German and Austrian Civilian Internees.

Part of Oral Answers to Questions — British Army. – in the House of Commons on 6th August 1940.

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Photo of Mr Arthur Molson Mr Arthur Molson , High Peak

I make no apology for speaking at this hour, as the Financial Secretary rose to reply to the Debate some 35 minutes before the customary time in spite of the fact that a number of hon. Members had indicated that they wished to address some observations to him. I should be grateful if he would do me the kindness of listening to what I have to say now.

I should like to associate myself with the general arguments of the hon. Member for Kidderminster (Sir J. Wardlaw-Milne) on this side of the House and the hon. Member for Ince (Mr. G. Macdonald) on the other side. I think there has never been introduced into this House a Budget that has been so little opposed and so much criticised as this. The reason is that not only in this House but also in the country there is a widespread feeling that it is not in keeping with the intensity of the war effort which is necessary at the present time. There is a feeling that the Treasury is falling short in its policy compared with what is being done by the other Goevrnment Departments.

I think the Chancellor of the Exchequer confused two of the great difficulties of conducting this war when he spoke of our foreign resources as being capable of being used for making up for the deficit on the Budget. As I see it, in conducting this war we have in the first place to balance our expenditure inside this country, which is relatively easy to do, and at the same time we have to maintain our purchasing power in foreign currencies in order to import food, raw materials and munitions from abroad. That is a vastly more difficult undertaking and one which will he discussed by this House to-morrow. I feel that it is entirely wrong to suggest that our resources in foreign exchange can be used to make up for a deficit in our internal war expenditure. We have had forced upon us something in the nature of a closed economy; and, so far as our expenditure in this country is concerned, it is to a very large extent a transfer from peace expenditure to war expenditure, and our industries and our men are now being employed upon war purposes where previously they were employed upon purposes of peace. It is for that reason that the taxable capacity of this country has been very greatly increased by the war activities and the intensification of the production of arms.

If we are to avoid inflation in this country, it can only be by taking out of the pockets of the consumers, either in taxation or in loans, an amount equal to what is being expended upon armaments. It was of great interest to me that the hon. Member for Chesterfield (Mr. Benson) from the opposite benches should have emphasised so strongly the fact that the burden upon the people is set by our expenditure, and we can choose as to whether that burden is to be spread in an unscientific way by inflation or whether it is to be spread more fairly and justly by taxation and by loans. I hope that the very interesting speech which he made carried conviction to hon. Members on his own benches, who must be prepared to accept on behalf of the wage earners a very great burden for paying for the war. It is, indeed, more in the interest of the workers than anyone else that the cost of this war should be borne by taxation and by loans, and not by inflation. If anyone has any doubt on that point, I would refer him to the table in Mr. Keynes's book on the financing of the war.

Because all our expenditure on the war is, in the true sense of the word, uneconomic, one would prefer that the largest possible proportion of it should be raised by taxation. But because, even in war-time, you cannot expect men to work for nothing, it will have to be paid for to a large extent out of loans—which means, by the promise of enjoyment to be deferred until later. We should lay it down as a principle that at least half of the total expenditure upon this war should always be met out of taxation; as the cost of the war increases, the burden of taxation must be raised proportionately.

I ask, however, that finance shall not only be made to keep step with our war effort, but that it shall be used to assist the diversion of our man-power and industry from the pursuits of peace to the pursuits of war. By reducing the standard of living of the civilian population and thus reducing domestic consumption, the tasks of the Minister of Supply in producing armaments and of the President of the Board of Trade in stimulating our exports will be made easier. This reduction in the consumption of the civilian population should be brought about by taxation, by taking purchasing power out of the hands of the people, rather than by some elaborate and rigid system of rationing. The taxes upon which the Chancellor of the Exchequer is relying at present are, in a large number of cases, taxes upon luxuries. As he succeeds in eliminating the consumption and production of those luxuries, he will tend automatically to reduce his income. Therefore, the taxation should not be confined to luxuries, desirable as it may be that luxuries should be taxed; there must also be taxes upon necessaries if we are to continue, as I think we shall have to do, with indirect taxation. At present neither taxation nor saving is on a sufficiently great scale. The Chancellor should see that both are increased. If they are not sufficiently increased, the effect will be inflation and a rise in prices, which will not be to the advantage of anyone in this country, and will be most harmful to the wage-earners. I entirely agree that the Purchase Tax should be solely a war-time Measure. As soon as we get back to peace we shall want to increase consumption, to prevent an automatic increase in unemployment. To have a Purchase Tax in time of war, which can be removed upon a return to peace, will facilitate the transfer back of industry from a basis of war to a basis of peace.

I hope that this Chancellor of the Exchequer has not finally rejected, as his predecessor did, Mr. Keynes's scheme of compulsory savings. I hope also that hon. Gentlemen on the benches opposite, especially those who have found themselves in agreement with the arguments of the hon. Member for Chesterfield (Mr. Benson) will feel that there is a great deal to be said for that scheme. I was impressed by the speech of the hon. Member for Ince (Mr. G. Macdonald), who said that if munition workers are obtaining large incomes they are also working extremely hard. If it is impossible, as I believe it is at present, to maintain the full consumption of the civilian population while, at the same time, intensifying our production of armaments and maintaining our export trade, then I would urge that there is a great deal to be said for the system of compulsory savings advocated by Mr. Keynes which will postpone until a later time the enjoyment of the fruits of the labour which is being given now.

There are two insurance funds under Government control at the present time which can be used for smoothing out those fluctuations of industrial prosperity and depression which have been the cause of so much unemployment. One is the Unemployment Insurance Fund, and the other is the National Health Insurance and Pension Fund. At a time like this, when unemployment is very low, largely due to an entirely artificial stimulus given to industry by great Government expenditure, those two funds should have an income greatly exceeding their expenditure, and should build up reserves, so that afterwards, when peace comes and there is a danger of a return of unemployment, it should be possible for these funds to pay out much more than their income. That I believe to be one of the few practical proposals which have so far been made for evening out the hills and valleys of unemployment. I hope therefore during the war that the Labour party will not urge any reduction in the contributions that are now being paid to those insurance funds and that they will welcome the building-up of a large surplus for reserve purposes.

I would also urge upon the Chancellor that this is a time when a real effort ought to be made to reduce the volume of local debt. For the last 30 years or more the public debt of local authorities has been steadily increasing. Even during the financial crisis of 1931, the increase was not wholly arrested, and with the prospect of a declining population and of great economic difficulties after the war, and with a vastly increased National Debt, it surely would only be a measure of reasonable prudence if the Government brought some pressure to bear upon local authorities now, by an increase in their rates, to pay off, at an increased rate and increased speed, the very heavy debt which they have contracted during the last 20 or 30 years. All such repayment would be available for lending to the Government.

I now come to the question of taxation, and I make no complaint about the high level of Income Tax and Surtax. I would only point out that when the rich have made the largest contribution that they can make, even to the total confiscation of their income, that will still be only a small proportion of the cost of the war. I hope, therefore, that hon. Gentlemen opposite, who are as anxious as anyone else in this House to win the war, and to win it in a way that will avoid the danger of inflation, will be prepared to accept the need for direct taxation of the wage earners. Whether that should be done, as I would advocate, by increased contributions to the Pensions Fund, of which the Treasury is at present bearing 60 per cent. of the cost, or whether there should be some contribution to direct taxation, and perhaps in the form of a stamp on the weekly insurance card, I express no final opinion. I do believe, however, that, if we are to pay for at least half the war out of revenue each year, an entirely new and much wider source of taxation will have to be found. I am convinced that the wage earners of this country must and will be willing to make their contribution towards that. If there, were some proportionate tax upon all receipts, whether wages or any other kind of payment, it would, I believe, open up a new and almost illimitable source of income and one by which, by maintaining the purchasing value of the £, would not only be very beneficial to the country as a whole, but serve to maintain the purchasing power of the workers of this country.