some reference to it when dealing with the Defence Loans Bill—to the problem of dead-weight debt. May I take it that the figure of £8,163,000,000 included in the National Debt Return for 31st March, 1939, does not include cumulative arrears of interest on the Debt to the United States of America? I cannot trace anywhere in the Returns any indication that it has been included. Does the Chancellor propose, before these discussions are over, or at any rate before he formulates the Finance Bill, to increase his borrowing this year to cover the new conscription proposals? Taking these things into account: the £300,000,000 which at present he proposes to borrow, the accumulated interest not paid to the United States, and, if he is going to borrow, the amount that will have to be so raised for the conscription proposals, may I take it that I shall be right in saying that by 31st March, 1940, he anticipates a total National Debt of no less than £8,600,000,000?

We have not had this survey, and I should like to be clear about the position. Taking the average publication of the tenders of the last four weeks, am I right in suggesting that the interest charges on the floating debt appear to be rising, and rising steeply? If so, what is the forecast as to what will be the incidence of the charge on the floating debt during the current financial year, having regard to these new financial proposals? If I am right, does the Chancellor still think that the adoption of last year's Budget figure of £230,000,000 for the service of debt is adequate, and, therefore, will the Budget proposals, as we have them at present, really be in fact effective in meeting the financial problem as a whole that the nation has to face, or will the Chancellor's policy so far adumbrated lead to a larger deficit than was anticipated?

That leads to another question which obviously is in the minds of many of my hon. Friends, and indeed of many hon. Members on the other side of the Committee. What part is the Treasury, under the Chancellor's leadership, really going to play under this Budget with regard to the control of this huge expenditure on armaments? It is only fair to remind the Committee that for three years my hon. and right hon. Friends have put again and again to the Government that they ought to take notice of our submissions that if the country was required, in the deteriorating circumstances in Europe, to spend larger sums on Defence, there ought, from the beginning of that expenditure, to be adequate steps to prevent exploitation on the one hand and waste on the other. The announcement by the Prime Minister last week with regard to armament profits, when speaking on quite another matter, in connection with his conscription proposals, indicates that, as on every other issue of major policy, as far as I can recollect, in the last three-and-a-half years, the Government have been wrong in refusing our advice and then finally accepting it tardily in sections, bit by bit, only when they are driven to it by the accumulation and the force of circumstances. The Prime Minister now feels that, after all—to quote his own words—"a definite limitation of profits" of armaments firms is the only method of securing that no more than reasonable profits are made. I would like to ask the Chancellor to give us a little information when he is replying as to what, in his opinion, is a reasonable armaments profit. May I remind the Chancellor of some of the Debates we had—sometimes very late at night—on the Defence Loans Bill? Perhaps because we were forced by the Government to deal with these matters late at night, our submissions did not get the publicity that they ought to have had, but they have brought the Government to a different view than they had before.

May I ask the Chancellor to remember my own references to aircraft company profits? In particular, I drew attention to one company. I used that company only as an example, because, in regard to the efficient industrial production of that company, I have no complaint to make. I am speaking only about the finances of the company. I drew attention to the Bristol Aeroplane Company, which issued new capital to shareholders at very much below market value, at a time when it was also issuing to shareholders a bonus of 75 percent. and explaining to the public at large that the new and heavy increase of capital was in order to avoid any future misconceptions in the public mind as to the ratio of the profits earned by the company in relation to the capital involved.

On top of this comes the revelation made in the "Economist" of 25th March about other armament firms' profits, which I hope the Treasury has brought to the attention of the Chancellor, because that article seems to support the idea that I formed of the Bristol Aeroplane Company, and that is that armament firms are now apprehensive of public opinion, and are busily engaged in covering up the true position in relation to their profits on the armaments programme. It is pointed out in that article that a number of the great armament firms show their total profits for 1938 after making provision for depreciation and contingencies. There is not a single word showing what provision has been made, either for depreciation or contingencies, and yet it is perfectly obvious from their returns that, having made this quite unstated provision for depreciation and contingencies, they are going to maintain their high equity dividend to their shareholders without any decline at all.

I want to be fair to these firms. Many of them are domiciled and working in the city in which my own constituency is situated. I remember the troubles we Labour Members had in the early postwar years, when, with the huge drop in production, the awful poverty of the unemployed had to be paid for by the city council. After the issue of heavy share capital during the War, I can understand that these companies recognise now the need for sound amortisation of any additional capital expenditure they now have to incur for purely emergency war purposes. It is very significant, however, that with all the unstated provision for depreciation and contingencies, the profits remain at the same high equity figure.

May I put this to the Chancellor? Before the end of the Great War we went in for the production of munitions on a real stable basis, and if to-day we are having a large proportion of our increased provision of armaments provided by State control, I think it is true to say that a reasonable profit in the case of those factories would be at no more than a giltedged rate. If that is what would happen in regard to a national factory what should be the rate of profit in regard to these other factories? We have heard a great deal about costings. I have heard speeches from Members in all parts of the House, and not least was I interested in the extraordinary good case put up by the hon. Member for the Mosley Division (Mr. Hopkinson), who has great experience himself. Costing systems can only yeild a satisfactory result for the nation if they take into account what is the rate of amortisation on capital expenditure—capital expenditure of a kind not to be regarded as a working asset at the end of the emergency—and, secondly, how often the capital employed is turned over in a year in the class of production to which the particular costing system applies.

I heard a remark to-night from the hon. Member for South Croydon (Mr. H. G. Williams) with regard to the need for developing and speeding-up production by the employment of more subcontractors. I wish that was likely to be anything like a real answer to this case against undue armaments profits. I am sure it is not. In fact, I am certain, from the inquiries I have made, that the Departments have as yet been unable to get upon the track of the race of profits which are the result of the necessary employment of an ever-increasing number of sub-contractors. That is a very important consideration, because it means that the Chancellor in the long run has to provide for accumulated expenditure which includes far too many gross profits in between.

Moreover, if the Chancellor's main burden for the last two years has been to provide the extra credit and cash for armaments expenditure, he ought to be directly interested in the question whether the huge expenditure will secure the delivery of the goods. I think he has no right to ask citizens to undertake the huge additional burden unless they can be satisfied that what they are being taxed for is being provided. Numerous reports which come to us are still very disturbing. I am told upon very good authority that, in spite of the efforts which have undoubtedly been made by the present Secretary of State for Air, there is still much evil resulting from the operation of close range in the aircraft industry. While some firms, very efficient and competent, have had no orders at all, they are now forced into the position of sub-contractors for supplying parts, and very often, though they can produce the whole article, whether an aeroplane or certain other materials for war purposes, they are still kept on the basis of sub-contractors and there is no real competitive basis of tender between firms of undoubted equal efficiency. I think that is a matter of great concern to the Chancellor. It must result in a quite unnecessary expenditure of the taxpayers' money.

I am bound to say this, too. Although the money is being voted there is no evidence yet of a comprehensive and maximum effort to secure the primary essentials for the new Territorial Army, let alone the provision for a new conscript Army. Even in the case of the Navy, in which I am always more tender in my criticisms, I know of the existence of more than one bottle-neck in respect to which the money will continue to be wasted by holding up essential work because of the bottle-neck, instead of having it put right. Here again the Government, years late, have adopted the suggestion of the Opposition for a Ministry of Supply. It will not be comprehensive but will cover only the War Office, leaving the Air Department, which has the largest annual expenditure, uncovered. Surely the Treasury must recognise that the worst type of budgeting is to provide the money and not to organise economic delivery.

May I turn from that and ask the Chancellor of the Exchequer whether these proposals in the Budget are fair in their incidence? In spite of what the Financial Secretary said last week with regard to such taxes as the Sugar Duty, and the small reference which has been made to them, I do not propose to spend much of the time of the Committee to-night on this point, for the very clear reason put by my right hon. Friend the Member for East Edinburgh last week, that, while we brought it to the notice of the Chancellor that we are opposed to the indirect taxation in the Budget, we will open out the case on that when we put our Amendments down to the Budget Resolutions. I do not want the Financial Secretary to create the impression in the country that we are not very much opposed to these taxes. We do not think that the proposals are fair. Take, for example, their relation to the general standard of life of the working classes. The increase in indirect taxation in the last few years has been tremendous, and I beg of the Chancellor not to trot out to-night the statement that there will also be an increase in, the imposition on the direct taxpayer. We used to bandy words across the House between the two sides as to the relative percentage of indirect and direct taxes. In the present colossal figures of expenditure that has little reference to the question of social justice. The real question of social justice in the Budget proposals depends upon what you leave with the working classes after you have taken the additional impost from them.

The Customs and Excise. Duties are to provide in round figures no less than £350,000,000 sterling this year. Apart from sugar, which is a very bad increase of tax indeed, tobacco is to provide a heavy increased yield. It is all very well to say, as did an hon. Member sitting below the Gangway this afternoon, that tobacco is a luxury, but to the British worker it is a very great standby in many cases. I do not know how many hon. Members who were in the Army during the War remember how much a standby it was in the very cold mornings when you woke up after sleeping on a ground sheet. I know that I did not regard it as a luxury, but as a necessity. I do not say exactly that that was a common practice, but working men to-day still regard it as a part of their working life. It is significant that the Tobacco Duty will yield to the State £93,000,000.

In the case of sugar, however, there is a much more serious objection. It is not merely a food in itself—and a very important and energising food—but it is a very important raw material used in the manufacture of other foods. I do not think the extent to which that duty is up compared with the pre-war figure is generally realised. If I take the year 1913, the last complete year before the War, the Sugar Duty was 1s. 10d. a cwt., and the average wholesale price of sugar right through that year was 15s. 8d. Today the Sugar Duty, on the higher polarisation, is 14s. I would tell the Chancellor of the Exchequer, although I have no doubt that he has gone into this matter in greater detail than I, that the average incidence of the duty on the manufactured product is us. 8d. compared with is. 10d. in 1913. The sugar industry is not an industry in which any increased impost can be met out of profits of retailers. In the grocery trade, sugar is the Cinderella product as far as sales are concerned. I have been making some inquiries this week-end, and I believe that probably most people, while they do not sell sugar at a complete loss, do not make more than 8 or 9 percent., gross profit on their retail turnover on sugar, and that when they pay trade union wages they make a loss, because they use it as a catch-penny to attract the customer into the shop. When you come to an imposition like this, it is bound to be passed on, and it is also significant that with the present form of control of the commodity of the International Sugar Commission as well as the Home Sugar Commission, with the artificial restriction of stocks available in the last few weeks, and since the announcement of the Budget increase, the price of the raw material has advanced on the market by 11¾d., so that 2s. 4d. a cwt is now 3s. 4d., and very shortly the price of sugar will be advanced all round to the consumer to the extent of ¼d. as contemplated.

I hope that we shall have an opportunity of putting the case in more detail to-morrow, but I wish to add a few words to what my hon. Friends have said about the motor car tax. It may well be argued that it would have been preferable, from the point of view not only of the users of motor cars but of the trade, if the less wealthy users of motor cars had been exempt from this heavy increase of the horse-power duty and for the Chancellor of the Exchequer to have raised the revenue he wanted from heavier Excise Duty on new cars graduated upwards in respect of the high-powered and more expensive cars. There should be a corre- sponding import duty to prevent that being unfair to the sale of home-produced cars. I do not know whether the Chancellor of the Exchequer has had a look at the report of the trade in the last two days. Already the second-hand market for the high-powered cars under his proposals has been severely marked down and one of the most difficult things that the motor trade as a whole could deal with would be a heavy checking of the second-hand market, with its effect not only upon dealers but also upon the actual allowances to be made in the exchange of cars to those who were buying new ones.

Are the Chancellor's proposals sound in their basis? Many of the commentators on the Budget have drawn attention to the fact that there appears to have been no attempt by the Chancellor of the Exchequer to defend the proposals upon which he is basing his general financial policy, and especially in regard to the ratio to be aimed at as between provisions to be met from revenue and by borrowing. The new arms provisions to be met consist at present of very heavy expenditure which from some points of view might be regarded as more or less of a capital nature. At any rate this expenditure on buildings, stores and equipment should be regarded as less likely to be recovered than armaments expenditure. On the other hand, as has already been pointed out this evening, expenditure on maintenance will continue to rise and will remain at a high level. I would have thought that it would have been possible for the Chancellor of the Exchequer to give some survey to the Committee of the proportion between the two and that he would endeavour as far as possible to meet the whole of the expanding maintenance cost out of revenue. That would seem to be a sound financial principle for him to have followed. If he could then have met any additional part of the expenditure by encouraging new capital out of revenue, so much to the good. We ought to have some assurance that the revenue production of the Budget in this matter is at least covering the recurring expenditure part of the Defence programme.

The Chancellor of the Exchequer, however, it seemed to me from reading his speech, gave us no sort of advice by the statement that if there was a limit to what could be conveniently or tolerably raised by taxation there was a definite limit to what could be wisely and success- fully raised by borrowing. That is a very good phrase which sounds very well, but would the Chancellor of the Exchequer please tell us what is that limit? That would be the test as to whether he has a real financial policy behind his Budget proposals. I would like to hear from him on that subject to-night. In these days of managed currencies, equalisation funds and so on, it is much more difficult to prognosticate as to the effect of these heavy Budget operations than would have been the case in more normal circumstances. Unless the Chancellor of the Exchequer can check the very heavy development of our national indebtedness which is going on at the present time, it seems inevitable that the expenditure and the amount of borrowing, coupled with the withdrawal of men for armament purposes and for military purposes from ordinary industry must lead to rising prices, and unless the remaining productive capacity of the country, apart from war production, cannot only be increased but sold in our markets, the effect on the standards of life must be depressing, unless wages are adjusted, not by a heavy lag after the rise of prices, but simultaneously with the increase of prices, with a corresponding effect upon expenditure on Government account.

It is in these circumstances that my hon. Friends on these benches have requested immediate attention to alternative methods of financing a larger part of the defence expenditure other than by borrowing. We believe that that is right and that our request is very much emphasised by the post-Budget pronouncement of conscription. What other proposals are there other than the Chancellor of the Exchequer's proposals? I am always surprised when I remember the past history of the Chancellor of the Exchequer, especially in view of the statements made by my hon. Friend the Member for Ipswich (Mr. Stokes) and my hon. Friend the Member for Burslem (Mr. MacLaren), when I think of the great forensic power with which the right hon. Gentleman used to advocate the economics of the increment value of land, created by the community, I am the more surprised that he does not turn to that alternative of taxation.

If one examines the way in which national expenditure has increased, one finds that a very considerable part has arisen in the provision of new barracks, new aerodromes, new stations of one kind or another. The Chancellor of the Exchequer is not without information on this subject, because case after case has been put to him at Question Time bringing to his notice the enormous increase in the charge to the Government in the purchase of land, in spite of their compulsory purchase powers, as compared with the annual value of the land until the Government actually wanted it for Government purposes. In these circumstances it seems to me that the Chancellor of the Exchequer might have devoted some attention to this question of an alternative source of taxation.

On the alternative that was brought forward by my right hon. Friend the Member for East Edinburgh the Prime Minister, at last, has most definitely recognised the strength of feeling in the country. His remarks the other day sounded almost as if he was afraid, in view of the feeling in the country, to utter the words "compulsory military service" unless he said something to the House, even in its present constitution, about the possibility of having a levy on wealth at the same time. I have already dealt with the question of armament profits, and in the light of what I have said I shall reserve judgment on the proposals of the Prime Minister and how they will work until I have seen them. I was not impressed with the general statement made by the Prime Minister, but I want to be fair and to see what the proposals are. I should, however, like to know when we may expect them. Are they to be Budget Resolutions? Are we to wait for the Finance Bill? It is very important to remember that the Prime Minister proposes no levy on wealth to correspond with the levy on man-power until the actual outbreak of war. I suppose that is the right interpretation to put upon his words. Even then he spoke only of measures to prevent the accumulation during war time of individual fortunes. Therefore, at a time when you take the lives of men into national service, you make no corresponding levy upon the resources of wealth already existing, not only from ordinary production but from armaments production during the last three or four years. Surely in a national emergency when man-power is conscripted the present wealth resources of the country should come under conscription as well.

I have been very much interested tonight to listen to hon. Members criticising our proposals in regard to a levy upon capital. All sorts of dire disaster to the general economy of the State have been prophesied. References have been made to the impracticability of the proposal by the hon. Member for Hastings (Mr. Hely-Hutchinson) and others. They have said that the problem of valuation could not be met. This recalled to my recollection the report of the committee to which the Prime Minister referred—the Select Committee on the Increase of War Wealth. It is interesting to see from that report what the present Lord Privy Seal, who was then an independent, impartially-minded civil servant, speaking as chairman of the Board of Inland Revenue, said. I should like to quote some of his statements as a reasonable answer to some of the statements which have been made to-night by hon. Members opposite. On page 21 of the report, in answer to question 228, the Lord Privy Seal said: The process of collection of a tax of this kind"— that is, a levy on wealth— Would be very largely a process of redistribution. You take capital from certain people, and, as the proceeds are to be used in repayment of debt, capital would be set free which would, presumably, to a large extent find its way back into industry again. In view of that opinion of the Lord Privy Seal, what about the calamity which we are told would result to the country by the plan put forward by my right hon. Friend to-night for a levy on wealth? So anxious was the then Secretary of State for War, the late Mr. Stephen Walsh, to make the matter quite clear, that he put questions to the Lord Privy Seal, in his capacity as chairman of the Board of Inland Revenue, and those questions are Numbers 232 and 233. The Lord Privy Seal said: What I meant was that if you take x pounds from A and use the money that you get to repay B, who holds War Loan, to the extent of x pounds, B has x pounds available for reinvestment. In reply to Question 233 he said: It reduces the debt due by the State to individuals, to banking corporations, and sets credit free. I hope the Chancellor of the Exchequer before he responds to the invitation made to him by his hon. Friends to-night to condemn the levy on war wealth or arma- ment wealth will have a consultation with the Lord Privy Seal as to what will be the real effect of the proposal that we have put before the Committee to-night in regard to this matter. I welcome the fact that the Prime Minister, who made an attack upon Labour for their adherence to the principle of capital levy in 1922–23, should now recognise the result of the folly of rejecting our advice then. He realises that at the present time, when we are faced with a great European crisis, we have round our neck a great deadweight of debt, which could have been removed by the process we recommended, it is significant that now he should turn to the report of the Select Committee on War Wealth and suggest that the problem could best be grappled with by a levy such as was examined by the Select Committee. No wonder some of the special friends of capital on the other side of the Committee are beginning to get a little anxious.

I suggest that it is inadequate and unsound at this moment to be expanding the National Debt as rapidly as we are doing, with corresponding increases in the debt service charges, which are largely paid to the wealthier classes, and then when the Debt has been raised to a figure which I prophesied two years ago, at least £9,000,000,000, to find that no attempt is made to reduce its incidence by a real and effective levy on war wealth until perhaps war had broken out or has been completed. In view of the pronouncements made by the Government it is difficult for us to leave this matter in the hands of the Executive at this stage. Speaking for myself, I have felt to-night, when going through these old reports of 1920, that there is no reason why this Committee, if it performs its functions properly, should not say to the Executive Government that they have no right to go on building up this tremendous burden for the future unless they give us, the custodians of the taxpayer, the right to examine the problem immediately. There ought to be a Committee of the House on this matter to advise the Government. They need not sit long. There is information already available about valuation in the report of 1920, and the Committee then were occupied with a double valuation, a pre-war and a post-war valuation, but they were not afraid of that. We have also the report of the Committee on National Debt Taxation, and I think this Committee ought to instruct the Government as to the immediate and effective steps to be taken to avoid disaster for the future in our national finance.

Unless the problem which I have enunciated in my remarks is dealt with, I say that the Chancellor of the Exchequer's proposals cannot be said to be constructive for the future. As at present arranged, the nation has a vast number of people engaged directly or indirectly upon armament work. We all pray that war may be avoided. In that event it may well prove to be the case, as the Prime Minister himself has admitted, that we shall be faced with the possibility that the maintenance costs of the defence services will continue at a very high level whilst thousands of people will be seeking new employment away from expanding armaments production. At such a time the expense of an unduly swollen National Debt with interest charges, will be, as we found in 1925 and 1926, a very severe handicap to any reconstruction of our industrial and social life. Every effort ought to be made at this juncture to avoid waste on luxury and the swollen annual charges to be paid to the rentier.

Two things in my view are vital for the Chancellor of the Exchequer and his Government, from the financial point of view. The first is the economic organisation of the whole and not a part of our resources to meet the national emergency, and, secondly, the immediate examination of the problem of reconstruction, the re-absorption of men and women into their normal place in national productive and social life when the emergency is over. I remember that during the last War we advised reconstruction about 1917 but after the War was over some of the War profiteers stepped in and saw that economy was brought about which prevented any social reconstruction taking place. When we look at this Budget and think not merely of the immediate problems with which the Chancellor of the Exchequer is faced and how it will affect the whole future of the country and the people, we have a right to demand that the problem is really examined from an authoritative and comprehensive point of view so that we may conserve the future of our people and enable them to develop and improve the general standard of their life and wellbeing.

10.1 p.m.

Photo of Mr John Simon Mr John Simon , Spen Valley

The right hon. Gentleman has dealt in his speech with the reception of the Budget, and has endeavoured to remove the impression, which perhaps might otherwise have gained further currency, that on the whole the reception has been favourable. I, of course, except the Opposition. But it is not always the case that the Opposition is in tune with the opinion of the country. Every Chancellor of the Exchequer after he has produced his Budget has a very large post. Letters pour in by hundreds, indeed it would not be an exaggeration to use a higher figure, and I imagine that most of these letters are from people who do not like to be taxed. Nobody likes to pay a tax which hits him, and everybody is greatly struck with the superior virtues of some other tax which would not have that particular application. I do not say that an examination of my own correspondence during the last 48 hours has been such as to give me complete complacency, but it is true, I think, that there has been a much wider general acceptance of the proposals in this Budget than is usually the case. I am grateful to hon. Members for their reception of the proposals but I entirely except the party opposite, because it is their business to oppose, and, perhaps not for the first time, I think they are in a different position from the position which is taken up in the country. The hon. Member for Bishop Auckland (Mr. Dalton), who opened the Debate, carried the thing a step further and attributed to me, personally, sole authorship of almost all the evils from which the world is now suffering. As I listened to his indictment being built up with so much force, I murmured to myself the lines: Who makes the quartern loaf and Luddites rise?Who fills the butchers' shops with big blue flies? The answer is, of course, the Chancellor of the Exchequer.

May I now deal with one or two specific points which have been raised in the course of the Debate? The hon. Member for the Rother Valley (Mr. Dunn) mentioned a matter which I should like to deal with, though I am very sorry I was not present when he spoke. He thought he had detected an indication of some leakage before the Budget statement in connection with the Tobacco Duty. I hope it is not so, and I do not think it is. I think the explanation is quite straightforward and innocent. There was this year, as I stated in my Budget speech, a good deal of forestalling in certain articles such as tea and tobacco. It was necessary for the Treasury to exercise the statutory powers which they have to make an Order limiting the amount that might be taken out of bond before the Budget date. One must not make those Orders too stringent, or they would interfere with legitimate trade, but regulations were made and enforced limiting the amount that could be taken out to what appeared to be the proper quantity for current business. I have no doubt that, in the case of the tobacco trade, merely as a precaution they took out of bond as much as they were allowed to take out. I think the movement, which the hon. Member reported, from the Manchester docks to Nottingham was nothing more than that. If I am not misinformed, I believe there are bonded warehouses at Nottingham, and therefore, what was being moved, or a very large amount of it, may not have been taken out of bond, but simply moved from one place to another. I think it is only fair to the trade to say—and I am glad to be able to say it generally—that, as far as I know, having had the usual reports from the different taxing departments, we may take it that this year, as is usually the case, there has been no breach of confidence, but that there has been preserved the usual secrecy which all of us, whatever may be our political party, try to secure.

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

I think I can support that. We were much more concerned about the special precautions about tea, and then to find that nothing was done.

Photo of Mr John Simon Mr John Simon , Spen Valley

I am sorry to have disappointed the right hon. Gentleman. No doubt he had another speech ready for use. I should like now to make a few observations on one of the big issues raised in the Debate. It was raised by the right hon. Gentleman the Member for East Edinburgh (Mr. Pethick-Lawrence), it was argued very carefully by the right hon. Gentleman the Member for Keighley (Mr. Lees-Smith), and it was picked up again by the right hon. Gentleman the Member for Hillsborough (Mr. Alexander). It has to do with a capital levy. The right hon. Gentleman the Member for Hillsborough seemed to assume that he was going to hear from me some orotund denunciation of the whole conception, but it is desirable, before we get to closer grips with any such proposal, to reflect upon one or two important propositions. First of all, anything which is named, or misnamed, a capital levy has a natural attraction for hon. Members opposite. [HON. MEMBERS: "Hear, hear"] Some hon. Members agree. Perhaps it is partly a question of the name, for hon. Members opposite are against what they call Capitalism, and generally speaking, they are not unwilling to see the capitalists come off pretty badly. Therefore, I am not surprised that the mere name is enough to give them a great sense of satisfaction. It may be true that hon. Gentlemen in another quarter of the Committee, for the same reason, fight shy of this proposition because of its name. I am not very much interested in the name, but I should like to make two or three observations of a general kind about it.

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

I do not know whether the right hon. Gentleman thinks he was quoting me when he uses the words "capital levy." I made a proposal which was specifically distinct from a capital levy. It was the taxation or mobilisation of wealth. The distinction is a much more real one than hon. Members opposite may think. I did not use either the word "capital" or the word "levy."

Photo of Mr John Simon Mr John Simon , Spen Valley

The right hon. Gentleman's explanation may make the idea more attractive, but it will not necessarily make the proposal more practicable. It is rather the proposal than the name with which I would like to deal. Hitherto, this conception, which has been called a capital levy, has meant a non-recurrent operation, something which would happen once and which was not meant to happen more than once. That was true, for instance, of the levy on the increase in war wealth, examined by the Committee which the right hon. Gentleman the Member for Hillsborough quoted. It was an exceedingly important part of the proposition that this thing which was called a capital levy should happen once, and obviously, among other reasons, for this reason. If anyone should suspect that after it had been done once, with satisfactory results, it was to be done

again, and so on for 70 times seven, it would necessarily have the effect of very greatly disturbing any possible confidence that was left in the country. It has always been one of the difficulties—I am not saying an insuperable difficulty—of a capital levy in the classic sense that in the nature of things it could be applied only once. I agree that at the end of the War there was a great deal to be said for the proposition, owing to the circumstances, but one must somehow secure that everybody will believe that it will not be done more than once.

Turning now to the proposal of the right hon. Gentleman opposite—which, as he said, must not be called a capital levy, because it is a mere mobilisation of wealth—the first thing I notice is that it is to happen not once, but every year, or at any rate until things get better. What will be the effect of that? We are no longer dealing with a proposal which is non- recurrent, which it is promised will be applied only once, but which we fear may be applied more than once; but with a proposal which is recommended to us as something which is to happen every year for an indefinite time. A single levy, and even a very steep one, might conceivably operate without completely destroying confidence, but surely it is plain to the Committee that a repetition for an indefinite time, at intervals, is bound to produce, whether one likes it or not, that atmosphere of confiscation which destroys every incentive to save—and saving is essential for the financing both of enterprise and of State action. My hon. Friend the Member for Hastings (Mr. Hely-Hutchinson), who made such an interesting speech earlier in the Debate, put this proposition: Have those who are responsible for this proposal really thought it out? I need hardly say that I do not say that with any desire to doubt their thoroughness, but having done a little thinking myself, I want to see how far we agree. I presume that the plan of the right hon. Gentleman is not to go with the abolition of the Estate Duty. The right hon. Gentleman does not respond—

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

Obviously, I cannot answer that point now. If the right hon. Gentleman has any points to put to me with regard to these proposals, on a suitable occasion I will endeavour to answer all of them.

Photo of Mr John Simon Mr John Simon , Spen Valley

I am trying to be fair. I am proceeding on the assumption that the right hon. Gentleman and those who are behind him in sponsoring this proposal are not proposing to abolish the Estate Duty, and if the right hon. Gentleman is going to do what hon. Gentlemen on those benches usually favour, his intentions must be to increase the Estate Duty. But Estate Duty is already 55 percent. on the larger estates. I assume, in the same way, that it is not proposed by hon. Members opposite to abolish Surtax. I gather that they do not think it is big enough. I presume, therefore, they intend to increase it. So this is a proposal to take a slice of the estate, year by year, for an indefinite number of years, combined with Estate Duty at least as high as the present Estate Duty and Surtax at least as high as the present Surtax.

Let us see where that leads us. If you are going to take the very moderate percentage of 2 percent.—though the right hon. Gentleman, I think, suggested more—levery year on the capital, we may for purposes of analysis take it as equivalent to 10s. in the £on the income. So it is proposed to take another 10s. in the £on the income. But you are already taking 14s. 6d. in the £on the income and Estate Duty rises to 55 percent. How long do you think that will continue? Does anybody really imagine that it could be done, except by a method, which, of course, is conceivable, by which you took chunks of the capital, in addition to the money to be paid out of income, and removed those chunks year by year from the estate in the form of this additional tax. If you did that, you would be reducing, year by year, the estates which pay Estate Duty and the fortunes out of which Surtax is paid, and it is perfectly obvious then that the proceeds of these other taxes must steadily diminish.

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

May I with great respect ask the right hon. Gentleman whether the arguments which he is now adducing against a capital levy, do not apply equally to the conscription of profits?

Photo of Mr John Simon Mr John Simon , Spen Valley

I do not know that I appreciate the hon. Member's point. At any rate, the taxation of profits, he would agree, is a form of conscription, because conscription means making people do things whether they like it or not. But the taxation of profits, of course, can be carried on without the reduction of capital. I would ask hon. Gentlemen opposite to consider these points before they inscribe this proposal finally upon the party banner. I ask them to think whether or not these really elementary considerations must not, at least, be met, before it is possible to declare that the scheme is practicable.

Photo of Mr David Grenfell Mr David Grenfell , Gower

May I ask the right hon. Gentleman a question before he leaves that point?

Photo of Mr John Simon Mr John Simon , Spen Valley

I have not left it yet.

Photo of Mr David Grenfell Mr David Grenfell , Gower

I would ask him, then, what rate of interest or yield upon capital he is assuming for the purposes of his illustration, and how does that relate to the actual return on capital?

Photo of Mr John Simon Mr John Simon , Spen Valley

I will take any return the hon. Member likes, if he thinks I have not allowed a sufficient return on capital. I was expressing it in terms of income as 10s. in the £Does he suggest that it should be more than 10s. in the £—perhaps 20s. in the £? My point is a simple one—that you cannot, in fact, add to our system of taxation, a levy of so much percent., whatever it may be, annually on estates and at the same time preserve the system of taxation which we have at present. Indeed, the right hon. Gentleman's proposal to put 2 percent. or 3 percent. tax annually on estates is, if I may say so without offence, only a very clumsy alternative to Death Duties. Now Death Duties are paid when the estate passes and there are great conveniences in that. For one thing, you can take a very big "whack" and it is worth doing. For another thing, at that moment when the estate passes, the State has power to demand that tax as a condition of conferring the property on the executors, and that is what it does. There is, therefore, great convenience in doing it at that time, just as there would be considerable inconvenience in doing it at any other time. I am not saying that you could not, in time, value all the estates in the country once a year, but it is certain that in many cases it would take more than 12 months to do it, and when it was finished you would have taken year by year a certain percentage as an alternative to taking a big lump of the estate when it passes at death.

I, therefore, ask the right hon. Gentleman, whose ability I fully recognise, whether he really has improved on the proposition of the capital levy ordinarily so-called in attempting to make a charge every 12 months. I do not want to say more about it to-night, but it appears to me that you cannot have these two duties together, and you must make up your minds whether you prefer to collect as much as you can, or as much as you think right, when the estate passes, or whether, as an alternative, you prefer to pick it up in annual bits. The idea that you can do it several times over without destroying all confidence and creating, and rightly creating, the knowledge that this is pure confiscation, I cannot for the life of me understand.

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

That was exactly the argument used against Sir William Harcourt.

Photo of Mr John Simon Mr John Simon , Spen Valley

I am not sure that the right hon. Gentleman is as familiar with that argument as I am, because I have read those Debates within the last week. Let me develop the argument a little further. The right hon. Member for Keighley elaborated it on this line. He thought that there is, under our present system, no sufficient difference in taxation between earned and unearned income. Well, of course, if you are limiting yourselves to Income Tax, we know what the difference is. It was, I believe, on the authority of Mr. Gladstone, thought to be impossible to make the distinction, but none the less it was introduced, and most successfully introduced—I think in 1907—by Mr. Asquith when he was Chancellor of the Exchequer; and I may say that, to the best of my knowledge, there has never been any litigation on that subject at all, which makes it a very remarkable performance.

But, of course, it is completely fallacious to imagine that all that matters is the difference between taxing earned income and taxing unearned income. What I think the right hon. Gentleman the Member for Keighley failed in his argument to observe was that unearned income proceeds from savings or from inherited property, and accumulated savings are the subject of another tax, namely, Death Duties, which must be added to the annual tax on unearned income. If you have two people, one of whom is earning a certain income year by year, like a successful professional man, and the other of whom is deriving a similar income from accumulated savings, it is not true that those two persons are taxed the same or that the difference is merely the difference between a tax on earned income and a tax on unearned income. You cannot compare a man with income alone with another man with income plus capital by looking solely at Income Tax and ignoring the heavy tax on capital, and what I do not think the right hon. Member for Keighley had sufficiently in mind was that the real distinction between earned income and unearned income in the realm of taxation is not merely the difference between different rates of Income Tax, but that when unearned income is being enjoyed as being the fruit of savings or investments, then that property also falls under the tax called Death Duties or Estate Duties, whenever the property passes. It is foolish, therefore, I think, to say that the difference is so limited as the right hon. Gentleman thought.

There was a second case which the right hon. Member for Keighley stated. He discoursed in a very acute way, I thought, on the effect on national economy and prosperity if we had a condition in which savings were at any time greater than were needed to finance production. He said that if savings were greater than what was needed for investment, they represented a depressing influence, and there was unemployment. It is an argument which has the authority of well-known names of economists behind it, and it may be a very good theory, but it has uncommonly little to do with the present situation, and with any situation we are likely to have for some time to come. It has no application to existing circumstances or to possible developments. Who is there to suggest that the savings of the country are going to be so enormous that the borrowing of the country, whether for armament or for industry, will not absorb them? It is more likely to be the other way, and I do not think it is necessary to discuss that extremely recondite matter now.

I have heard the Budget described as a Budget that does not really take a comprehensive survey and as a Budget of expediency. In a good sense I do not object to the description. I believe that we are in a situation where it is not possible with great confidence to prophesy exactly what will be the future either of borrowing or of taxation. No doubt it is very interesting to speculate what the future may bring forth, but I confess that what I thought it necessary to do, and what I tried to explain in the Budget speech, was this. It seemed to me essential that we should raise further money by taxation, disagreeable as that is, and that it was most desirable that we should do it in a way that would not interfere with enterprise and industry on which we so much depend. It seemed to me that that could be done by a suitable selection of taxes which, to the best of my judgment, could fairly be spread, so that the result would be not to produce depression, but to maintain confidence in view of the difficult times we have to face. I think that my calculation was about right, and that the result up to the present is very much what I had thought it would be.

Photo of Sir A.P. Herbert Sir A.P. Herbert , Oxford University

I must apologise for interrupting, but I thought my right hon. Friend was passing to his peroration. He has mentioned his admirable efforts to avoid taxation on enterprise and industry. I wonder whether he will be able to deal with the proposal I made for an alternative tax on betting to produce £50,000,000 a year, and say why the Government were unable to impose that tax?

Photo of Mr John Simon Mr John Simon , Spen Valley

I am much obliged to my hon. representative. I am not approaching my peroration, and I will endeavour to avoid having more than one. His offer is a very seductive one, because I gather it is to be a personally collected tax. If he will pay the proceeds of the tax into the Treasury, not necessarily for publication but as a guarantee of good faith, I shall be happy to engage him as the person to collect the tax.

Photo of Sir A.P. Herbert Sir A.P. Herbert , Oxford University

That is not a very serious answer to a very serious proposition.

Photo of Mr John Simon Mr John Simon , Spen Valley

I invite the hon. Member to study again the history of the Betting Tax proposed by a brilliant predecessor of mine in this office and the ultimate fate of that unfortunate instrument.

Photo of Sir A.P. Herbert Sir A.P. Herbert , Oxford University

I would invite the right hon. Gentleman to study the speech which I made on Tuesday—he was at a Cabinet meeting at the time, and I do not complain of that—and to study the speech which I made on 13th May last year. He invited me to study the history of the Betting Tax and I have gone into that case. I have not charged the Government with lack of courage, but I do now ask the right hon. Gentleman to say fairly and courageously why they have not got the courage and the intelligence to place a tax upon betting. Allowing for all the things which are said about the failure of my right hon. Friend the Member for Epping (Mr. Churchill) it is not sufficient to make jokes about my speech, and I hope that at a later stage my right hon. Friend will give me a serious answer.

Photo of Mr John Simon Mr John Simon , Spen Valley

I do not propose to make any further answer, and I invite my hon. Friend to substantiate his case that the Government is both stupid and without courage.

Photo of Mr John Simon Mr John Simon , Spen Valley

My hon. Friend said that we required intelligence and courage.

I want to refer to another large topic which has been mentioned in the Debate, on which I should really like to say a word. References have been made to inflation without its meaning being always clear. A number of hon. Gentlemen have spoken about the danger of inflation, and I do not feel quite sure that we always use the word as meaning the same thing, and for myself I do not find it a very easy conception to define. I would agree with my hon. Friend the Member for Walsall (Sir G. Schuster) in disliking a term which is used in different senses by different people, and I would like, without necessarily defining it correctly, to make one or two observations about inflation. A description of inflation was given by the hon. Member for the City of London (Sir A. Anderson) in the Debate a few days ago. He said that he supposed inflation was the creation of imaginary money. I should have thought that that vivid phrase, or the idea behind it, was very near to the true meaning. In the old historic days of economic discussion I think inflation was often used to mean an over-issue of paper money. I suppose in modern discussion it is often applied to an excessive creation of bank credit.

I would point out that the mischief does not lie necessarily in the quantity of this currency or of bank credit which is created, but that it is in the excessive use, the rate of flow, of what is created that this dangerous operation of inflation may begin. When the flow of money which represents a demand for goods expands beyond what the productive power of the community can keep pace with, so that demand exceeds output there is either a rise of prices or there is a depletion of stocks of goods, and in either event the flow of money must be regarded as inflationary in effect. I heard an hon. Gentleman opposite say that borrowing always means inflation. I do not think that is right. When the productive power of the community is under-employed, then such an expansion of demand as is required to bring it into employment does not mean inflation. It has sometimes, I believe, been called inflation, but it is what, I believe, everybody would regard as desirable. I do not think for a moment however that the fact that there exists a large amount of unemployment absolves us from keeping a very anxious and careful watch on the situation and taking all the necessary precautions against inflation.

The argument has been put that as long as there is a large body of unemployment we might be sure that inflation would not happen, but I do not accept that argument, because it might lead us into a vicious circle. I feel that it is not true to say that borrowing necessarily produces inflation. It depends upon the conditions that I have tried to define. Up to quite a high point a Government can borrow, and go on borrowing safely, money that has been subscribed, investors' money that would otherwise be required to meet the capital outlay of private enterprise. What happens, I apprehend, is that the lender, by foregoing the use of his own money and of its purchasing power, transfers that purchasing power and releases also productive capacity which the borrower can then take up. Instead of the lender employing so much labour, it is the borrower who can employ so much labour.

It does not seem to me to matter in this aspect—although it does in some other aspects—whether the Government get money by taxation or by borrowing, because in either case it is a transfer of income. The borrower or the taxer is acquiring the right to spend what the lender or taxpayer does not spend. It is when a Government does not, or will not, raise enough money through these channels, and resorts to what my hon. Friend called the creation of imaginary money by borrowing from banks, that inflation occurs; and that is a course which we must all determine to avoid. The total that we have already borrowed for rearmament is £200,000,000, but at this moment the investments of the clearing banks are lower than they were in 1936. It is necessary that we should define our terms. Hon. Members will see that, although there is no need to exhibit anxiety, we have to watch the situation carefully from moment to moment.

Some hon. Members have referred to the methods and experience of Germany, but let us examine the conditions that exist. The German authorities have the power to coerce labour and they do it, and they have power to coerce employers to do exactly what the Government want them to do on whatever terms the Government wish to lay down. I am sure that those methods may produce success of a sort; but, after all, our own methods have shown remarkable success as is evidenced by the enormous increase in the output of the things which the Government want, especially in the last two years, an enormous production, without any sign of an inflationary rise in prices or in costs. It seems to me therefore—while it is true, as my hon. Friend the Member for Stockton-on-Tees (Mr. Harold Macmillan) said in a very interesting speech, that specialised industries that cannot be used for munitions production may still hope to meet the need indirectly by expanding exports to pay for imported war requisites—that a true analysis of the position shows that we ought not to be alarmed at the present position and that we must face it courageously and intelligently throughout. I am not persuaded at all that we are on the edge of some very serious change for the worse. I believe that the general method that we are following is one that will get us through our difficulties.

I have taken more time than I intended, but I should like to deal with one or two questions that have been put to me. I was asked what was likely to be the effect of these proposals on the rates for Treasury bills, and whether it was possible to forecast what the rates will be for the rest of the year. The right hon. Gentleman will understand, from what I said just now about the investments of the banks.

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

May I ask the Chancellor how he explains the rise in the price of Treasury bills?

Photo of Mr John Simon Mr John Simon , Spen Valley

I think we may expect that the quantity of Treasury bills is bound to increase in the future, but I do not want to say more than that, for very obvious reasons. I was asked whether or not the estimates on which I have proceeded could be regarded as having been altogether falsified by the prospective cost of the compulsory military service provided for in the Bill that is to be introduced later in the week. Naturally I had, as the right hon. Gentleman supposes, some inkling of that matter when I spoke, but I feel that I must ask the Committee to await the Explanatory Memorandum on the Bill. I do not know whether it will be ready to-night, but it will be available to-morrow, and it will, of course, show what are believed by the Government to be the capital and the annual charges. I cannot deal with that matter further now, or with the proposals for the limitation of armament profits except to say that I am grateful to the right hon. Gentleman for the new suggestions he made, which are certainly part of the material that will be studied for the purpose of bringing forward definite proposals. I do not think, however, that the Committee will expect me to make, and I could not make, a statement until the proposals, which are very difficult to handle, are ready to be stated as a whole.

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

Does the right hon. Gentleman anticipate that these proposals will be before the House in time for them to be incorporated at some stage in the forthcoming Finance Bill?

Photo of Mr John Simon Mr John Simon , Spen Valley

I cannot answer that question; a good deal will depend on the form that the proposals take. If it were possible to incorporate them in the Finance Bill, it would involve further Resolutions, and I cannot and do not think I ought to be asked to answer questions about that. I have not, however, overlooked what the right hon. Gentleman has said. I am afraid I have made rather a scrappy reply but I have dealt with the two large questions of principle which have been raised in the Debate, and I think we may fairly say that the detailed provisions of the Budget itself have received, in some quarters at any rate, a large and exceptional measure of approval. I quite understand that hon. Gentlemen opposite, and possibly others, may have some very shrewd criticisms to make on particular taxes, but I hope the Committee will now be prepared to allow this stage to be passed. We shall resume to-morrow on the Report stage of the Resolutions, and then will come the Finance Bill.

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

Would the right hon. Gentleman be prepared to say one word on the subject of long-term rates of interest? He will be aware that recently there has been a tendency for gilt-edged securities to fall, and, if he could give us some assurance that it is the object of His Majesty's Government to keep rates of interest as low as possible, I think it would have a very steadying effect.

Photo of Mr John Simon Mr John Simon , Spen Valley

There is no difficulty in assuring my hon. Friend of that. The policy of cheap money, as far as it is the result of Government action, remains the policy of the Government. The circumstances which affect rates of interest are well known to my hon. Friend, and I have always felt, in connection with this subject, that it has to be remembered that London is one of the great financial centres of the world, and that any attempt artificially to interfere too much in these matters would defeat the end in view. Subject to that, I entirely concur with my hon. Friend's remarks.

Photo of Mr James Ede Mr James Ede , South Shields

I see that the Explanatory Memorandum to the Military Training Bill says that the expenditure will be of the following order: Capital £30,000,000 spread over two years. Maintenance cost in 1939, £10,000,000, rising, as the number of men under reserve liability increases, to £25,000,000 in 1941. Are we to take it that calculations based on those figures represent the minimum additions to be made on the current Budget in respect of liabilities to be incurred on this Bill?

Photo of Mr John Simon Mr John Simon , Spen Valley

No, Sir, I would not say that. The hon. Member will remember, no doubt, that I have provided a margin of £50,000,000 for extra Defence demands. Whether or not that margin will be sufficient to cover this and other proposals remains to be seen. As regards the annual charge, I think the figure is nearly £10,000,000.

Photo of Mr James Ede Mr James Ede , South Shields

£10,000,000 in the first year.

Photo of Mr John Simon Mr John Simon , Spen Valley

That is what I am talking about.

Photo of Sir Adrian Baillie Sir Adrian Baillie , Tonbridge

Is my right hon. Friend prepared to consider any revision of his proposed Excise and Customs Duties on cinematograph film, and, in particular, does he intend to make any discrimination in those Excise Duties as between colour photography and ordinary black and white photography; and will he be prepared to have a deputation from those industries?

Photo of Mr John Simon Mr John Simon , Spen Valley

I was in the House when my hon. Friend spoke, and I have his observations well in mind. I do not think it is easy at this stage to discuss the precise application of those proposals. They come up, of course, on Report, and, indeed, on certain Clauses. I have reason to know that certain of the interests affected by these taxes are making communications, as they usually do, to the proper Departments, and I have not the least doubt that those in whom my hon. Friend is so much interested will be also taking that course. I would sooner not answer further than that.

Photo of Sir Adrian Baillie Sir Adrian Baillie , Tonbridge

The only reason I bring this matter up is because these duties are of immediate application and have immediate effect on the trade.

10.48 p.m.

Photo of Sir A.P. Herbert Sir A.P. Herbert , Oxford University

I apologise to my right hon. Friend, but I have not accused the Government of being either stupid or lacking in courage. What I said was that I am sorry, in spite of his manifold cares, that he should have replied to my intervention with the old and stale answer that a betting tax—which I have suggested would, in my humble judgment, if properly managed, raise £20,000,000 in an ordinary year—because it failed when tried under the aegis of my right hon. Friend the Member for Epping (Mr. Churchill), could not be tried again. It seems extraordinary that the Government should pay such a compliment to my right hon. Friend the Member for Epping as to say that, because it failed when tried by him, it could not be tried again by His Majesty's Government. I suggest that the Chancellor should try it again this year, or in another year. This proposal is now being successfully worked not only in Australia, but in France and other civilised countries. As a matter of fact, I larded my right hon. Friend with

compliments, in a speech from which he was unfortunately absent, owing to a Cabinet meeting. I am sorry that while productive industries are taxed up to the hilt, this business of betting, in which I confess I take part myself, should be free.

10.50 p.m.

Photo of Mr John Tinker Mr John Tinker , Leigh

Last Tuesday I made a plea for old age pensioners, and I was wondering whether there was any hope hope in the present state of the nation's finances that the Chancellor of the Exchequer could see his way to ease the lot of these poor people?

Photo of Mr Edward Dunn Mr Edward Dunn , Rother Valley

I must apologise to the right hon. Gentleman for my absence during the time when he was answering my question—I was called out of the House. My information definitely is that between 17th and 25th April there were considerable movements of tobacco. I understand that the right hon. Gentleman said that the movement was quite normal.

Photo of Mr John Simon Mr John Simon , Spen Valley

I will look into any further information which the hon. Member may have, if he will let me know.

Question, That it is expedient to amend the law relating to the National Debt, Customs, and Inland Revenue (including Excise), and to make further provision in connection with finance, put, and agreed to.

Resolution to be reported To-morrow; Committee to sit again To-morrow.