German and Austrian Civilian Internees.

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

Alert me about debates like this

Photo of Colonel Josiah Wedgwood Colonel Josiah Wedgwood , Newcastle-under-Lyme

asked the Prime Minister whether he will give time for the discussion of the Motion on the Paper concerning the White Paper and Refugees, in the name of the hon. Member for Newcastle-under-Lyme?

[That, in the opinion of this House, the White Paper issued by the Home Secretary giving the categories under which so-called enemy aliens may be set free is entirely unsatisfactory in that it will leave most of those who have the greatest reason to oppose Hitler interned, and that it is based on the utility of the internee and not on his or her innocence.]

Photo of Mr Clement Attlee Mr Clement Attlee , Stepney Limehouse

No, Sir. I do not consider that any useful purpose would be served at present by discussion of the Motion standing in the name of my right hon. Friend.

Order for Second Reading read.

3.50 p.m.

Photo of Mr Richard Stokes Mr Richard Stokes , Ipswich

On a point of Order. Before the Debate starts I should like to ask for your guidance, Mr. Speaker. I should like to know whether, in view of the fact that the Debate on the Budget Resolutions was so much restricted, a rather wider discussion will be allowed to-day than is normally allowed, so as to give those of us who had no opportunity of speaking on or criticising the Budget an opportunity to speak, provided, of course, that the speeches are kept within reasonable limits of time?

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

On the Second Reading of the Finance Bill the scope of the debate is always very wide.

3.51 p.m.

Photo of Sir Kingsley Wood Sir Kingsley Wood , Woolwich West

I beg to move, "That the Bill be now read a Second time."

This Bill, when the necessary Parliamentary approval has been given to it, will confirm the proposals for new taxation which I recently made in my Budget speech. Such additional taxation, willingly as I know it will be borne, means a still further appreciable increase in the burdens on all sections of the community, both through direct and indirect taxation. There are, no doubt, differing opinions as to whether one class or another of the community is to-day bearing too much or too little, and whether or not still heavier impositions should be immediately made beyond those now proposed, but there is, I would suggest, no doubt that a real and remarkable contribution by way of taxation has been and is being made in an unprecedentedly short period towards oar war effort. When I say that, I do not minimise for a moment the grave problems that confront us, of which I have already spoken when opening the Budget.

We sometimes forget, I think, in endeavouring to appreciate the questions which arise and the course that we should immediately take by way of fresh taxation, the very substantial burdens that have been imposed in the last 10 months. In September, when the first war Budget was presented, the total revenue from taxes and other sources was estimated to be £888,000,000. As a result of the September and April Budgets and the Budget which I opened a fortnight ago, the estimated total revenue has risen to £1,360,000,000 for the current year, an increase of no less than £472,000,000. But in assessing the real effect of these measures it is necessary to look not so much at the produce of increased charges in the first year as at the produce of a full year, and on that basis the increase in the total revenue over the estimated £888,000,000 for 1939–40 may be put at £650,000,000. That is to say, the total revenue of £888,000,000 will have been raised by nearly three-quarters, or to a figure of the order of £1,500,000,000. As we have seen from the comments made in various countries, this has been rightly regarded not only as a high example of heavy burdens willingly borne but as real and tangible evidence of this country's determination to continue in this struggle until victory has been achieved.

As I have previously pointed out, all this increase of taxation in so short a time has not been effected without hardship and dislocation, which the further increases that are now being made must, of course, in many cases intensify. My right hon. and gallant Friend the Financial Secretary to the Treasury the other day gave examples of the changes in the stages at which the Exchequer takes by Income Tax and Surtax more than half of a person's total income. In the case of married couples with two children, and with earned income, this stage was reached a year ago when the total income was of the order of £17,200. Under the April Budget this year half the total was taken at £8,770, and under my recent proposals the Exchequer takes half when the income is £5,820.

There is another part of the Income Tax scale covering those with incomes between £400 and £800 a year to which I should like to refer. In the case of those incomes, as with others, no doubt further contributions will be necessary, but we should observe what is now being effected under the present Budget proposals. Last year a married man with two children and earned income of £400 a year paid in Income Tax £1 13s. 4d. This year he will pay £15 16s. 8d.

Photo of Sir Kingsley Wood Sir Kingsley Wood , Woolwich West

I will look it up. In the case of an income of £500 the tax liability has increased from £8 6s. 8d. to £36 13s. 4d.—four times as much as it was a year ago. On £700 the charge has increased from £45 12s. 6d. to £104 5s. 10d.—nearly 2½ times as much; and on £800 the tax is now £139 14s. 2d., instead of £67 12s. 6d., That is, more than double. I say again to the House that the impact of such increases upon people with standing commitments which cannot be easily avoided or even cut down is considerable, and before further taxation is imposed, as some now advocate, I suggest that it is right and just that adequate time should be given.

None the less, I think I can fairly claim that at no time have I disguised the magnitude of the problem that confronts us and the large gap that has to be filled by taxation and savings. We should, however, remember that the Budget deficit, the excess of expenditure over revenue, which is in the region of £2,200,000,000 is fortunately not the measure of what I may call the potentially inflationary gap, that is to say, the gap that must be bridged by taxation or new savings, if demand is not to outstrip production. The House will doubtless remember that this gap, as distinct from the Budget deficit, is reduced by a number of different factors which I enumerated in some detail in my Budget speech. It is, of course, difficult to estimate the quantitative importance of these factors, as ways of relieving our immediate financial situation, but each of them is important and when allowance is made for their aggregate effect, the gap that still remains, and which it is important to cover by taxation and new savings, has been materially reduced.

I would call the attention of the House to another important matter of a different character. It is, as my right hon. Friend the Member for East Edinburgh (Mr. Pethick-Lawrence) knows, a time-honoured practice, from which Chancellors of the Exchequer do not depart, to budget for the revenue and expenditure of a year which ends on 31st March. It is the case also that new taxes do not produce the full year's yield, within the limits of the year so ended, and in particular the Income Tax assessment lags practically a year beind the income which is assessed. Therefore, the full effect of the growth of income, taking place this year, particularly in the field of wages and salaries, will not show itself in Income Tax until next year. Though I have had to set my figures in the framework of a year ending on 31st March next, another view can be obtained by looking at the produce of taxation over the 12 months from now. It is true that I may have to count on a much higher rate of expenditure, but I can count on a much higher rate of revenue. In such a period the new taxes that I have proposed, and also the new taxes of the April Budget will produce something in the region of £400,000,000. Having said that, I wish to repeat—and I do not wish to suggest anything else—that it remains imperative on us to continue to make great efforts in the way of bearing new burdens, in making genuine savings, and in strict curtailment of all avoidable expenditure.

Having spoken of taxation, I would emphasise again the vital importance of all sections of the community saving to the utmost and devoting those savings to the State. I think I can say this afternoon that the campaign for savings, generally, is going well, though of course we must always do better. In the first 36 weeks over £313,000,000 has gone into Certificates, Defence Bonds and increased Savings Banks deposits. Adding, in that period, £300,000,000 of War Loan, £132,000,000 of National War Bonds and £13,000,000 of loans free of interest, we have reached a total of £758,000,000 or £21,000,000 a week since the opening of the campaign in November last.

I would like to say a word in particular about the National War Bonds. Subscription for these bonds opened on 25th June, and up to 30th July, as I have said, £132,000,000 has been subscribed. While these figures are much better than the figures for the early months of a similar campaign in 1917, when taxation was much lower than it is to-day and when a much bigger yield was given, it is clear that we must, as we are doing, intensify our efforts. Sir Robert Kindersley, who has done so much in connection with our Savings effort, is specially devoting himself and his organisation to this object.

I have dealt with the salient features in the financial picture and particularly with the contributions to be made from taxation and from savings, but there is, I agree, a wider aspect of the problem before us, upon which I should like to say something. In the useful discussions which have recently taken place in Parliament and the Press it has been emphasised, I think rightly, that any financial measure which we may take to deal with our problems can by no means be sufficient in themselves, but must be augmented by other means and particularly by the planned reorganisation of our productive resources. In other words, our war-time economic problems and particularly the mobilisation of industry for the war effort, cannot be solved by purely financial means. The organisation of industry for war purposes is obviously a substantial and a complex task. A large number of Departments are actively engaged in it and there has been as we all know a marked speeding-up of production. Criticism has been made on the ground that this has been accomplished, to a large extent, by the wasteful method of working very long hours rather than by drawing additional labour into the war industries. It is true that in the critical situation which arose after the collapse of France, the policy of working very long hours was deliberately adopted as the most effective, and indeed the only practical means of securing that immediate speeding-up of production which was so essential. But it was only a temporary makeshift, which cannot be perpetuated if we wish, as we do, to maintain production at a high level.

4.28 p.m.

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

I am glad that the Chancellor of the Exchequer allowed himself a fairly wide latitude in the informative and interesting speech to which we have just listened. We have already had opportunities of considering the Budget in detail, and before the Finance Bill leaves us to go to another place we shall have several further opportunities of considering it. I propose to follow the example of the right hon. Gentleman, and to address my remarks to the Budget, in its setting in war finance as a whole. I can afford, not being in an official position, to allow my imagination a little wider play than was possible to a Chancellor of the Exchequer, speaking ex cathedra from that Box to-day.

I am aware that the primary interest and concern of the country are the prosecution of the war. That matter must occupy their minds and almost their exclusive attention. I am aware also that it is the economic rather than the financial aspect which is of supreme importance. If the economics of the war can be adjusted to the transition from peace to war, it ought not to be difficult, and certainly not impossible, to make the financial consideration fit in with the economic facts. Therefore, we shall look forward with even greater interest to the Debate which is to take place to-morrow on the Motion of the Minister Without Portfolio, who will unfold to us the economic plans of the Government with regard to the prosecution of the war. Nevertheless, however that may be, no one could possibly say that the finance of the country in war-time is not of supreme importance. It may be true that a country whose finance is conducted with reasonable efficiency will get through the war somehow, but it will get through the war very much better if its finance is conducted on the best lines; and still more when the war is over the problem that will be left to posterity will be far easier of solution if right finance is adopted than if we muddle through the finance as we are inclined to muddle through in so many other aspects of life.

In the last war we made nearly every conceivable mistake that it was possible to make except to have so bad a finance that it actually lost the war. The war was conducted with gross extravagance. During the latter part of the war and certainly after the war was over, we allowed the rate of interest on borrowed money to go up and up until at one time it exceeded 6 per cent. We permitted a huge inflation, and not only did we have inflation but we had inflation of a most expensive kind. By that I mean that if you are to have inflation, you should have it by the direct creation of money or credit through the machinery by which money or credit is created. Instead of that, we camouflaged the inflation by pretending that we were getting loans from the public when they were really loans from the banks floated at the rate which the public were given in return for their loans and, therefore, at enormous expense. The country certainly paid twice over, and I am inclined to say in some respects three times over, for the expenditure of the war. Finally, when the war was over we entered upon a period of ruinous deflation which had all sorts of disastrous consequences from which we were suffering right up to the outbreak of the present war.

I am glad to say—and I believe I shall carry the whole House with me in this—that we have done a great deal better than that in the present struggle, but that is not to say that we should not do still better than we are doing, with great advantage to the conduct of the war and with still greater advantage to the situation that will follow when the war is over. I propose to go into that in a little more detail towards the latter end of what I have to say. Before I come to that, I want to take a glance at the facts, to see what they are already and to make a certain number of conjectures as to what they are likely to be for the remainder of the war. Of course, I must make certain assumptions in so doing, because naturally all our financial prospects are conditioned by what happens in the war itself. But there is no harm in our making those conjectures and assumptions, because it is necessary, in order to conduct finance to-day as it should be conducted, to take some estimate of what is likely to be the finance of the future.

I shall take as my first assumption that which the Government from the beginning have laid down with regard to the Nvar, namely, that it lasts for three years and that victory comes to us in the autumn of 1942. Of course, if the war ends earlier than that, so much the better, not only in all other respects but for finance. If it should go on longer than three years—I say it with the strong conviction that every other hon. Member agrees that this country is prepared to go on with it until this menace of Hitlerism is destroyed—so much the worse for our financial situation, but it will still be one with which it is not impossible to deal. I will assume, what must generally be regarded as correct, that the expenditure of the State will continue to increase right up to the conclusion of the war, which, on the three years basis, will be at the end of September, 1942, and, of course, we cannot expect very much contraction for the remainder of that financial year, that is, up to the end of March, 1943. The first part year of the war ended March last is already complete; the second year is nearly half-way through, and for the years that follow we shall have to depend upon our imagination and conjecture as to what is likely to happen. I am going to deal with this in very broad figures, because they are much more easily understood. I shall speak in milliards, that is to say, £1,000,000,000.

Broadly speaking, the total expenditure of the State in the first year ended in April last was two milliards of pounds, and we borrowed approximately three-quarters of a milliard. This year it is generally taken as probably true that the probable expenditure of the nation will be 3½ milliards, and of that the Chancellor of the Exchequer is raising by taxes about £1,360,000,000 in the current year. Broadly speaking, we shall have to borrow something like 2¼ milliards in order to foot the bill. The hon. Member for Wrexham (Mr. Richards) put a poser during the speech which he made on the Budget, and asked how it was possible for us to find 3½ milliards out of a total national income of five milliards. The position is this: The income of the country as a whole was probably between five and six milliards before the war broke out, and although a good many people have suffered a loss of income, many others have had a great increase, and a large number of additional people have been brought into the economic machinery of the country. The total national income of the country as a whole is considerably in excess of six milliards to-day, and is probably more like seven milliards. What we are doing at the present time is having to devote half the total income of the country to the prosecution of the war. We therefore have to convert this expenditure of the country, so far as half the national income is concerned, to the prosecution of the war.

I have now reached the end of what may be something like a reasonable estimate, and I now come to conjecture. I think that a minimum conjecture for the expenditure of the State in the year following this one, that is, the year 1941–42, is that we must certainly add on another half milliard, bringing it up to four milliards, on the assumption that no serious inflation takes place. In the year after, we must add another milliard and expect something like five milliards for the total expenditure of the State for the year 1942–43. But if we were to pursue the path along which we travelled during the last war and were subject to inflation and more inflation and cumulative inflation, I am afraid that those figures would be very much higher still. I do not think that in the third year of the war we shall escape under 5½ milliards and in the next year much under 7½ milliards. Those are enormous figures, which seem utterly beyond our imagination at the present time, but it must be remembered that the whole price level would have changed on that assumption.

Let us see what the result of that would be. On the assumption that we put up the taxation revenue in the next year from 1¼ to 1½ milliards, the borrowing next year, on the assumption that we avoid inflation, would be something in the neighbourhood of 2½ milliards, and, if we did not avoid it, as much as four milliards. In the year following, borrowing would be about 3½ milliards on the assumption that we avoid inflation, and something like six milliards if we failed to do so. Adding up all the borrowings for the three years of war and the months that would follow until March, 1943, I reach this colossal figure: Borrowing, on the assumption that we avoid inflation, might well be in the neighbourhood of nine milliards, and on the assumption that we go into inflation it might be as much as 13 milliards. During the last war we increased the National Debt by something like seven milliards—between six and seven, at any rate—and it stood at well over seven milliards at the beginning of the present war. If we add the debts which we may expect to incur during the war to the pre-existing Debt, we get in one case a figure of 16 milliards and in the case of inflation about 20 milliards. That is not all, because I think by one method of finance we shall be borrowing those vast sums at a higher rate than the other. If the true method of finance is followed, if we bring down the general rate of interest to 2½ per cent., and if that be applied to the 16 milliards of Debt, we shall have a Debt charge of something like £400,000,000 annually.

Photo of Mr Richard Stokes Mr Richard Stokes , Ipswich

That surely depends on whether taxation goes up or not, and whether prices remain level or not.

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

I think my hon. Friend is putting the cart before the horse. If the voluntary savings are sufficient, together with taxation, prices will not go up; but if they are insufficient, inflation is bound to occur, and people will have their consumption cut down—in a very much worse way, because it will be indeterminate and regressive.

I come to the next point, with regard to the inflation of the last war. I pointed out that in the last war not only did we have very serious inflation, but inflation of the most expensive kind. We are to a great extent, I hope, resisting the temptation to finance this war by inflation at all. Further, in so far as the Chancellor is getting money from bank loans he is going to the banks direct, by means of Treasury bills and this new procedure which he has adopted. That is much better. But I still protest that 1 per cent. is much too high a rate of interest. I know the Treasury's attitude. They take the view that the banks render a great deal of service, and that, in view of all that has happened to the banks since the war broke out, it is not unreasonable that the rate of Treasury bills should be higher than it was before the war.

But we must remember two things. The first is that not only has the rate of interest gone up from a little over half per cent. to a little more than one per cent., but the total number of bills is much increased. Last July it was in the neighbourhood of £1,000,000,000, and this July it was £1,725,000,000. That is an increase of £725,000,000, on all of which they make this profit; and they do not have to do a very great amount of work—though I admit they do some—in order to earn that additional profit. The time has come when this rate of interest should be cut. It would not be at all unreasonable for the banks at the same time to cut their rate for customers' deposits, which is now standing at half per cent. If the Chancellor of the Exchequer cannot get the Treasury bill rate reduced from one per cent. to half per cent., let him make a bite at the cherry, and cut it down to three-quarters per cent. Surely he has the power to do it, and the time has come when it would be perfectly reasonable to do so. That would save the State a considerable amount of money. Those are the suggestions that I have to offer for what should be done during the war.

I ask, finally, What will be the position after the war is over? When we come to that, we have this very troublesome fact to remember. We had not been balancing our Budgets for several years before the war broke out. In April, 1939, when the war was still only a possibility, or shall we say a probability?—it was still a peace Budget—there was a deficit of no less than £300,000,000 in the Estimates for the year. We have to add to that, any additional deficit which is likely to arise out of the war. When in a time of normal finance the cost of the additional debt incurred during the war, amounting perhaps to £300,000,000 or £400,000,000, is added to the deficit before the war, that will bring the total up to £600,000,000 or £700,000,000. That does not take into account the vast expansion of services, which cannot be brought back to normal figures in a few months, or even in a few years. Anyone who hopes that as soon as the war is over we shall go back to the halcyon days of Income Tax at only 5s. 6d., and of what we now consider low taxation on beer, tobacco and the other things, is living in a fool's paradise. But this is the essential fact. It has to be remembered that after the last war the physical wealth of this country was not materially less than it was before the war broke out. The same thing will be true after this war, apart from enemy destruction, the extent of which we cannot at present foresee. Therefore, just as it is the business of this Parliament, sitting now, to try to conduct the war finances to the best object, to prosecute the war, and to retain the living standard of the country, so it will be the business of the Parliament that is sitting when the war is over to clear up the mess of war, to clear up the gross injustices of our pre-war system, and to see that the whole resources of the country, unhampered by the financial strains imposed by war debts, are used to promote a healthy, happy, full life for every member of the community.

Photo of Mr Gordon Macdonald Mr Gordon Macdonald , Ince

Is it suggested that we should abolish indirect taxation at the same time?

Photo of Mr John Wardlaw-Milne Mr John Wardlaw-Milne , Kidderminster

Oh, no, every section of the community pays indirect taxation. Indirect taxation is not in question. All these things are arguable, but I think there is a great deal to be said for a direct tax on earned incomes collected at the source over and above—a minimum standard, and combined, as I say, with a system of family allowances. This proposal, is one which deserves earnest consideration. The tax on unearned incomes is already very high, and it will probably have to go higher as the war proceeds. So much for controlling and diminishing purchasing power.

There is the other aspect of the problem—the standardisation of prices. This means either an increase in supplies or their rationalisation to avoid an undue demand. An increase in supplies is probably impossible in war, and a great deal has already been done in regard to rationalisation. But further control of consumption will certainly be necessary. It is inevitable that the luxury trades must suffer, and unnecessary expenditure of all kinds, especially on luxuries must be made practically impossible. It is true that the luxuries of yesterday become the necessities of to-day, and none of us would wish that it should be otherwise, and it may be very difficult for the Government to draw the line and hard for us to accept it. But our course is perfectly clear—consumption must be brought down. Lending to the Government—and I was very interested in the figures which the right hon. Gentleman gave us just before he sat down regarding loans—is admirable, and his references in this respect to those who lend and to those who put the necessity for lending so strongly before us. I very warmly support, but lending alone will not fill the gap: and fill it we must.

I am not sure of the accuracy of the figures I have seen quoted, but the latest statement I think is of something like £150,000,000 in subscriptions to National War Bondsan excellent result. Suppose this goes on and, with the sale of Savings Certificates, raises £500,000,000 or £600,000,000 in this financial year. If we add to this the Chancellor's hopes of reduced expenditure on renewals of plant and the very temporary expedient of using part of our accumulated Empire balances, we still have a gap of anything between £700,000,000 and £1,000,000,000. Our reserves in dollar and other securities will help, but we certainly cannot afford to see that one special asset which we hold disappear altogether at a very early stage of the war. Lending, therefore, through the system of loans which we know to-day will help but will not fill the gap. Is there to be a forced loan? Let us face the thing. Is that the next step? If so, the sooner the House of Commons considers that possibility the better. We are not living in ordinary times; we have to deal with conditions previously unknown in the history of this country. There are one or two expedients that, however, we might try before we come to the forced loan. Why not lottery bonds? I know all the objections which have been raised to this kind of issue, and although I sometimes doubt the validity of such objections in peace-time, they certainly ought not to apply in wartime. Some years ago—if the House will forgive me for quoting a personal matter—I put to the Lord President of the Council, then Chancellor of the Exchequer, a scheme for the issue of bonds of a popular character on which no interest would be paid, but on which there was, each half-year, the prospect of very substantial prizes, paid out of the money saved by the fact that no interest was attached to the issue. I based the interest saving at that time at 2½ per cent., and Members who have not gone into the question would be surprised at the sum which would be available to provide the large number of prizes of varying value every half-year on these bonds. These bonds would have an enormous advantage over other issues of this kind because they are not really a lottery. There would be drawings for prizes half-yearly, and all one would lose, if one could call it a loss, would be the interest on each £1 or. 10s. held. I do not think anybody in this country would be seriously concerned at the possibility of a loss on a pound note especially when there was a chance of a prize every half-year. Objections have been raised that this country has never had to do anything of the kind, but when I was visiting one of our Colonies recently I spoke to the Members of the Southern Rhodesian Parliament and the public of Salisbury in the lottery hall. I am not sure whether that is the proper title, but it is a large place which was erected out of the profits of the State lottery. If it is not wrong for other parts of our Empire to conduct a lottery, I do not see why it should be wrong for ourselves, especially at the present time.

We are throwing out of work large numbers of people, and this process must be accelerated under any proposals which deal with the war effort. These people must be absorbed in essential industry as far as possible so that production can be increased, costs reduced and the expenditure on otherwise maintaining them, saved. I would like to know from the Government what are their plans on a really comprehensive basis to deal with this problem. We hear a great deal about the necessity for having more people in munitions activities, but we do not hear nearly so much of the large number of people who, as a result of the war, are out of work and cannot be employed in any industry of which they have knowledge and experience. There may be a considerable number in training, but I do not know what schemes the Government have in view, and I do not think the House has been sufficiently told of their plans. I said at the time the Budget was introduced that the Excess Profits Tax of 100 per cent. was a mistake, and I want to repeat that I still think that was a mistake. By reducing it slightly we would get better returns and avoid destroying enterprise and initiative. Whatever the rate, however, it is inevitable that the taxation and restriction which are necessary in war must reduce private enterprise. The Government are, rightly, responsible, and therefore it is only to them that we must look for action to remedy the present position and absorb the people who have been displaced.

Another immediate matter is a survey of non-essential industry. Many factories are being hampered and many have closed down owing to restrictions and want of supplies. A shortage of raw materials is inevitable in time of war, but in some cases Government Departments are holding up supplies against a possible future shortage that is never likely to occur. In addition, therefore, to a definite plan by training for the absorption of those displaced, the Government should promote the continuance of such industries as cater for non-war and non-luxury productions so far as that is possible under war conditions. There is a wide field for the kind of survey I suggest, particularly in connection with the export trade. I ask my right hon. Friend, as soon as he has the present Finance Bill out of the way—and I look upon it, as he does, as an interim Measure—to devote himself to the consideration of some of the courses I have suggested.

If I may shortly repeat them, they are a system of taxation, universal in its application to all earned income above a stated minimum, and deducted at the source, with special attention to those who have benefited in the way of increased earnings as a result of the war; the issue of some form of premium bonds; a reduction of the Excess Profits Tax from 100 per cent. to 90 per cent.; further restrictions, if necessary, particularly on real luxury consumption; a survey of the existing non-war and yet non-luxury industries and an examination of their restrictions and difficulties; and, lastly, extended training, with other measures, for the incorporation of those unemployed. Unless we take action the necessities of the Treasury will force the Government to go to the Bank of England for Ways and Means advances, and this will result in the further creation of credit with a large increase in Treasury bills. Inflation has already begun; it is not dangerous yet, but it may soon be so if the problem is not dealt with at once. Our estimated expenditure is £3,500,000,000, to be set against an estimated revenue, after all that the Chancellor has been able to do so far, of £1,360,000,000. The two previous Budgets have produced increased revenue amounting to £400,000,000 against a gap of £2,000,000,000. This is simply nibbling at the problem and shutting our eyes to the dangers ahead.

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

Six milliards is £6,000,000,000.

Photo of Mr David Evans Mr David Evans , Cardiganshire

The right hon. Gentleman made three points which I think are extremely important. One particularly was emphasised. He said that one of the things we must do is to see that the Government avoid waste. He is Chairman of the Select Committee on National Expenditure. It is extremely difficult to watch expenditure in time of war. Fantastic increases in staffs in London, where you have thousands of members of a staff, growing rapidly, in great confusion, with no real control or organisation, is a fact as it exists to-day in some of our new Government Departments. It reminds one of what was said of the Duke of York, who had 10,00 men and marched them up a hill and marched them down again. That is taking place to-day in Government Departments. Thousands of officials are going out of London, and thousands of them are coming back again. Large buildings have been commandeered in London, to the great inconvenience of people who are doing very important national work, half of them still empty and continuing to be empty. That is a subject which the Select Committee might very well look into. I heard an instance the other day of a large floor with a rental of £1,000 or £1,500 a year. It was empty, but I understand that the lease was still in the name of a Government Department. The man in charge of it told me that there had been nine evacuations in that lease during the last year, Government officials coming in and Government officials going out. While the House desires that all the money that is needed is to be spent for the sake of prosecuting the war to a successful conclusion, I think it will agree that we must have full value for the money that is being spent.

The right hon. Gentleman the Chancellor of the Exchequer, in looking at the wider problem, said that reorganisation is needed. It is clear to us all that he himself realises what the problem is, but the House would like to know what steps are being taken in the matter now. What organisation is taking place in order that no production other than for absolute necessities and for war purposes is going on? He said that long hours have now been done away with. In the building trade the maximum hours were to be 60, and we were to return to the provisions of the Factory Acts with regard to women and children. We are all glad to know that, because the experience of those engaged in the management of industry is that the long hours that have been worked during the last few weeks meant rather a loss of production than an increase. What is really wanted is to bring those people who are unemployed now into employment for national purposes. In the last return of unemployment the figures have actually gone up by about 60,000. That obviously would not be so to-day if there was proper co-ordination, and I hope the House will be able to hear something on that before very long.

I should like to ask some questions with regard to one or two of the proposals in the Bill itself. I thoroughly agree with the provision by which Income Tax is to be levied from wages at the source. I think that is an excellent piece of machinery which will be helpful to wage and salary earners, and it is a matter which those engaged in management for a long time have felt to be highly desirable. I have always believed in direct as against indirect taxation. I should like to have all indirect taxation abolished, because nothing tends more to cramp industry, business and trade.

5.46 p.m.

Photo of Mr Francis Douglas Mr Francis Douglas , Battersea North

The magnitude of the problem which faces the Chancellor of the Exchequer and the House is measured by the fact that national expenditure is now estimated at something like two-thirds of the pre-war national income, and even with the most optimistic estimate of the increase of income due to more people being in employment, longer hours, and so on, this must mean that we are spending upon national purposes something like one-half of the income of the people of this country. The amount of taxation which it is proposed to levy, even when the full benefit of the increases in taxation which have been imposed in the present and the previous Budget are taken into account, is less than well under one-half of the national expenditure. That is not a satisfactory state of affairs. Attention has already been drawn to the danger of inflation which we are running at the present moment. The floating debt is already some £1,600,000,000 or £1,700,000,000. The note issue has increased by £100,000,000 over the average for last year. Both of those things point in the direction of inflation, and some part of the increase in prices which has taken place is also evidence of inflation.

If we lived in a community in which the incomes of every member of the population were equal, there would be no problem, because we could then take one-half of the income of every individual and use it for the purposes of financing national expenditure, and the problem would be solved. The real difficulty which the Chancellor has to face is the fact that we live in a community in which incomes are extremely unequal, and therefore, it is impossible to take half the incomes of a very large number of the population because their incomes are barely sufficient to provide for their necessary expenditure; and conversely, a very much larger proportion must be taken from the incomes of those who are on the higher levels of income. The reason the Chancellor of the Exchequer still has so large a gap between expenditure and income is that, on the one hand, there is the inevitable resistance, which every hon. Member, no matter to what party he belongs, must recognise to be justified, of those who are most poorly off to any further increase in the burden of taxation which they have to bear, and, on the other hand, there is the resistance of those who are better off to parting with a sufficient portion of their revenue to enable the Chancellor to balance his Budget. Evidence of the difficulty in which the Chancellor finds himself because of those two things is to be found in the fact that the present and the previous Budget have provided for increases in taxation which in a full year will bring in £367,000,000, and of that the increase in Income Tax and Estate Duties amounts to £162,000,000, whereas the increases in Customs and Excise, the Purchase Tax, and the increase in Post Office charges amount to £204,000,000. Consequently, a very considerably larger sum is being raised by the additional indirect taxes than is being raised by the increase in direct taxation, by Income Tax and Estate Duties.

That is a subject which calls for drastic alteration. It is extremely unfair. There is not a single person who does not realise that these increases in indirect taxation fall with greater severity on those who are least well off, and the most objectionable feature of all is the Purchase Tax, which is estimated to bring in no less than £110,000,000 in a full year. Undoubtedly the Purchase Tax has very large exemptions of purchases of necessary commodities, but in its nature it is a tax of an indirect character which is bound to fall most severely upon those who are unable to avoid making necessary expenditure. I do not think that anybody, on reading the classes of goods contained in the Schedule to the Bill, can say that many of these things are not of a necessary character. It is said that this tax is desirable in order to discourage people from spending so that they may have more money to invest in war loans. But any form of taxation which will take an equal amount of money out of the pockets of the people of this country will produce that effect; any kind of taxation which will raise £110,000,000 will diminish consumption to the extent of £110,000,000; and it is not necessary that that object should be attained by means of the Purchase Tax. I say again that it is the most unfair method by which the object can be attained. It is said that people can defer their purchases; that they can make clothes, furniture and so on last longer; that they can manage to economise to meet the burden of the tax. But that statement is in many cases incorrect. It is true that a person who is established, with a family, has his furniture and can make it do, but what about a young man who is marrying and has to furnish a house? Every one of the articles which he requires for that purpose is subject to the tax. Therefore, the tax is an unfair and indiscriminate one, which falls on some people and not on others.

Let me give another illustration of the unfairness with which the burden will fall. It is to be applied to a very wide range of articles which have to be purchased by the local authorities. They have to carry on their duties as hospital authorities, public assistance authorities, and so on, and to do so they have to purchase large numbers of articles which are contained in the Schedule to the Bill. The London County Council, of the Finance Committee of which I am chairman, have calculated that the effect of the Bill upon them will be to increase their expenditure to the extent of £500,000 a year. That additional expenditure will be thrown upon the ratepayers of London owing to the increase in the cost of the articles which the local authority have to purchase. I do not know what will be the effect on other metropolitan local authorities—the borough councils, the Metropolitan Water Board, the Metropolitan Police, and so on—but in the case of each one of those there will be increased costs which will be thrown upon the ratepayers of London. That increase, as everybody knows, is thrown upon them in a most unfair and unequal fashion, falling most heavily upon the poor and least heavily upon the rich. So far as this tax effects an increase in costs of that kind, it will have a doubly regressive effect, doubly unfair to those least able to bear it. Although it may be that hon. Members are prepared, for the time being, to accept the Purchase Tax as a means of meeting some part of the national expenditure, I hope the House will never consent to make such a tax a permanent feature of our system of raising national revenue. We want to have more direct and less indirect taxation.

When the Chancellor of the Exchequer introduced his Budget, he went out of his way to explain that there were some alternative sources of taxation which he was not prepared to accept. One of them was the taxation of land values. I noticed that the Chancellor did not devote himself to arguing that question upon its merits, and I was not surprised at that, because I think the merits of the proposal are well established and no longer need to be argued. What the right hon. Gentleman did was to say that such a tax could not be introduced at the present time because it would require the setting up of machinery which it would take some time to put into working order. Even if that statement were true—and I do not accept it, because there is an abundance of experience from all over the world to show that this thing can be done speedily, economically, and well—this is not the only Budget which has to be introduced. Provision must be made for the future. We have to look ahead. The level of national expenditure, now at £3,500,000,000 a year, may next year be at a higher level if the war continues, and the year after it may be still higher. Therefore, the Chancellor is not entitled to shield himself behind a flimsy excuse of that kind. He ought to look ahead, and he ought to make preparations for raising national revenue in a way which will be just, which will not bear unduly upon the incomes of the poor, which will not hamper production, but which rather will tend to encourage industry.

Reference has been made to-day—and very properly, I think—to the circumstances which we shall have to face after the war, because our troubles will not then be ended. One of the problems with which we shall then have to deal, no doubt, will be the ques- tion of putting into employment those who are taken off the production of munitions and implements of war, and the tax on land values, which the Chancellor has rejected, would be a valuable instrument in securing that the idle resources of this country were put into use in order that its idle people should be employed. I hope that question will yet be pressed to an issue, that the Purchase Tax will be repealed, and that better taxation will be placed in its stead.

6.18 p.m.

Photo of Mr John Henderson Mr John Henderson , Leeds North East

We have had an interesting series of speeches this afternoon, starting with the Chancellor's illuminating survey and followed by the speech, which we appreciated, of the right hon. Gentleman the Member for East Edinburgh (Mr. Pethick-Lawrence). We have had many other interesting speeches, and the remarkable thing about them all is that they have approached the subject quite dispassionately. Party feeling has only occasionally crept in, and on the whole the subject has been approached as a vital problem which closely affects our interests. I much appreciated the speech of the hon. Member for Ince (Mr. G. Macdonald), and I hope to refer to it later. May I ask the Chancellor whether it is not possible for future Finance Bills to be drafted in simpler phraseology? The phraseology of Government Bills has been getting progressively worse. We all admire the skill of the draftsmen, but such things as double negatives make it very difficult for the commercial community to follow many Government Bills.

The problem to which all speakers have referred is that we have to meet an expenditure of £3,500,000,000 and that by this Budget we are proposing to meet only 40 per cent. by taxation. The balance obviously must be met by savings in expenditure, or by loans, or by inflation. The Chancellor has been a good deal criticised from both sides because he has not gone far enough. I think that he has shown moral courage in refusing to go too far at this stage. I will show by figures later how already, by the two Budgets of this year relating to Income Tax sometimes as far back as 1939, an enormous burden is being placed on the taxpayer. The country must, therefore, be given time to face that burden and to effect economies before the greater additional burdens are placed on them. I think I shall be able to show that at the present moment there is, in effect, a capital levy being imposed.

I would like to say a word about economy. It is a subject to which not enough attention is being paid. A pound saved is of vastly greater benefit to the country at this stage than a pound obtained by taxation or loan. I recognise the tremendous work which is being done by the Select Committee on War Expenditure, but I am convinced that great savings could yet be effected. They must be watched, and I would appeal to the Chancellor to consider whether he should not go to the length of appointing a committee to deal not only with war expenditure, but with all expenditure. One deals with this question with great reluctance, but we have the alternative of cutting down expenditure or taxation, and in these times we cannot afford to disregard any means of limiting the gap. The matter will sooner or later require to be faced, for expenditure which would be permissible in peace-time is not always justifiable in war-time.

Photo of Mr William Craven-Ellis Mr William Craven-Ellis , Southampton

How much does my hon. Friend anticipate that premium bonds would raise?

Photo of Mr John Henderson Mr John Henderson , Leeds North East

They could be made to raise a very large sum. People in munition works who have money in their hands would welcome an opportunity of investing in a scheme of this kind, and I hope the Chancellor will not close his ear entirely to this appeal. A good deal has been said about taxing the rich, and it has been stated that the limit of direct taxation has not yet been reached. I do not think it has been reached entirely, but it has been reached completely in the higher ranges. I would like the Chancellor to clear up one point. In his Budget speech he said: It is not always understood that if one took the whole of all incomes in excess of £2,000 a year they would only produce in extra taxation some £70,000,000 per annum."—[OFFICIAL REPORT, 23rd July, 1940; col. 640, Vol. 363.] Subsequently, on the Budget Resolutions, the hon. Member for Chesterfield (Mr. Benson) put that figure at £270,000,000, and the Chancellor did not dissent. I should like to know which figure is correct.

Photo of Sir George Benson Sir George Benson , Chesterfield

One was a calculation of the total amount of income left in the hands of Surtax payers after paying tax, and the other was a calculation of the amount if all Surtax payers had their incomes reduced to £2,000.

Photo of Mr John Henderson Mr John Henderson , Leeds North East

I am obliged for the explanation. A point which is occasionally overlooked when we are dealing with Surtax is that the tax which has been proposed by the two Budgets this year is not in respect of this year at all. That is an important point which the House does not always appreciate. The Chancellor has raised the Surtax considerably in these two Budgets, but he is not raising it on the incomes of this year. He referred to Income Tax as being for the previous year, but Surtax is for incomes a year further back. Extraordinary results follow from that. A man whose income was £100,000 in 1939 would have believed he was liable to pay £67,000 in Income Tax and Surtax. By the first Budget this year that was raised to £80,000, and it has now been raised to £86,000. I would ask the House to remember that that is not in respect of this year at all. I will give an example. Assume that his income for the year up to April, 1940, was £100,000, that for this year it is £60,000, and that for next year it will be £60,000. That is a fair assumption, because, as hon. Members know, large investment incomes have fallen. What happens? On 1st January, 1941, he will be called upon to pay Surtax of £45,000, not in respect of his income of this year but in respect of the £100,000 that was his income for 1939–40.

Photo of Mr David Kirkwood Mr David Kirkwood , Dumbarton District of Burghs

Tell us how much he will have left?

Photo of Mr John Henderson Mr John Henderson , Leeds North East

He will be £10,000 out. [Interruption.] Hon. Members may dispute my conclusions but I am stating facts. Next year he will pay £45,000 in Surtax and £25,000 in Income Tax, a total of £70,000, whereas his total income for that year will be £60,000. In addition, he will be liable for a further sum of Surtax in January of the following year in respect of the £60,000. These are facts, and though my hon. Friends may dispute the conclusions to be drawn from them, they show, I submit, that already a capital levy is being inflicted, because the demands can only be met by the ordinary large Income Tax payer by borrowing. If things go on and on in that way, the effects may be very serious.

Photo of Mr David Kirkwood Mr David Kirkwood , Dumbarton District of Burghs

The hon. Member, being a Scot like the rest of us here, knows perfectly well that you "can't tak' the breeks off a Hielan'man."

Photo of Mr John Henderson Mr John Henderson , Leeds North East

I think they are making a good attempt to do it, and to do something a little more.

Photo of Mr John Henderson Mr John Henderson , Leeds North East

I have given these figures to show that, in my view, there is no hope of obtaining any increased revenue from the higher incomes. That source is completely dried up. We are going beyond what the Income Tax payer can pay out of income, because he has to draw on capital to pay. I am not making a party speech, but am trying to put certain facts before the House.

We now come to the next point, which has been mentioned by several hon. Members opposite, and mentioned with great fairness, and that is that we know—because I have the figures here worked out on a most conservative basis—that in the case of people engaged in munitions work, engineering, shipbuilding and so on, they have had an average increase in wages running from 50 per cent. up. I agree that in a good many cases that is due to the men working longer hours, and I appreciate that fact, but I am coming to the point of what margin of money they have. We have been talking about rich men and poor men. In my view, the only man who is rich to-day is the man who has a surplus of income over necessary expenditure. Hon. Members will recall Mr. Micawber's immortal remark—I hope I have it right—"Income, £20; expenditure, £20 0s. 6d.; result, misery. Income, £20; expenditure, £19 19s. 6d.; result, happiness. That is particularly true to-day. In the higher income ranges there is no margin between income and necessary expenditure. People have to cut down and cut down.

A great many workmen have not got increased wages, or only small increases of wages, but in many cases wages have considerably increased. What is the position there? Say that before the war a man had an income of £4 a week and that his income has been increased by 50 per cent. and to-day is £6. Say that before the war his expenditure was exactly the same as his income, £4. The increase in the cost of living, according to the "Board of Trade Journal," is 21 per cent. That means that his expenditure has risen to £4 16s. That man, without cutting down one penny of his expenditure on his standard of living as compared with pre-war, now has £1 4s. left in his pocket each week.

Photo of Mr Irving Albery Mr Irving Albery , Gravesend

It could not be done.

Photo of Sir George Benson Sir George Benson , Chesterfield

It could be done. It can be shown that our limits of taxation are by no means reached. I am aware that the Chancellor of the Exchequer has framed his present scheme out of kindli- ness. He has been attempting to temper the wind, by refusing to shear the lamb, but it is not in his power to temper the wind. The lamb will be shorn, for certain, in one way or another. The right hon. Gentleman has done this out of the goodness of his heart, but, when I contemplate the right hon. Gentleman's Budget I am reminded very much of that cynical adage which says that the preoccupation of the wise is to avert the harm done by the good. The right hon. Gentleman does not realise that inflation inflicts a burden on the community. This year's burden is £3,500,000,000. No matter what the Chancellor does, that burden will remain at that figure. When he says that he has raised all that is reasonable by taxation there is only one explanation, and it is that he regards a tax framed according to a carefully conceived plan, as unreasonable and the throwing of £700,000,000 of burden, blindly and haphazardly upon the community as a reasonable method. As a matter of fact, I am not sure what the word "reasonable" means in connection with taxation. We are not concerned with reason in the midst of a war but with taxation which is adequate. There is no other criterion by which we can judge our Budgets or our Chancellors. Does anybody suggest that the present taxation is adequate? The Chancellor made great play with the fact that a man with a wife and two children and £400 a year now pays £15 16s. 8d. in tax and he said that, according to the last Budget, that man paid only £11.

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

The cost of living was different.

Photo of Sir George Benson Sir George Benson , Chesterfield

The cost of living had gone up but does my hon. Friend think that by refusing to impose direct taxation, the cost of living will not still go up? It is not a question of whether we shall bear the burden. My hon. Friend is falling into the same trap as that into which the Chancellor has fallen. The question is not whether we shall but how we are to bear the burden and who is to bear it. I was asked by the hon. Member for Gravesend (Sir I. Albery) what I would do. I will tell him. I would raise direct taxation from the very lowest level to the very highest level. I would bear in mind that, as regards the Surtax payer at the highest level, you might have a very large individual surplus left and that you cannot get very much in bulk, and that you have to bring your taxation right down the scale. I would slash the personal allowances. It is the only possible way, seeing that our whole system of graduation of tax is based on personal allowances. I would adjust the burden which the Chancellor is throwing haphazardly on the community. And although I increased the tax I should not be increasing the burden on the community or on the lower range of incomes. I should be adjusting the burden so that the lower range of incomes bore a less burden than they will bear under the inflation which the Chancellor will not be able to prevent. Let us get to the actual facts. I want to make a comparison. It will be an inadequate one because the statistics themselves are inadequate, but I want to compare what happened in 1931 in regard to direct taxation with what is happening now. I have chosen that year as a basis, because that is the first year in which the exemption limit was approximately what it is to-day. As a matter of fact, the exemption limit is higher than it was in 1931, and therefore this comparison is the more effective. If we take the Income Tax and Surtax of 1931–32 and remember that in that year we had two Budgets—

Photo of Sir George Benson Sir George Benson , Chesterfield

Yes. The actual amount of income left to the Income Tax payer was £2,274,000,000. I do not know the figures for the present year, so let us take those for 1938–39, which are the last figures published. I am taking them from what is known as the column of actual income in the Board of Inland Revenue's Return. If we take the income as shown there for 1938–39 and deduct from it this year's taxation—and I would remind the House the income is a great deal higher than it was—we get, not £2,470,000,000, but £2,820,000,000; in other words, direct taxation still leaves £350,000,000 more in the hands of the taxpayer than was left in 1931. And in that year we were not in the middle of one of the most desperate struggles we had ever had. What is the use of pretending? We are nowhere near the limits of taxation. If we are to raise £3,500,000,000 this year and if the spending Departments are to spend that amount, it is no use saying that we have reached the limits of taxation or of any given tax until the machinery of that tax has broken down. We are not lightening the burden, as I have said half-a-dozen times, by framing our Income Tax lightly, for we are not placing a burden upon the community in the Finance Bill but are distributing that burden. It is nonsense to pretend that our most effective, our most fair and most delicate tax, the Income Tax, is incapable of dealing with a great deal heavier burden than the Chancellor of the Exchequer is throwing upon us at the present time. It has done so in the past and must do so again. Some of my hon. Friends have been very worried about the Purchase Tax. I am not a bit concerned about that tax this year. It proposes to raise a mere £40,000,000. The inflation tax is to raise £700,000,000 by almost identical methods—by raising prices. The Purchase Tax is a flea-bite compared to the inflation tax.

Photo of Sir George Benson Sir George Benson , Chesterfield

There is no taxation at our disposal which can come anywhere near direct taxation for delicacy and power. The most tragic thing about the Finance Bill is the way the Chancellor is missing the boat. Ever since we had the change of Government and when we were faced with disaster on the Continent, the whole nation has girded up its loins, not merely in the munition works but as a nation of taxpayers. Everybody knows that the general feeling was that this Budget which has been dismissed as an interim Budget, was expected to impose swingeing taxation on the people, who were ready for it. I remember discussing this on the Saturday before we had the Budget. People were expecting really heavy taxation. They were expecting very heavy burdens to be placed upon them. They were expecting it, not with fear but with the realisation that it was the only sound method of financing the war. The country was ready for the taxation. What has happened? The Chancellor of the Exchequer has gone into labour and has produced this wretched mouse that we are discussing to-day, an increase of about £125,000,000, in face of an increase in the Estimates of over £800,000,000. The best comment of public opinion on the Chancellor's Budget is the fact that the day after it was announced there was an immediate jump in equity shares, which shows that even the conservative-minded Stock Exchange was expecting far heavier and more drastic taxation than we have had.

Frankly, this is the worst Budget of modern times. Sir John Simon budgeted for a deficiency of £1,400,000,000. The present Chancellor is proposing to budget for a deficit of £2,100,000,000. Sir John Simon raised 47 per cent. of his Estimates by taxation; the present Chancellor proposes to raise 39 per cent. As far as badness is concerned, the right hon. Gentleman surpasses Sir John Simon in every way. I want to give him a warning out of the friendliness of my heart. I want him to ponder on the fate of Sir John Simon and to realise that both his feet are on the slippery slope that leads to the House of Lords.

7.1 p.m.

Photo of Mr Edward Salt Mr Edward Salt , Birmingham, Yardley

We have listened to many interesting speeches, including those of the hon. Member for Chesterfield (Mr. Benson) and the hon. Member for Ince (Mr. G. Macdonald). They made suggestions, and I wonder whether, if they were on the Front Bench they would have put forward those suggestions. The suggestion which was made in the last speech was that Income Tax should be charged from the highest to the lowest, but I think most of us would agree that as regards the smaller incomes there is a minimum that should be left free. The hon. Member for Ince made a speech much of which was admirable, bold and wise, but I wonder whether he would have made it if he was the Minister of Labour. During the last war, when those of us who were in the ranks of the Army were receiving about 4s. a week with a separation allowance, we remembered those at home getting high wages£8, £10, £12 and more a week—men whose brothers were in the Army and getting so little. We said that if ever there was another war, there must be conscription of the whole country, so as to avoid a repetition of those conditions. Unfortunately, things appear to be continuing in the same way. I hope that the Government will seriously consider some of the points brought out by the hon. Member for Ince and others so that we shall prevent a tremendous increase in wages and general expenditure.

In the few minutes in which I propose to engage the attention of the House I would like to refer to the Purchase Tax. In passing, I would say that I believe that if that tax were levied on the retail sales, it would prove the simplest and most satisfactory method and one which would be appreciated by the public more than the present suggestion. It would certainly avoid any trouble as regards export trade. I hope that the last word has not been said on that matter and that it will be reconsidered. I would like to point to one particular set of commodities which is mentioned in the seventh Schedule—drugs, medicines and surgical appliances. I do not know whether it is realised, but I am told, on excellent authority, that 97 per cent. of the surgical industry is taken up by working for the war and Government Departments, and when we realise that the hospitals and other charitable organisations use such a tremendous amount of the remainder, it is obvious that the machinery needed to make the alteration and to calculate the amount of the tax will cost so much that it will destroy the value of the tax, almost if not quite in its entirety. I was pleased to hear at Question Time that spectacles are to be placed on the free list. It is stated in the Schedule that: medical and surgical appliances and essential drugs, being appliances or drugs of an exceptionally costly character (including insulin …). should be free. It leaves very much in doubt the question of what other commodities will be included. Most of the surgical appliances are needed for the results of industrial accidents, and the extra cost would come as a heavy toll on those who have already suffered in industrial life. There may be other commodities which could be left free in the Schedule, but I think it would be very difficult to assess the cost of all appliances which have to be manufactured specially—and they are the great majority—because a great deal of the cost is incurred in the fitting in addition to the manufacture. Until an appliance is completed no one can tell what alterations may be necessary. I think it would be well to leave those free and I hope that the Chancellor will decide to do so. There is one further matter which I would like to mention. In the free list the following are mentioned: Appliances or drugs of an exceptionally costly character. I do not think that one can easily assess what is costly, because it depends on the pocket of the person who is purchasing the article. Many people have to buy such things as belts and trusses, and it is well known in the trade that a man who works in an industry where the heat is great, must have an exceptionally costly appliance, otherwise it will not endure the heat. Matters of that kind which are technical make a great deal of difference, and therefore one cannot judge the exception merely by the cost of the appliance. I hope that this matter will be considered and that drugs and appliances which are almost entirely for use by the hospitals or the Government Departments will be put entirely on the free list.

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

Not as far as the workers are concerned.

Photo of Sir Harold Boyce Sir Harold Boyce , Gloucester

I said, "Give the manufacturer and the tradesman, like the workman, something for which to work in addition to his idealism, instead of stifling all endeavour, as is being done at present, and the Revenue will assuredly gain in the process." Otherwise carelessness, extravagance and inefficiency will inevitably be the result, and habits will be formed from which recovery will be slow, costly and difficult when the war is over. I therefore appeal to the Chancellor of the Exchequer to re-examine afresh both the principle and the incidence of the Excess Profits Tax, in the light of the experience which has now been gained, and of the representations made to him by hon. Members and myself.

7.32 p.m.

Photo of Mr Herbert Williams Mr Herbert Williams , Croydon South

We have just listened to an interesting speech, but, if I may say so with great respect, not a very informative speech.

Photo of Mr David Kirkwood Mr David Kirkwood , Dumbarton District of Burghs

We shall get all the information from you.

Photo of Mr Herbert Williams Mr Herbert Williams , Croydon South

Take as an example the statement which the hon. Gentleman made that we can get all the money from the banks. I suppose the hon. Gentleman has seen so much money on deposit, but if he had taken the trouble to see the other side of the balance-sheet, he would have found that this has all been lent and that all you could get from the banks is through the process of inflation, which everybody has been denouncing. Therefore, I hope the hon. Gentleman will read a bank balance-sheet before he makes his next speech on this subject.

What strikes me about this Budget is the willingness with which people are accepting heavy new burdens. Many people have said that this Budget is not fierce enough, but I took the occasion last April of saying that I thought the taxes then imposed were about as much as could then be stood. What is important to realise is that you are suddenly im- posing on people—it does not matter what class—sharp new burdens to which they have to adapt their lives. If you examine the domestic accounts of almost any family, they will show heavy commitments, such as a house being purchased on a hire-purchase system and the making of provision for old age by means of life insurance premiums. On these, people can effect no economies at all. There is this element of the time factor, which those who are appealing to the Chancellor are entirely overlooking. So far as normal people are concerned, these burdens bear heavily, but I have had only one letter of complaint—I leave out the Purchase Tax—which has come to me from precisely the type of man I have been trying to describe. He is the father of a large family, with heavy commitments, and he is really perturbed as to what further adjustments he can make, because the bulk of his income is already pledged.

What I am rather surprised about, however, is that nobody has asked whether we are getting value for all the money we are spending. Last April the then Chancellor forecast a £2,000,000,000 Vote of Credit, and the present Chancellor has raised that by £800,000,000. He has done that on the basis of expenditure out of the Vote of Credit during the four weeks ended 20th July which is £57,000,000. That is roughly £17,500,000 higher than that contemplated last April. Why are we spending £17,500,000 more than was contemplated as the average for the year? It is not, I imagine, because the total number of men in the Forces has increased beyond the extent anticipated; it is, I take it, because we are spending more on munitions. I must be a little careful in this field, because I happen to be one of the members of the Select Committee on National Expenditure and chairman of the Supply Sub-Committee, and I do not want to say things which have come to me in that capacity and on which reports have not yet been presented to the House. It is common knowledge that in recent weeks a large number of men have been paid seven days' pay for six days' work. This scandal and folly of Sunday work and excessive overtime, which I have denounced at every possible opportunity, was reported on by the Select Committee prior to the attack on Belgium and Holland. Since then overtime has become much heavier and it is bad for the men. They are being paid much increased remuneration for a small increase in output. I am not blaming the men; naturally, if I could get double pay on Sundays I would take my day off on Wednesday, instead of Sunday, when the rate is normal. Vast sums have been poured out. I imagine that nearly £100,000,000 has been wasted in the last few months through this device of trying to get men to increase their output beyond their normal physical capacity.

On 10th May the Government decided to ask the people to ignore Whit Monday, and in a company with which I am connected this was the experience. The managing director called the men together, explained the circumstances and said that if they were paid time and a half, it would make no difference to the company because it was earning its standard rate and anything above was taken away by the Excess Profits Tax. Accordingly, if they were paid time and a half, it would be at the expense, not of the company, but of the State. Eighty-two per cent. of the men of the company volunteered to work on the Bank Holiday at the usual rates of pay, and by making that surrender of their normal rates they were making a gift, not to the employer, but to the State. But they reckoned without the Amalgamated Engineering Union, which demanded that time and a half should be paid. In that they had the support of the State Departments—

Photo of Mr David Kirkwood Mr David Kirkwood , Dumbarton District of Burghs

On a point of Order. The Amalgamated Society of Engineers, of which I have been a member for 48 years, do not take advantage. No body of men have sacrificed more than this society.

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

There is no question of a point of Order.

Photo of Mr Herbert Williams Mr Herbert Williams , Croydon South

I am fully aware of the normal arrangement that, if a man is called up to work on a Bank Holiday, he should get extra pay, but here was a case where a decent body of workmen belonging to the union thought it their duty to help the State when their brothers were fighting for their lives for 2s. a day and to make a sacrifice. They had that right of making a sacrifice taken away from them by the union. That is what I said, and it is the truth. It is just as well that those who cast aspersions at others should occasionally receive a little criticism themselves.

We have a Purchase Tax which will occupy a great deal of our time when we get into Committee. That is natural. We always criticise a new tax more than existing taxes. We are used to existing taxes. The new taxes introduce a great many difficult problems. I want to stake a claim out for consideration in Committee of one or two points. In Clause 19 the Treasury takes power to define articles with greater precision, because under the Schedule articles may be free of tax, they may be taxed one-sixth or one-third, and there will be questions of interpretation. Everyone will be uncertain at what rate a particular article is going to be taxed. The decision is to be made by the Treasury, subject to the control that we can pray against their decision. If the Treasury decide that an article which everyone thought was in the second column is to be put in the first column, you are increasing the tax from a sixth to a third, and I do not think a tax ought to be doubled without the House passing a Resolution approving the increase. I hope the Chancellor will be willing to consider an Amendment which my hon. Friends and I will table suggesting that it should be so altered that an affirmative Resolution of the House is wanted to give effect to an act of definition by the Treasury which in effect may increase the tax which will have to be borne. I regard the Purchase Tax, though it may be a necessary expedient, as nevertheless bad in principle. A tax should be a certain tax. There should be no difficulty in ascertaining your liability. This tax is to be uncertain. I think it will give rise to very considerable difficulties of administration. What is worse, the consumer will not know how much is the tax upon an article that he is buying. If I buy an ounce of tobacco, I know how much it is taxed. If I buy a shirt, I have no means of finding out how much tax was paid when it was sold by the wholesaler to the retailer. I think the consumer in general ought to know what is the burden of the tax. He will not know.

In the Schedule we are certainly going to have difficulties, because naturally it is not easy to draw up this Schedule. I am certain there were many headaches in the Treasury before they came to a final conclusion, and I hope they will be open-minded, because people will find features in it to which they take exception, and already Members are receiving communications from all quarters putting forward this or that reason why a particular commodity should be in the Second Column or on the free list. I understand that many Members have had an opportunity to-day of hearing an eminent person explaining why there should be no tax on books. The Chancellor naturally wants to get as much money out of it as possible. His inclination, therefore, is to resist all proposals to take anything out, or to put anything into a lower classification. But let us take the very first item. Ordinary garments will pay a, tax of a sixth. On the other hand, the tissues from which those garments are made will pay a tax of a third. There has to be added on to the tissues the labour of manufacture. It seems to me a strange thing to tax a semi-manufactured article at double the rate at which you tax the manufactured article, and if you buy the tissues, as so many mothers do to make their children's clothing, the tissues will be taxed, and so the clothing made at home will be taxed, but if you buy the children's clothing at a shop, it will not be taxed at all. That is going to be rather difficult to sustain.

I hope the Prime Minister had nothing to do with the next paragraph, because hats are to be subject to an Excise Duty, and it will obviously be a serious burden to him. There is one strange item. It is proposed to tax an article named "kapok." I was rather startled when I saw that and I went into the Library to consult what I was told is the finest dictionary of reference in the world, though it was obviously printed a long time ago. Kapok was defined as something used for stuffing pillows. That is not its present principal use. It is used for stuffing lifebelts. I really think that re-consideration should be given to a proposal to put a duty on lifebelts at a time like this when they are in greater need than ever before.

On page 44, there are some items which rather disturb me. I understand that the first column of the Schedule was regarded as for articles of a luxury character. It is proposed to have an Excise Duty—that is what a Purchase Tax is—on typewriters, dictaphones, calculating machines and other office machinery. It seems to me a very reactionary thing to propose what is regarded as a luxury tax on these articles, and it may bring in virtually no net revenue to the Exchequer. They are largely bought by Government Departments—at the moment very largely—and by firms engaged on war contracts of one kind or another which have had to expand their organisation—precisely the class of people who will be subject to the Excess Profits Tax at 100 per cent. When these are bought I understand that they are not regarded as capital expenditure. They will be a trading expense charged against revenue, and the only effect will be that the whole cost of this tax will come back on to the Treasury in a diminution of its receipts from Excess Profits Tax. The only effect will be that a great deal of labour will he undertaken in that direction. There is a number of other items, pens, pencils and the rest, which it seems to me rather absurd to bring into what is designed as a tax on luxuries. Pens and pencils are the tools of many people's trades, and to tax the tools of trade is unwise, and I hope there will be some reconsideration.

I want to get back to one other matter of importance in connection with the Purchase Tax. It is probably the most important item of all. At the moment we are very rightly doing all that we can to stimulate the export trade, and it is vital that we should do so, because unless we can maintain the export trade at the highest possible level, clearly we shall have difficulties in financing necessary imports of raw materials and munitions from overseas. In many countries the tariff system is differently based from Ours. Those countries do not impose their duties upon the price at which the articles are being sold, but upon the price at which those articles are sold wholesale in the country of origin. The United States of America, in particular, maintains a very elaborate organisation for ascertaining what is the wholesale price in this country—and the same applies in the case of any other country—of goods shipped to the United States; and for their purpose, under the existing law, the wholesale price includes any internal tax levied upon the articles. Therefore, all the articles in the Schedule to this Bill of kinds which we may export to the United States will have their value, for the purpose of ad valorem duties when they enter the United States, raised by one-third or by one-sixth, as the case may be; and if my recollection serves me correctly. I think that, in addition, the United States have a system of anti-dumping duties whereby there may be a surtax imposed upon these articles. Of course, the extent to which this will operate harmfully will be the extent to which we are in the habit of exporting these goods to the United States or the extent to which we desire to increase our exports to the United States; but it seems to me that probably the gravest aspect of the Purchase Tax is that it may undermine our capacity to export successfully to the United States of America.

The Purchase Tax has two purposes. One is to raise money, and the other, clearly, is to cut down the consumption of goods to which the tax applies. In view of this, if the Purchase Tax becomes law, there will be a very strong case for doing away with the Limitation of Supplies Order which has been published by the Board of Trade. I opposed that Order on the last occasion on which I spoke at any length from this Box in the Debate on the export trade. On that occasion, I drew attention to what I regarded as the evil of the Limitation of Supplies Order. That evil was shown only too clearly this morning. I was horrified when I learned that unemployment has increased by some 60,000 as compared with a month ago, partly due to the situation in the coal-mining industry, for which there is an explanation, but partly due to—and officially attributed to—the effect of the Limitation of Supplies Order. We are closing down production and throwing people on to the labour market at a time when the organisation for munitions manufacture is not sufficiently developed to absorb them. That seems to me to be foolish. We are spending money on these people in giving them unemployment benefits or unemployment assistance, and we are depriving their former employers of a great deal of their tax-paying capacity. I know of one company in whose case the whole of its liability to Excess Profits Tax has been wiped out by the Limitation of Supplies Order; it is only a small company, but the Treasury will receive several thousand pounds less than they would have received from that small company if this Order had not been made. When one sees an increase in one month of 60,000 in the number of those unemployed, and when one bears in mind that during the same month, according to statements made in the House, roughly 200,000 have been called to the Colours, it means that there are 250,000 fewer men in industrial production in this country. That is a very serious state of affairs. I know that the Minister of Labour explained the other day that he and three other fellows were the four greatest fellows who had ever been in any Government, and that everything was going to be splendid—

9.41 p.m.

Photo of Mr Alexander Sloan Mr Alexander Sloan , South Ayrshire

On a point of Order. Is the Financial Secretary closing this Debate?

Photo of Mr Douglas Clifton Brown Mr Douglas Clifton Brown , Hexham

The Financial Secretary is rising to take part in the discussion. I cannot say that he is closing it.

Photo of Sir Henry Fildes Sir Henry Fildes , Dumfriesshire

On a point of Order. When the Financial Secretary gets up we all know that the time is going on, and we have a lot to say yet. If he could defer what he has to say until he has heard the speeches from the rest of the House, it would be a matter of advantage.

Photo of Mr Douglas Clifton Brown Mr Douglas Clifton Brown , Hexham

This is not a point of Order. The Financial Secretary caught my eye. [An HON. MEMBER: "We do not want to hear him."]

9.43 p.m.

Photo of Captain Harry Crookshank Captain Harry Crookshank , Gainsborough

I never like to hear my own voice, so I can sympathise with the hon. Member. There may still be some speeches undelivered, but, of course, this is not the end of the financial business connected with this Budget. It is hoped, however, to get on with some other business of considerable importance before we rise.

Photo of Mr Alexander Sloan Mr Alexander Sloan , South Ayrshire

May I point out that we have heard speeches which have already been delivered?

Photo of Captain Harry Crookshank Captain Harry Crookshank , Gainsborough

I am very sorry that anybody should have repeated his previous speech and that I missed an opportunity of hearing the hon. Gentleman, but there are other occasions. We are working under considerable pressure in war time, and I hope that I shall not be doing anything wrong in the opinion of the majority

Photo of Mr Douglas Clifton Brown Mr Douglas Clifton Brown , Hexham

The Financial Secretary did not give way to the hon. Member, and therefore he cannot interrupt except on a point of Order.

Photo of Mr Alexander Sloan Mr Alexander Sloan , South Ayrshire

I want to know why the Financial Secretary is now taking part in this Debate. He said that he is doing it with the permission of the House. When did he have the permission of the House to do anything of the kind?

Photo of Mr Douglas Clifton Brown Mr Douglas Clifton Brown , Hexham

The Financial Secretary rose, he caught my eye, and I called upon him.

Photo of Mr Alexander Sloan Mr Alexander Sloan , South Ayrshire

It is done by arrangement.

Photo of Mr Douglas Clifton Brown Mr Douglas Clifton Brown , Hexham

Certainly not. It is done by catching my eye and not by arrangement.

Photo of Captain Harry Crookshank Captain Harry Crookshank , Gainsborough

I hope I may be allowed to answer some of the points which have been raised up to now. My right hon. Friend has received many suggestions which it will be his business to consider in the days to come, whether in connection with this Bill as some of the points were, or in connection with the larger matters of finance of the war. The right hon. Gentleman who followed him was good enough to give us for the first time the use of the word "milliard." I am not sure that I approve of it, but, of course, the figures which he used are very large, and I can assure him at any rate, without commenting in any way on what he said were mere conjectures, that the Government are certainly alive to the very large problems which would be involved in a long war. In this House we bandy about these figures of £1,000,000,000 this and £1,000,000,000 that, and I wonder whether hon. Members have any conception of what that sort of thing means. I dare say that in our own constituencies, or in connection, perhaps with charities in which they are interested, they sometimes make a practice of appealing to the generosity of the public by contributing to a "mile of pennies." I have worked out what £1,000,000,000 if laid out in pound notes would extend to, in miles. It may seem a rather schoolboy kind of calculation, but actually a pound note is approximately six inches in length, and if you stretched out 1000,000,000 of them like a ribbon, the result would be a ribbon which would cross the Atlantic 31 times or go round the world nearly four times. That calculation is of no importance or value, but it does remind people what these colossal figures mean. That was the sum involved in the last financial Debate.

There have been running through the speeches again to-day, from several hon. Members, allegations of waste here and there in connection with the Government's expenditure. I can only say once more, as I have repeatedly said in financial debates since the war started, that the Chancellor of the Exchequer, I myself, and the Treasury are vitally interested that that sort of thing should not occur. It was for that reason that my right hon. Friend's predecessor was glad when the suggestion was made that a Select Committee should be appointed to go into the question of national expenditure. That Committee is doing very valuable work. I would beg hon. Members not to make allegations at large in this House, but rather to follow the advice of my hon. Friend the Member for West Lewisham (Mr. Brooke) and either to take specific instances to ourselves at the Treasury or, considering that our colleagues have been charged with this particular duty, to take to them any cases that may be tracked down, so that the evidence may be sifted. Then, if there is anything in it, not only Parliament, but also the spending Department concerned, will be acquainted with it.

The right hon. Gentleman also made a suggestion that there should be a cut in the short term rate of interest from ½ per cent. to ½ per cent., or perhaps ¾ per cent.; and he raised, once again, the question of Treasury Bills. As this is a matter of some importance, which has been raised in the House before now, it may be as well if I give on that point the considered view of my right hon. Friend. It is a well-known fact that it has been the policy of the two Governments which have been in office since the war started that we should try to raise the vast sums required for the war on terms which place on the Exchequer as low a burden as is reasonable in the circumstances. That is an agreed policy, and I think the right hon. Gentleman will say that we have been successful. He has never made any grave criticism of the general structure of interest rates on which we have been able to borrow so far, and I need not remind the House that the series is greatly lower than obtained in the last war. The Treasury bill rate is itself related also to a structure of interest rates upon short moneys. First of all, the rates normally paid by banks on their deposits—not, of course, on current accounts—is ½ per cent. The clearing banks rate for short-term loans is ½ per cent., and the rate on three months' Treasury bills is a few pence in excess of that rate. The natural rate for Treasury bills, which is fixed by competitive tender, depends on many complicated factors, of which the volume of Treasury bills is only one. The short-term money market is a very elaborate machine, but it is essential that its working in war-time should be effective in order that we can raise the enormous sums that we need. My right hon. Friend certainly thinks that he would not be performing a service but a very great disservice by taking any ill-considered action which might derange it.

When we have gone over the criticisms which have been made in this House, some of them in the recent Debate on the Vote of Credit and some in earlier speeches, we have detected what are in fact two objections in the minds of critics about the present position. The first line is to say that the banks, from whose deposits much of the money directly or indirectly comes, should not pay interest on the deposits they receive. Of course, the banks do not pay interest on current accounts, and on ordinary deposit accounts their normal rate, as I said just now, is ½ per cent. It is true that it has been the practice in some parts of the country to pay rates of interest up to 2½ per cent. on special deposits—I think the right hon. Gentleman is aware of that—and that custom is in fact a legacy from the practice of local banks before the large amalgamations took place. Steps, as far as that is concerned, have recently been taken to arrange that for future deposits a maximum of 1 per cent. should prevail where previously higher rates had obtained. My right hon. Friend does not see any adequate reason for going further at the present time, and I think it would generally be accepted that the payment of interest on deposit accounts is useful to the extent, that it is a deterrent against spending and against people taking their money out of deposit and using it in current expenditure.

The second criticism, which was much more bluntly put by hon. Members who are not here at the moment, is that the I per cent. lending rate of the banks yields them an excessive profit, and that a very large part of it is ultimately at the expense of the Exchequer owing to the volume of Treasury Bills. The right hon. Gentleman and others should realise that other people beside the banks take up Treasury Bills. Still, that is the argument, and that question too has naturally been considered by my right hon. Friend, and, in doing so, he has had the assistance of the banks themselves, and it is not the first direction in which he has had their assistance during the war. The fact remains, as far as the banks are concerned, that their profitability depends not just on one factor alone but upon the results of all their operations, which are now being undertaken in times of great difficulty and risk that we are all passing through, and in times in which they have not increased their general charges to their customers. And so, looking at it from that point of view, my right hon. Friend is satisfied that the criticism on that score is not founded. All the critics can take consolation in this reflection, that, if he is wrong and the banks do in fact on balance make largely increased profits, these profits will fall to the Exchequer under the 100 per cent. Excess Profits Tax. So much for that point.

Another point dealing with the larger financing of the war was raised by my hon. Friend the Member for Kidderminster (Sir J. Wardlaw-Milne), who made a most interesting speech and raised many important points, and he will excuse me for dealing with only one point. He asked that there should be a survey, as I understood it, of non-essential industries. That is not in my direct purview, but I always understood that that is being done. I think my right hon. Friend in his opening speech dealt with some aspects of that. Then my hon. Friend raised the question, which he has raised before, of his desire to have lottery bonds. I suppose that like some other things in the world this is one of the things about which people feel strongly one way or the other and about which their views never get reconciled. But taking it from the Exchequer point of view, my right hon. Friend has looked at it, as, indeed, his predecessor looked at it, and I expect as did his predecessors for many years past, but they came to the same conclusion—that it really is not a suggestion which they could put before the House and the country. In fact, it is felt that in present circumstances it would not be helpful but very likely would be harmful, in some cases, to the campaign for small savings being successfully carried out. So I leave it there, so far as my present right hon. Friend is concerned, but I have no doubt that so long as my hon. Friend is in the House he will deal with it as the years go by.

Photo of Mr John Wardlaw-Milne Mr John Wardlaw-Milne , Kidderminster

Have those representations been made to America?

Photo of Captain Harry Crookshank Captain Harry Crookshank , Gainsborough

Yes, they are being made. My right hon. Friend the President of the Board of Trade is not unduly alarmed about the position.

I should like now to turn to another point which it might be useful to clear up at this stage. The hon. Member for Finsbury (Mr. Woods) spoke about children's garments, made at home, and was afraid that knitting wool might come under the tax. I can say that it is not intended that knitting wool should be caught, and we are advised that, in connection with the definition of "haberdashery" in line 17 of the Schedule, there is no possibility of wool being thought to be haberdashery. Wool as such is not mentioned and, therefore, is clear of the Bill, but if there is any fear that because it is sold in haberdashers' shops it may be considered to be haberdashery, we will insert an Amendment to make it quite clear. As at present advised, however, we are under the impression that, like all the other things which are not mentioned, knitting wool is not caught. If there should be any doubt about it, we will see that the doubt is removed by an Amendment at the proper time.

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

Does that not apply to other matters?

Photo of Captain Harry Crookshank Captain Harry Crookshank , Gainsborough

I cannot answer off-hand about other things.

Photo of Reverend George Woods Reverend George Woods , Finsbury

I understand that when the wool is sold on cards in small quantities as mending wool, it becomes haberdashery. The question is when it ceases to be haberdashery and becomes wool.

Photo of Captain Harry Crookshank Captain Harry Crookshank , Gainsborough

That may be the question, but the point is that it should not come in.

Another point with which I should like to deal now, in order to save controversy and unnecessary discussion, is that raised by my hon. Friend the Member for Yardley (Mr. Salt), who asked about drugs of "an exceptionally costly character" which are included in the Schedule, in page 44, as goods which are to be exempted from the tax. The hon. Member did not think it possible to get any definition of what we had in mind. We have been able to do so because a list of drugs of "an exceptionally costly character" has been drawn up by the Ministry of Health, with the help of very eminent medical men. All of them happen to have agreed on this, so I hope the House will not want to disturb what is a somewhat unusual thing—complete medical agreement. The list includes drugs which are themselves costly, such as special injections for rheumatism and preparations known as M and B 693 for pneumonia; it includes also sera as well as expensive drugs which have to be used for very long periods, if not for life. That is why hon. Members will notice in that column particular reference to insulin and liver extracts. They are costly but might not come under the "exceptionally costly" definition. But once they are used, they have to be continued and that is why they are included. As regards appliances, the list includes artificial limbs and spinal jackets. So hon. Members can rest assured that it is possible to define a list which will come in that list. The Ministry of Health have very great experience in this matter from the administration of the Health Insurance Act, and I do not think there will be any difficulty on that score.

I think I have dealt with all the important points raised, but, as I see my hon. Friend the Member for South Croydon (Sir H. Williams) is present, I will interject something which, I think, will satisfy him, although it is outside the Purchase Tax. He was afraid that the imposition of the Purchase Tax might lead to anti-dumping duties in foreign countries for exported goods. But he will see from Clause 29 that there is no possibility of that because there will not be a tax on the goods as exported. We are advised that there is no possibility of it under that Clause, and, if he studies it, he will see that there is particular reference to the problem of allowance under Subsection (2)—"of an allowance for tax paid…."

Photo of Mr Herbert Williams Mr Herbert Williams , Croydon South

It does not matter in the least what we put in this Bill. What dominates the matter is the Act of Congress of the United States, which deems the home consumption value of goods—goods sold wholesale and including tax.

Photo of Captain Harry Crookshank Captain Harry Crookshank , Gainsborough

I think the Clause does cover anti-dumping. It is not a question of tariff with which I am dealing but a question of special anti-dumping. I think he will see it is met as far as we can see.

I should like to go back and say a word or two upon the Purchase Tax. Of course, it is admitted everywhere, and by my hon. Friend—and no one speaking on this tax could do otherwise than admit it—that the tax must, in the very nature of things, press to some degree on all households in this country, but by the way it is now presented to the House in this Bill it does avoid hardships to those with the smallest incomes, and particularly those with children. I would remind hon. Members of the great mass of commodities, goods and services which are not covered by the tax. I would refer them to the Budget speech of the Chancellor, in which he pointed out that something like 80 per cent. of the goods which came within the cost-of-living index are not affected by the tax, and that the expenditure on the lower rate of the Schedule represents about 12 per cent. of the household expenditure which comes within the cost-of-living index. So that, granted that the cost-of-living index is reasonable in the circumstances of to-day, we find that out of 100 articles, 80 have nothing to do with this tax at all, 12 come within the reduced rate, and eight only within the higher.

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

On what basis have these articles been selected?

Photo of Captain Harry Crookshank Captain Harry Crookshank , Gainsborough

I should say that they are selected from the point of view that my right hon. Friend put in his Budget statement: first, that the Exchequer requires more cash to carry on the war, and, second, that it is necessary to reduce civilian consumption. He has kept out of the sphere of the tax 80 per cent. of what comes within tie cost-of-living index, and the Schedule deals with other articles in a way which makes the tax a consumer's tax on personal and domestic expenditure which one can reasonably expect should be limited in war-time.

Hon. Gentlemen say that this is a serious tax for those who are about to get married. They are going to set up house and will have to pay more than they would otherwise have done for the articles of furniture they require. I am not one to give advice to those about to get married, but I think it is probably true that in war-time the great bulk—I have not asked the statisticians, but one's observations show it—of marriages are those of men serving, and there, naturally, the question of setting up households does not really arise on anything like the scale it would in peacetime. I should think that is common knowledge. That being so, those who insist upon setting up house in these times will, I am afraid, have to pay more for doing it because some of the articles of furniture will be more expensive as a result of the tax. That may well be, but again, it might be wiser not to rush into setting up house; marry if you like, but save what you can until the time when peace has come and the household may be all the more happy and contented, if for no other reason than the fact that the couple have been able to choose their furniture together.

There is another point which it is necessary to emphasise now. Last time I spoke I dealt with the question of forestalling and gave a warning to wholesalers and retailers who may feel tempted to purchase outside their normal scale and thereby bring themselves within one of the Clauses of the Bill. I should like on this occasion to point out that if the Bill passes in anything like the present form, which I have every hope it will do, it will be necessary—indeed, it will be a statutory duty—for those who are concerned to apply for registration, when they have the full instructions, which will be published. Under the Bill there is a heavy penalty, for not applying in due time, of a fine of £100 and £10 a day for every day they fail to register. Once the House has accepted the scheme and it becomes law, it is important that we should get it into operation as soon as possible for reasons I have indicated. One of the essential steps is that those who should do so should register. So I give that warning to all concerned.

That, I think, is all that I need say at the moment upon that subject, because we shall have other opportunities of discussing it, but I should like, if hon. Members opposite would take it in the way that I put it to them, to say that my right hon. Friend and I do recognise that in accepting the principle of this tax they have made a real concession in the national interest. We do realise that at one time they were not inclined to consider it at all, but they have come to see that in order to bring this war to a successful conclusion everyone will not only have to give a great deal of money—this Bill will see to that—but have to concede a lot in the sphere of opinion. They have accepted the principle, and I can assure them that we recognise what they have done, and I can only hope that in a similar way they will help us to get the Bill on to the Statute Book as soon as possible. I also ask them to recognise that in the Schedules, as in the provisions of the Measure itself, which have been the result of a great deal of thought and consultation, we have done our best to do what we set out to do, that is not to impose any more hardship than was unavoidable and to take definite steps to see that people who can restrict their purchases of these articles—which, incidentally, may be in short supply for other reasons—do so. If they do not, we shall get something from them by the Purchase Tax; and if they do restrict their consumption, following the advice which has been given to them from every quarter, I hope that they will lend their savings to the State in order to fill the financial coffers which it is so necessary to fill in order to win the war.

10.23 p.m.

Photo of Sir Joseph Lamb Sir Joseph Lamb , Stone

I know that it is unusual to continue the Debate after the Minister has spoken, but my excuse, if excuse is necessary, is that although I have sat through nearly the whole of the Debate, I have been unable to get an opportunity to make the two points which I wish to put before the House. They are points which I believe to be of great importance, and neither has been touched upon previously. The first point is the effect of the increasing Estate Duties upon large agricultural estates. In the Sixth Schedule we find the amount of the duties upon these estates, but it was in the introductory Budget that the Chancellor told us there was an increase of 10 per cent., and that does not appear in this Schedule. I am not asking for the exemption of agricultural estates—that is one of the reasons why I could not put down an Amendment on the Committee stage and why I must ask the indulgence of the House now—and I am not attacking the principle, which is a very big one, of the over-taxation of landed estates, but what I am asking is that due consideration should be given to agricultural estates in the application of this taxation. I was struck by what an hon. Member said earlier, that it is not what we collect but the manner in which we collect it that is important. Unless we are careful these duties will have a deleterious effect upon food production in this country—I hope the Minister of Agriculture will pay attention to what I am saying. We have experience of what happens at death owing to the heavy duties which fall upon a large landed estate. Undoubtedly large estates are more economical to manage than small ones, because there is a greater concentration of management expenses and of the costs of upkeep and repairs. There is a good deal that could be said about that, but I will not go into that matter now.

In the Schedule, Estate Duty ranges from 1 per cent. to 65 per cent. I admit that the 65 per cent. is on an estate of £2,000,000, which would be a very large one, but 65 per cent. is also a very large percentage. The percentage of 55 is on an estate of £1,000,000. There are very large estates which sometimes come to that sum. Even so, no less than half the value is taken on those estates. Those are very big charges to place upon land, because of the results. In actual practice it is found necessary to sell the estate. I am not taking the point of view of the landlord, but am concerned about the production of food. Such sales take place at forced prices, which are not always financially sound for the land. The value is affected very largely because of those who are not producers of food who will use the land for that purpose, but wish to invest in land and put the price up higher than is legitimate for food production. Some farmers will compete for the farm of a neighbouring farmer because it has been well farmed and is in good condition. The farmer who is in possession of the farm has to buy it; if he does not, he loses his home and the benefit of all the improvements which he may have made. There are many cases of an estate having been broken up, and of farmers being forced to buy their farms. It means that they lock up capital which ought to be used for the production of food. If he does not use his own capital, he has to get it from a financier. That means that, in almost all instances, the amount of interest which he has to pay, plus repairs which the landlord would do in the ordinary way, amount to his being saddled with a higher rent.

I ask the Government, not for relief, but that they should endeavour to find some method of application which will not have the results that have accrued in the past. Could not the Government take over a certain amount of land, instead of cash? That would mean that part of the estate would not be sold. I believe the power to do so exists, but that the Treasury refuse to accept land, saying that what they want is not land but cash. That causes a great deal of hardship. There is a rule whereby payment can be made over eight years. It has existed for a long time, and has been operated, but it does not prevent the sale of land and the break-up of the large estates. I hope I shall be able to convince the Minister. If I have not done so, it is not because I am deficient in material but because I am speaking against time, which is always difficult. I hope I have convinced him that the ex- traction of this money from the land can be done in a way that will not have the ill effects that it has had in the past. I hope that he will find some way to help me.

The other point will not take much time. I may have to put down an Amendment on it on the Committee stage, but I do not wish to do so: I refer to the inclusion of china in the first section of the standard Schedule. I promised not to take up much time, and I will not break my promise.

10.30 p.m.

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.