When our proceedings were interrupted I was drawing attention to the extent to which the differentiation between Income Tax on earned and unearned incomes had been diminished during the course of the war. I want to go a little further with regard to that and to suggest that no adequate criterion has been devised to cover the whole range of differences between earned and unearned income, and in particular, our system of taxation has treated as absolutely identical, income from land values and income from the investment of capital on buildings, machinery and plant, whereas the one is entirley due to general community influences and the other to individual effort and expenditure. The processes of differentiation between earned and unearned income ought to be carried out in that direction, so as to relieve the development of industry generally by means of fixed improvements, and at the same time, by maintaining or increasing the rates of taxation which fall upon the value of land, to take a part at any rate of an entirely unearned income for the benefit of the community generally.
This matter is of exceptionally great importance at the present time, when the nation is faced with a very great shortage of housing, when it is necessary that the building of houses should be encouraged as much as possible, and they should be available to those who occupy them at the lowest rents which can be achieved. As long as our system of taxation, local as well as national, continues to impose a very large burden upon the provision of housing accommodation, it will be difficult, and increasingly difficult if present trends of taxation continue, to provide that accommodation in the quantity and at the rents at which it ought to be provided. There is a field of reform in which the Chancellor, if he would, could do something of the very greatest value towards encouraging industry generally not merely by the relief of taxation upon the produced articles, but by a general levy of taxation upon land, whether it is used or whether it is not used, in order to ensure that it will become available for use without being held for speculative purposes and will become available for use at a reasonable price.
This Budget contains no increase of taxation but it does, in effect, contain a threat of an increase in taxation, because the Chancellor has intimated that he contemplates reducing the amount of the subsidy which has been given for the purpose of keeping down the cost of living. That in effect will be equivalent to an increase in taxation. The subsidisation of the price of food is a compensation for increase of taxation which has been imposed upon the general mass of the people. It is a compensation for the very large amount of indirect taxation which is being levied at the present moment. If that Exchequer assistance towards keeping down the price of food or other essential commodities is withdrawn, in whole or in part, it is virtually equivalent to an increase of taxation and one which will fall most severely upon those who are most necessitous.
The mention of this by the Chancellor of the Exchequer is an admission that inflation has already taken place in this country. Unless that is so, there is no justification for the course of action which he is proposing to take because it is based upon the argument that the price level has changed and that the rates of wages have got out of proportion with the prices of commodities. That is simply a statement that inflation is already taking place in this country. If that is so, it is the business of the Chancellor of the Exchequer to stop it at the source and not to attempt to readjust matters at the expense of those in the community who are most necessitous. That is not the way in which this problem should be tackled. That inflation is taking place—of which there are other signs besides this —is going to make the whole approach to our post-war problems more difficult. It is going to make it more troublesome to arrive at rates of exchange after the war with other countries which will facilitate the import into this country of the food, raw materials and other commodities that it is absolutely essential we should have in order that our industry shall be set going and that our production shall be raised to the highest possible point.
It is distinctly an alarming position to see that the Chancellor of the Exchequer has, in effect, made the admission of the existence of inflation, and that he does not propose to go to the root of the trouble, but proposes to take a step which is likely to have the result of speeding on the process of inflation by calling for more increases in prices. That is a situation which I do not believe this Committee can contemplate with equanimity. It would be far better if the Chancellor of the Exchequer would apply the methods, which to a great extent have been applied successfully hitherto, of increasing taxation and diminishing spending power rather than that we should pursue the opposite course of allowing spending power to increase, increasing the amount of money in circulation, raising the general price level, and making the whole readjustment of our economy for the postwar situation more difficult than otherwise it would be. I beg of him to look at this problem again and to see whether there is not a better approach to it than that which he has indicated in his Budget statement.
In the course of the Budget speech we all must have had a certain feeling of sadness in missing a familiar figure at that Box. The late Chancellor of the Exchequer was always lucid and cheerful. We all feel that in the early difficult years of the war he did an extraordinarily good job in dealing with our national finances. We have the satisfaction of knowing that the war has been well conducted, and with fewer mistakes than were to be expected owing to the gigantic nature of it, but in no sphere have our affairs been so well conducted as by the Chancellor and the Treasury. Yesterday the new Chancellor took his stand. The late Chancellor had many great problems in connection with the financing of the war, and the problem of preventing, as far as possible, inflation. The new Chancellor also has that problem. I agree with the hon. Member for North Battersea (Mr. Douglas) who said that he had to face inflation, but the Chancellor is also going to have the equally great problem of preparing the ground for the recovery of this country and for the transition from war conditions to peace conditions. Yesterday, we all felt that he had made an extraordinarily good start, and we certainly wish him good luck in a very difficult job. The whole Budget was so full of interest that one does not know where to start, and where one would end if we attempted to deal with the fascinating questions that were raised by the Chancellor.
I think, however, the most grave question at the moment is the fact that we have been forced to some extent off our stabilisation policy. Apparently we are still going to try to stabilise the price of commodities, but instead of between 25 and 30 we are going on to 30 to 35. That, I believe, is calculated to be an increase of £45,000,000 to £50,000,000 in the price of commodities. If we are in the spiral of inflation then there is no certainty that we are going to be able to hold it at 35, and it is a very serious problem indeed for everyone, and requires the serious attention of the Chancellor and of the Committee. The last speaker said he was sorry the Chancellor was not getting at the root of the matter, but it is very arguable what is the root of the matter, and I confess, like the last speaker, and the right hon. Member for East Edinburgh (Mr. Pethick-Lawrence) and others, that I have a little doubt as to the rightness of the Chancellor's policy in this respect. The Chancellor stated that wage rates had increased to 40 per cent. over pre-war wage rates, but of course it is quite obvious that earnings have increased by a very much greater figure. I think it would be admitted by hon. Members on all sides that the free spending power is in the hands of certain sections of the wage earners and the question is, how in the national interest to prevent inflation and ensure that spending power should be used better in the national interest than by being spent on the purchase of commodities which are in short supply. I am afraid that the increase in the cost of living may lead to further inflation.
I suggest to the Chancellor that he must also consider offering some alternative form of loan which would appeal more to the working man than existing forms of loan. National War Savings Certificates are good and 3 per cent. Savings Bonds and 2½ per cent, bonds are excellent, but the question of Income Tax comes in. The present 'Government loans make no particular appeal to the man who has not been in the habit of saving and does not understand the principles of investment. In order to take this excess spending power out of the hands of those people we must evolve some form of national loan which will attract them to invest. The suggestion I am going to make, which I have made before, is not made because I particularly like this form of investment but because I think it is the only way to meet the problem. In the last war we had Premium Bonds which gave £7 or £10 of premium on drawing to the people whose bonds were drawn. I suggest we have to go further in this war. We must attract the working man investor into putting his money into a loan which gives him either a small rate of interest or no rate of interest but on which prizes are paid out by drawings. That will attract a class which previously has not been prepared to invest in any of the existing war loans.
Let me give an example. There might be bonds of £5 each which could be collected in the usual way by War Savings Committees in small sums. I think there would require to be a limit on the maximum amount to be invested in this way of say £500. I think it could be done at 1 per cent, free of Income Tax. Suppose you attracted, as I am sure you could very easily, £100,000,000 or more and you allowed 1 per cent, for drawings, you might be able to offer four prizes of £25,000, ten at £10,000, 200 at £1,000, 400 at £500 and 4,000 at £100. I only give these as examples of what might be done. Other hon. Members might have better ways to suggest. I am not urging this because I particularly like such a form of loan. I know it is contrary to the conservative traditions of some hon. Members and of some financiers, but the point is that the position is critical and the surplus spending power of certain people who are not investing in existing loans must be turned into proper channels. From the moral point of view this would have the effect of making a man save and at the end of 5 or 10 years he would get his money back in full, while if he got a prize as well so much the better. At any rate, at the worst he would get his money back in full. The point I make above all is that this method would offer an attraction which no other form of Government loan does, and would remove some of the surplus spending power which to some extent is responsible for the inflation which I, personally, believe is already very noticeable. I ask the Chancellor if he will consider this matter sympathetically and not turn it down because it is not in conformity with the usual views of the Bank of England or of the Treasury.
May I put a point? It is quite true that there is a precedent for this suggestion in that during the last war we had the Victory 4 per cent. Bonds redeemable by drawings at par which, I am afraid, were mostly associated in the public mind with the late Horatio Bottomley. Apart from safeguards against manipulations of that kind taking place again, how would the hon. Member deal with the situation which did in fact arise with the Victory Bonds when they rose in the market above par and those whose bonds were drawn found themselves penalised instead of benefited?
That point would not arise under the scheme I am talking about. The case the hon. and gallant Member has in mind is where bonds were issued at, say, 93 and repaid by drawings at 100, or issued at 100 and repaid at 110. It is true that in the last war we had that situation to which my hon. and gallant Friend refers, but in this scheme there would be no rising or falling above par value at all and there would be no quotation on the Stock Exchange. I would like to see a fixed date of five or ten years at the end of which they would either be paid out in full or an opportunity would be given to renew and, during that time, the r per cent. normally paid in interest would be used to pay premiums, whether in larger or smaller sums. I hope the Chancellor will give this matter some consideration.
I would also like to ask the Chancellor to give us some more enlightenment on post-war credits. According to the Financial Statement there is already a sum of £350,000,000 accrued, in addition to the post-war credits that will be payable in respect of E.P.T. I should think that E.P.T. will be of at least an equal amount, though it is impossible to calculate. It depends, of course, on how long the Chancellor keeps it on and also whether we run into a period when smaller profits are being made. E.P.T. has one very interesting feature in that it forms, to some extent, a mattress on which to fall back when trade is not so good within the limit of the period for which the Chancellor continues E.P.T. What I mean is that a firm become liable to E.P.T. when they have a good year and then there comes a period when trade is not so good, for example, during the change-over from war to peace, and they make losses. In that case they have a claim against the Treasury for refund of E.P.T. and that, to some extent, provides a cushion. The old-fashioned Treasury attitude—I do not mean that the Treasury is old fashioned at the moment, I mean the Treasury attitude of former times—would have been, whenever it looked as if we were going to have a bad patch, to bring E.P.T. to an end. I am surprised that the country as a whole has not paid more attention to the future possibilities of something like postwar credits, because they too might form something in the nature of a buffer which might be used to tide over periods of slump. I do not know whether the Treasury has that in mind for the future. If the taxpayer were compelled to pay something in periods of prosperity which would be repaid to him, like E.P.T. in times when there was a danger of restriction of Tending, then that might help to level out things and modify slumps and booms. [An HON. MEMBER: "Have a means test."]
The Chancellor has, I think, made a very sound start in his first Budget speech. I am sure that industry will appreciate very much the concession he has made to E.P.T. I see it is going to cost about £12,500,000. That is a considerable sum, and in the White Paper it is said that the allowance for Income Tax has been taken into account. This concession helps the small man but it does not iron out the many anomalies which exist to-day. I know the diffi- culties the Chancellor is facing and I think he has made a very considerable concession and as big a concession as one could expect at the moment. If, however, without conceding much more in the way of money he could try to iron out the extraordinary anomalies which, though they may not amount to so much in money, cause a tremendous feeling of bitterness amongst the commercial community, I think he would be doing a good piece of work. I think the Committee will feel that the concession he has promised for the future for depreciation and so on shows that the Treasury is progressive and realises the problem we have to face in the future, but the best that can happen in the next year is not entirely within the Chancellor's own control. I hope it will happen, and if it does, I think we will all agree that it will do more for this country and finance than even the Chancellor himself can do. I hope that when next he stands at that Box on Budget Day he will be dealing with a financial position based on Germany having been defeated. That will represent a great step forward towards the financial stability which we all desire. The sooner that comes, the better for the country and, unquestionably, an early defeat of Germany would make things much easier for the Chancellor. We all wish the Chancellor of the Exchequer every success in the very difficult duties he will have to perform in the next few years. He will require all our good wishes and I am sure he will have them.
It is with very great satisfaction that I return to this House after eight years to hear such a statesmanlike Budget in which there is no fresh taxation. I well remember in 1924 or 1925 having to return to my constituents with many taxes which were very unpopular. I feel sure that most of my hon. Friends in the House this week-end will be very happy to face their constituents. There are two things in the Budget which I would like to talk about. The first is agriculture, and I am sure we were all very pleased to hear that there were going to be further loans for that great industry. For many years Norfolk was a distressed area, but the war has done remarkable things in bringing about prosperity in Norfolk, and I am sure that my farmer constituents will be glad to hear of these further loans. The whole county has changed. If I may put in a personal note, from Sandringham I can now see the park which some ten years ago had 300 deer and a golf course, but is now a huge farm producing food for the country. As most hon. Members know, farming is a very difficult industry, because we never have the money at the right time; but I am sure that the Norfolk farmers will be very glad to hear that they are going to have money provided to, help carry on their industry.
About the car tax. A farmer has a car and pays this very high 'tax although, perhaps, he uses it only once a week to go to the local market. I have always been a great believer in the Petrol Tax. Last summer I had the opportunity of going to America. There cars of all types and categories, whether of 10 or 40 horsepower, pay the same tax. More revenue is derived from the higher horse-power car through the Petrol Tax, and I feel sure that the Chancellor of the Exchequer, in his wisdom, will derive higher taxation on the same basis.
When I was in King's Lynn over the week-end I found that most of my constituents expected further taxation and I feel sure, if I may make one or two suggestions, that the Chancellor will not take them amiss. I have always wondered why we have not, as in the case of beer and tobacco, tackled our daily newspapers. Does the Chancellor realise that if he put a penny on the daily papers he would receive something between £10,000,000 and £20,000,000 a year in revenue? That would be a very welcome asset to his Budget, and I am also sure that the average person would not object to the extra charge. I feel, also, that we could increase the poundage charge on postal orders, if only because one of the most annoying things is to have to wait for our halfpenny change. I think that the rounding off of poundage on postal and money orders would do a great service to the country and expedite the issuing of those orders. I also feel that telegram charges are very low. When I was in the States last summer and had occasion to send a telegram to California, I was amazed at the expense. I was told, however, that I was using some 3,000,000 dollars' worth of apparatus in California. We all know that distances in this country are not very great, but I think the Chancellor could introduce zones, so that we would perhaps pay more when sending some telegrams. We are asked to send fewer and that, perhaps, would be a deterrent. I think it would be something which the public would be very glad to pay. I am sure that from all sides of the Committee we congratulate the Chancellor on his very fine Budget. In the Press and, indeed, throughout the country, we have heard nothing but praise for his help. He has followed a gentleman who was very much respected, and I am sure we all extend to him our very good wishes and are prepared to do all we can to help him in this Finance Bill.
May I ask the House for the indulgence which I understand it always accords on occasions such as this? I think I may more easily earn that indulgence if I warn the Committee at once that I intend to be particularly brief on this occasion. I hope that hon. Members will not think it inappropriate if I do not take part in the various arguments that have been put forward by other speakers who have taken part in the Debate up to now, but I do, for one or two reasons, wish to say just a few words. Primarily, I want to congratulate the Chancellor of the Exchequer on what I call his brilliant Budget Statement of yesterday. To me it was brilliant for two or three reasons. First of all, I would suggest, it was brilliant for the method of its delivery, an example to many of us. It was brilliant for the clarity with which he put forward a very difficult subject indeed. It was brilliant, it seemed to me—and there is a good deal of agreement about this—because it imposed no fresh taxation, and, while I am certain that some hon. Members will endeavour to controvert that point of view, in the main I think there will be general agreement about it. I would like, if I am not out of Order in adding to the congratulations which I tender to him for his statement in Committee yesterday, to make reference to what I shall call his fireside talk at 9.20 last night. That talk vas listened to by millions as against the hundreds who heard him in this House and I am sure that the appeal-which he made for still further savings will not fall on deaf ears.
I also want to take this opportunity of saying a few words by way of thanks to the Chancellor of the Exchequer for the many kind references which he made to his predecessor in office. As we all know, Sir Kingsley Wood was an honoured Member of this House for very many years. He occupied various high positions in the Government from time to time and, I suggest, he filled those various positions with satisfaction to this House, to his constituents, and to the good of his country. Therefore, I would like to thank the Chancellor for what he said about Sir Kingsley yesterday, and I do so in the name of the constituents whom Sir Kingsley Wood formerly represented and who now send me here in his place.
There are many hon. Members who want to take part in this Debate and who are much more competent to make excursions into the realm of finance than I am, but I would like to say that it was with no small gratitude that we heard that the black draught which the Chancellor had in mind—he only foreshadowed it; he did not tell us it was bound to come—might even be obviated, and so he concluded his speech yesterday with words which I think will become classics in the future. His words were "The mixture is the same as before." I do not think anyone needs to be a great financier to realise that the proposals which were put into force by the late Sir Kingsley Wood and which have been adopted and implemented by our present Chancellor will produce the money that we want for the good government of this country. One last word. I want to thank the Chancellor for telling us, as he did in perfectly plain language, that the Government are now taking into account financial considerations which must operate in the post-war period both with regard to scientific research and also to the rehabilitation of industry. For the reasons I have given, it was my wish—and I am grateful to the Committee for allowing me—to intervene in this Debate to-day.
The hon. and gallant Member for West Woolwich (Major Beech) may be certain that this House would give a most sympathetic reception to any one who succeeded a man who was endeared to the majority, and, in fact, to all of us. I would like to add that, having heard the hon. and gallant Member speak to-day, we are glad to welcome him for his own sake and look forward to hearing him again. Many references have been made and much testimony has been given to the work of Sir Kingsley Wood, but I think that in all probability the most remarkable tribute of all is one which has not been spoken at all. That is, that his successor to-day, in the fifth year of the war, has produced a Budget on almost precisely the same lines as that which Sir Kingsley Wood built up in the three years from the time he took over the Chancellorship. We are now fully mobilised and the pattern of our whole finance has been well defined and is running as smoothly as such a machine could be expected to run. Some remarkable things are happening under it. Our expenditure on unemployment insurance, for example, is now less than the amount of money which is received in income from the investments of that Fund. There is the remarkable evidence of the extent of our mobilisation and also of our production. It follows, therefore, that if we are to have increased efficiency in the war it can be only by greater attention to scientific development and matters connected with our financial and industrial organisation.
We are indebted to the Chancellor for the indication he has given of the direction in which he is turning towards the future. He has gone for those things which are first priorities, namely, those things which will increase our productive capacity. If we cannot renew our capital equipment and increase the application of our scientific knowledge and research we can do nothing. The Chancellor's Budgetary task this year has been comparatively simple to what it will be when the war is over, when he will be confronted with problems calling for all his ingenuity, wisdom, courage and prudence. Then there will, indeed, be questions of priorities to consider, the question of how to release post-war credits in relation to the supply of goods and a multitude of other questions of that order. To tackle those problems it will be very much easier if we have a clear picture in our minds of what we want to do, the role in which we want this small island to be cast. We are precluded by the size of our population from aspiring to the military leadership of the world, even if we wished for such a thing, and the same reason may very well prevent us from casting ourselves in the role of industrial supremacy. Therefore, one of the most important functions we can perform when the war comes to an end is to present ourselves as the most perfect example of a working democracy, as an example to the people of prostrate Europe.
That brings into the picture of priorities all questions of social security and the like, upon which our people have set their hearts and upon which already so much valuable work has been done. The proposals the Chancellor has made in his Budget are fundamental to the possibility of carrying out any system of social security and, indeed, any ordered development of the standard of life of the individuals of this country after the war. If we can learn to increase the output per man-hour or per woman-hour then we shall do something which will give us not only more in terms of money but also in terms of goods. To my mind the most disconcerting thing the Chancellor had to disclose to us, and properly disclose, was his reference to the result of rising costs and wages. I think the decision that we shall have to vary the stability of the cost of living was unfortunate. Other speakers have mentioned some of the disadvantages which, will flow from that procedure, one being that while it is a matter of small consequence to very many people it will press hardly on the class of people we have been trying to help during the past few years. It takes away with one hand what we have granted to pensioners, and the like, with the other. But I do not know what we can do about it. We cannot go back on arrangements which have been made, even if we wish to do so.
In June, 1940, the-Lord President of the Council came to the House and said that the Government proposed to take power to conscript the lives of men and property. The measure with which we have departed from that is the measure of the difficulties we are making for ourselves at the present time. When the Chancellor was putting this matter before the Committee yesterday there were some interjections about profits and the part they played in bringing about this situation. One Member interjected a genial observation about gangs of robbers, and there was a further interjection about rapacious profit-making employers. The Chancellor, except by inference, did not deal with the part profits had played in the situation and I think it might be use- ful if a word or two was said about that aspect of the matter now. If it is the case that gangs of robbers are preying on our economic development then the sooner the evidence is produced the better. If they have escaped from the efficient net of the Board of Inland Revenue and the Treasury, and the attentions of the police, who are not ineffective in these matters, the evidence should be brought forward and they should be indicted and the position brought to an end.
I am dealing at the moment not with landlords but with profits. What is the situation with regard to profits? Very largely, they have been stabilised since the war started. In 1939, when Income Tax was 5s, 6d. in the £ the amount of profits distributed to ordinary shareholders in this country was £36,800,000 out of a total of £47,500,000. A year later, when profits had been reduced to £43,500,000, the amount handed over to shareholders was 21 68 millions. Nobody who pays any attention to what I do or say here will think for one moment that I stand here to argue, in favour of profiteers or anything of that kind, but when we are dealing with these matters it is just as well that we should look at the facts and try to get them straight, because it helps to a community of interest and sound foundations for action.
We have been told that it is the policy of this country now to shape its economic policy towards full employment and expansion. I associate myself cordially and strongly with what has been said by my right hon. Friend the Member for East Edinburgh (Mr. Pethick-Lawrence) about making a concerted effort to improve not only the standard of well-being of our own people but the well-being of all the people of the world. Surely we have turned our backs for all time on the policy of restriction, that cowardly policy which prevailed between the wars. We have now moved towards the conception that if we are to have competition it will not be on the policy of beggar-my-neighbour, which was the policy for so long. There must be a policy of rendering greater service to other countries, by producing goods more efficiently, not necessarily more cheaply, but of superior quality. I notice that from time to time there have been rumblings of the old controversies and methods. We do not want that; a new standard has been set in international finance by some of the remarkable international actions which have come about in the course of this war. Lend-Lease, for example, is the greatest commercial transaction which has ever taken place. It is the only successful act of Socialism on a large scale that I have ever known. It is a perfect example of from each according to his needs and to each according to his necessities. It has been an amazing success.
Are we to go back to the old policy of beggar-my-neighbour or are we not? Take the act of generosity of Canada, in their contribution towards this country. We cannot over emphasise the importance of these matters, which are an example to the world of practical aid in the day-to-day conduct of our warlike operations and also an indication of a higher standard of human conduct in international affairs. Let us be under no illusions as to our prospects, financially and economically, when the war ends. There will be uncertainties, difficulties and dangers, but if we proceed with courage and foresight there is no reason why we should not only make a powerful contribution towards maintaining social security and a better standard of life in this country but also a substantial contribution to the rebuilding of Europe and improving the standard of life all over the world.
I think it was Burke who said:
To tax and to please, no more than to love and to be wise, is not given to men.
I think the late Sir Kingsley Wood and the present Chancellor of the Exchequer have rather disproved Burke's pessimism, for I do not think that the late Chancellor of the Exchequer could have complained about the reception of his Budgets or that the present Chancellor will complain about the reception which his Budget received yesterday. If any criticism in the last three or four years has been offered to Chancellors of the Exchequer, it is rather that they have been too generous than too severe. This Budget and the last two have been so much in consonance with the feeling of the House that it is very difficult to criticise. But I think that, on one point at any
rate, the right hon. Gentleman was definitely out of touch with the feeling of the Committee, and that is in the matter of allowing the cost-of-living figures to rise, rather than increase the present subsidies. One realises the undesirability of having to keep down prices by subsidies but, when you consider the mere fact that in the fifth year of the war subsidies are still under £200,000,000, I think that is a tribute to the country. I am not quite sure whether the right hon. Gentleman has as his object the saving of money to the Exchequer but, if he has, he is not likely to achieve it. So many wages are linked with the cost of living by a sliding scale that anything he saves in his subsidies, would be very likely to be lost by increases in wages and, moreover, increases of wages in one trade tend to stimulate demand in other trades. The only effect of allowing our price levels to rise will be to increase our cost structure, without saving anything to the Exchequer.
The hon. Member for North-East Leeds (Mr. Craik Henderson) suggested that we should have to take very vigorous steps if we were to hold inflation in check. He was suggesting that our savings machinery was in parlous danger. I think, particularly in view of the Chancellor's proposal to allow the cost of living to rise, it is as well to draw attention to the fact that not only is Government expenditure the prime economic factor to-day but the increase in Government expenditure, the increase in the national income and the increase in our revenue and savings are practically equal because they are really three aspects of the same problem. If we compare Government expenditure in 1943 with that of 1940 the first year of the war, we find that the increase has been something like £2,400,000,000. Meanwhile, the national income has increased by £2,300,000,000, and the revenue plus personal savings, has also increased by £2,300,000,000. They are in fact the same figure, and to allow the cost of living to increase would merely mean an increase of all three of those figures.
The figures have another bearing. In view of the fact that the material goods that are available for consumption are limited, and are likely to decrease rather than to increase, increases in wages and allowances, obviously, cannot bring any increase in consumption and, as the figures show, increases in allowances and wages are in effect given provided they are not spent. The mere fact that in the last five years the increase in wages, etc., has been £2,300,000,000, and that the receipts by the Chancellor of taxes and savings have been exactly the same figure, makes it quite obvious that wage and allowance increases are very largely bookkeeping operations, the effect of which is to increase our prices and costs structure. There may be various advantages obtainable by various sections of the community temporarily, but the fact remains that, despite this enormous increase in book figures, practically everyone remains exactly as he was four years ago.
I think everyone has welcomed the Chancellor's concessions to scientific research. The allowances are generous and I think the concession to applied research is the right end at which to start stimulating our scientific research. If you can get industry spending large sums of money on applied research, it will not be long before they realise that they have to have something to apply, and that will stimulate their demand for pure research. I have heard it suggested that these are concessions to profits. That is not true, because in order to get a 10s. concession industry has to spend £1, and that, from a profit-making view, is not a very attractive proposition.
I want, however, to quarrel with the right hon. Gentleman on his concession with regard to depreciation. I certainly disagree strongly with my hon. Friend the Member for North Battersea (Mr. Douglas), who regarded it as a large concession and one which would threaten the interests of the non-industrial taxpayer. This proposal to accelerate the depreciation allowance by giving an additional 20 per cent. in the first year, is really a perfect example of feeding the dog on its own tail. There is no increased concession of depreciation to industry. It is merely an acceleration. That concession might have been very valuable apart from the obsolescence concession, but the fact that the right hon. Gentleman has made a very handsome concession on the granting of obsolescence robs the depreciation allowance of a good deal of its real value. The right hon. Gentleman said,
Two main propositions have been advanced by industry. The first is one to which I do not feel able to accede. It is that
there should be a reduction of Income Tax in respect of any industrial profits that are not distributed but are placed to reserve for the future development and extension of the business. This, in effect, would be giving relief for the act of saving, and that is not, in my judgment, the appropriate approach to this problem." —[OFFICIAL REPORT, 25th April, 1944; col. 672, Vol. 399.]
I am willing to agree that it would be inappropriate to give concessions to savings but I suggest that the right hon. Gentleman should re-examine the question and see whether he could not give concessions, not to savings but to the reserves when they are definitely ploughed back into the business.
It is a matter of opinion. I am not suggesting for a moment that there is no value in the concession. I am suggesting that it is nothing like as great as it appears at first sight. Let us see how it works out. Take a piece of plant which, normally, bears a 10 per cent. depreciation. In the first year, under present conditions, there is a depreciation of 10 per cent.; next year it is approximately 9 per cent., and a year after approximately 8 per cent. Under present conditions, in the first year it will be 30 per cent., next year 7 instead of 9 per cent., and in the third year instead of 8 it will be 6 per cent. It is true that the immediate result, when this concession is brought into operation, will be an increase in depreciation reserves, but industry normally replaces its plant steadily and regularly and the effect will be that in five or six years, although depreciation reserve may be slightly larger, the actual annual allowances in depreciation will have reverted to the original figure.
No, the hon. Member is mistaken. The annual allowance in five or six years after this concession is put into operation, will revert very nearly to the existing allowance, for we pay for the initial concession by lower depreciation allowances at a later date. Although it is an advantage, my criticism is that it is not as great an advantage as it appears at first. In view of the very urgent need for industrialisation of the country to a higher pitch, it is inadequate. Last week there was in the "Economist" a very interesting article dealing with the postwar position, suggesting that in the scramble for our resources—not financial but actual resources—between the civil population demanding increased consumption, and the Exchequer having to face the very large bills which are rolling up something might go short, and the probability would be that what went short was the physical resources available for the re-equipment and capital expansion of industry. It is to guard against that that I am primarily concerned. That is why I want the Chancellor to realise that his concession, valuable though it may be, is not necessarily all that industry will require.
I do not regard these concessions as concessions to dividends. They are concessions to industry, and that is a very different thing. If anyone is to be afraid of State concessions to industry at present it should not be we on this side, but hon. Members opposite, who are diehard individualists. I would say to them that when they see the State giving concessions to industry, they should remember the old tag, "Beware of the Greeks when they come bearing gifts"; because every concession which is granted by the community to industry means a weakening of the grip of the individualist private owner on private enterprise. The industrial system is viewed from two different angles according to the side of the House on which one sits. Hon. Gentlemen opposite are still wedded to private enterprise. We on this side believe in Socialism, in the public ownership of industry. We are not going to get the public ownership of industry immediately after the war; I have no illusions as to that; but I do suggest that we are likely to get what one might term an intermediate stage between private and public ownership, and that that stage will not be so much the transference of actual ownership, as an insistence on the rights of the community that industry shall deliver the goods. It will be a demand that the direction and will of the State shall be paramount and that industrial policy shall no longer be the sole concern of the private individual.
If that is likely to be the state of affairs, the State more and more taking over the direction of industry—I use the word "direction" rather than "control"— we have no need on this side of the House to fear concessions, because they will merely strengthen the power of the community over industry. I would like to instance what I mean. The banks are very largely under the direction of the Chancellor of the Exchequer. The Bank of England has become practically the handmaiden of the Treasury. I think that that is likely to be the pattern of the intermediate stage between private and public enterprise. I regard any concessions made by the community to private enterprise not as concessions to private owners, but as steps to rivet the control of the community on to private owners.
I would like to pay my tribute to my right hon. Friend the Chancellor of the Exchequer. He has, on presenting this his first Budget, not only met the general approval of all sides of the Committee, but the general consensus of opinion in the City of London. I do not think it could have been possible for my right hon. Friend to have paid a greater tribute to the late Sir Kingsley Wood than by accepting Sir Kingsley's Budget as a pattern for his Budget this year. The few remarks I want to make are a criticism, not of what my right hon. Friend said, but rather of what he did not say. Dealing with the question of money policy, my right hon. Friend said:
I hope that this support of our longer loans may go on increasing. As has often been pointed out before, it would be of great advantage to the State after the war if as much as possible of our war borrowings had been for medium and long-term loans, with definite dates of maturity, rather than in forms repayable at short notice and having to be very frequently renewed."—[OFFICIAL REPORT, 25th April, 1944; col. 652, Vol. 399.]
I subscribe to that view wholeheartedly. It has, however, been somewhat of a sur-
prise to me that the Treasury have not adopted principles which would have made it possible to raise money by long-dated rather than short-dated securities. My right hon. Friend will be aware that since last year there has been a depreciation in the value of long-dated securities or securities without any terminal date. Take Consols as an illustration. Last year they were 83; to-day they are quoted at 79¼-½. Take again Local Loans. Last year they were as high as 98⅜, whereas to-day they are 9¼. It is essential that my right hon. Friend should take such methods as are open to him in order to steady the market for the long-dated securities if he is to be in a position to raise long-term money at a rate of interest compatible with that at which he is today raising money on short-term loans. I would have thought that with the credit which is available to my right hon. Friend in many directions in regard to internal credits which he has, and which from time to time require to be invested, he would have been able to use the funds available to him for the purpose of steadying the market for the long-dated securities by judicious purchases. It is, I submit, in that way only that it will be possible for my right hon. Friend in future to raise long-term credits.
I wish to direct my remarks in particular to taxation and its bearing on postwar reconstruction. It has already been said that industry must have the necessary reserves that it needs so that employment can be maintained and even increased and that business can be developed and expanded, and that capital must be available for that purpose. In this respect my right hon. Friend has in his Budget Statement done a good deal in the way of industrial re-equipment by the special allowance of 20 per cent. depreciation which he has proposed to consider. He has also made special provision for research expenditure, the result of which I am sure will be far-reaching. Industry will be grateful for what my right hon. Friend has done in this regard.
It is to the Excess Profits Tax that I wish to direct my remarks in particular. I am not one of those who subscribe to the view that my right hon. Friend should have given more information in regard to the credits which are accumulating, that is the 20 per cent. deductions, because I am not unmindful of the fact that the Excess Profits Tax to-day is not a one-way traffic. Many hon. Members and the general public appear to be under the impression that the Excess Profits Tax is a one-way traffic only which flows into the coffers of the Exchequer. Those of us who are actively engaged in industry know that one year my right hon. Friend receives an amount from a particular industry and that the following year the same industry receives from the Treasury a return amount, when profits have fallen below the Excess Profits Tax standard, in order to equalise the two years. Therefore, no industry really knows from year to year what amount they will have paid in Excess Profits Tax in the aggregate until the tax comes to an end.
I recall the incidence of the Excess Profits Tax in the last war, and I know that even to-day, a quarter of a century later, there still remain accounts for the tax for the period of the last war which have to be settled. I sometimes think, therefore, that my right hon. Friend will wish to bring the Excess Profits Tax to an end immediately after the war. The Treasury has experience of what occurred after the last war when the short-lived boom was followed by a severe depression, and heavy losses had to be faced on stocks of raw materials in view of the slump in commodity prices resulting in the Inland Revenue having to pay out in deficiency reliefs some £320,000,000. In the first Budget after the last war—in 1919—the Excess Profits Tax was reduced from 80 per cent, to 40 per cent., and in 1920, when it was expected that the tax would disappear, it was increased, to the surprise of many of us, from 40 per cent. to 60 per cent. A good argument could be advanced by my right hon. Friend against the 100 per cent. Excess Profits Tax having been imposed, as it has given industry no chance to accumulate funds for restarting peace-time production, to meet rising costs of raw materials, to replace worn out machinery, and, what to my mind is perhaps even more important, to scrap machinery which has become obsolete through the development of new processes of production, to give more efficient results and to reduce the cost of manufacture.
All this involves capital expenditure which many of our industries will not be able to face save by the raising of new capital. It will be essential that our great industries should bring their plants up to date, equipped with the most modern machinery if they are to compete in the markets of the world. Many who have made a study of this subject and have great knowledge and experience in these matters would prefer to see E.P.T. remain on some practical and lower basis, at least for a period, let us say of four years, which would cover the period of the Prime Minister's four year post-war plan, and would continue at a declining rate, with its abolition at the end of that period.
I want to direct the attention of the Committee to direct taxation to-day. I do not think that my right hon. Friend should reduce direct taxation at this time. I consider, however, that just as he has laid down his post-war plans in regard to the depreciation of machinery, etc., so, I suggest, to-day is the time when he should consider what is to be the incidence of direct taxation after the war. The- rate of taxation to-day is such that if all incomes over £2,000 net were taken entirely, the Chancellor of the Exchequer would receive only £30,000,000. That is an extraordinary figure, equivalent roughly to less than 6d. in the pound on the Income Tax. It makes me wonder whether we are really wise to pursue indefinitely a policy which will take all the romance out of industry. We only have to look round at our great cities to realise that the great industries in those cities have been built up by the initiative and enterprise of individuals. How easy it would be for me to recall the names of the half-dozen men in my native town who built up its great shipping and other industries. I am loath to believe that those days are past and that we are to make the incidence of taxation so heavy that it will no longer be possible for the creative genius of our people to build up great industries through their strength and vitality in a way which has placed Britain in the position in which she now finds herself, able to meet efficiently the needs of the world's greatest war.
It is hardly necessary to remind my right hon. Friend that taxation has nearly passed saturation point. An increase in the Surtax raises Income Tax and Surtax to 19s. 6d. in the pound which, instead of increasing the flow of money to the Exchequer, does, in fact, decrease it. On 23rd November last year I asked my right hon. Friend a question on this subject, and his reply showed that Surtax produced in 1939–40 £78,920,000, in 1940–41 76,000,000, and in 1942–43 £3,715,000. I observed last year that the predecessor of my right hon. Friend budgeted for £80,000,000 being received from Surtax. In point of fact this was one of the items which failed to bring in the amount budgeted for. The yield was £4,000,000 short. Instead of £80,000,000 it brought in £76,000,000. My right hon. Friend has again budgeted for £80,000,000, but I suggest that he will find that he will not receive the amount of his Budget estimate.
A simple method of bringing home the weight of direct taxation is to take the case of my right hon. Friend himself. Let us suppose that his salary is £6,000 a year. I do not know anything about his financial resources, but let us assume that he has a private income which already puts him on the taxation rate of 19s. 6d. in the £. It amounts to this, that out of his £6,000 a year—[HON. MEMBERS: "It is £5,000 a year"]—but let us assume that it is £6,000—he would be left with only £150 a year. That is the position to-day. All I desire is that the Committee should appreciate the facts.
I am sorry, but I have not much time. I should like to complete this point. If my right hon. Friend received an income of £6,000 a year from a private source, it would require a capital of no less than £5,000,000 invested at three per cent. to bring him a return of '150,000 a year, on which the Income Tax and Surtax would be £142,869, leaving my right hon. Friend with £7,120 a year net.
I am expressing my own opinion. It is well that the country should realise what the incidence of direct taxation is to-day.
Now I want to say a word on a question which was raised by my right hon. Friend in his speech, the loss on our overseas investments. This is indeed a very serious matter. The loss of investment income from abroad means a potential loss of imports, which reacts adversely and affects the standard of living of every man, woman and child in the country. Even the Treasury do not appear to be fully alive to the issue involved. I have personally, on more than one occasion, drawn attention to schemes which have been presented to holders in this country of foreign bonds, which have meant the writing down of what is in fact a national asset. In one case I have in mind no less than 8o per cent. of the asset was written down. This applies particularly to South American countries, whose failure to meet in full their debt obligations is difficult to understand, where credits have accrued to many of these countries, due to the purchases made both by this country and the United States, and which have been increased by a limitation of imports, which should therefore provide them with ample foreign exchange resources to meet all their commitments. The majority of countries in Central and South America have adequate sterling or dollars with which to meet their obligations if they were disposed to do so. I cannot help but feel that the time has arrived when the Government should take a keener active interest in conserving these national resources, since, as I have said, it is the nation as a whole that benefits from the imports by which the interest from these investments is met. This loss of our investments overseas is a serious factor. Britain has had to sell during the war over £1,000,000,000 worth of securities and other assets abroad. She has incurred liabilities to the amount of at least £2,000,000,000 to South America, South Africa, the Argentine, India and other countries. Before the war she was in a creditor position to the rest of the world to an extent of not less than £3,500,000,000, whereas to-day that sum must have been reduced by at least £2,500,000,000.
In closing I wish to make a suggestion to the Committee, and indeed the country, in regard to many who in my humble opinion have very unfortunately expressed very pessimistic views in regard to our peace-time prospects, views which have been expressed by many holding high office, which I cannot help but think are unwarranted. Speeches have been made unwittingly which could only gladden the hearts of our enemies. They have created the impression that when the war is over Britain, economically, will be in mortal difficulty. There is no justification whatever for this, and it can only be so if Parliament and our people fail to do their duty. It is quite true that we are faced with the loss of receipts from overseas investments, the destruction of many of our cities by bombing, and the sinking of our ships, but our power to produce and power to export should never be greater, certainly not less than 30 per cent. in excess of what it was at the beginning of the war. The greater part of the cost of the war has been met out of income, not out of capital. There has been increased technical efficiency and new inventions which should add substantially to the country's income after the war. Surely we could afford to strike to-day not a pessimistic but an optimistic note in regard to our future when our resources are free for constructive work.
I think of those dark days of 1940 when our great Prime Minister did not talk about our possible chance of survival. He struck one key, one note only—he spoke of victory, even in our blackest hour. Let us not forget these words spoken by our Prime Minister in August, 1940:
Few would have believed we could survive; none would have believed that we should to-day not only feel stronger but should actually be stronger than we have ever been before.
This will equally apply in the economic field in the post-war period. We have the resources. We have the power. We must have the will too.
I hope that the Committee will excuse me if I do not follow the eloquence of the hon. Member for Ealing (Sir F. Sanderson). I wish to turn my remarks to the speech which the Chancellor made yesterday, and I am very glad that I can follow the precedent which has been set by so many other hon. Members, by offering him my congratulations, at least on one passage in that speech. He said that he hoped that in future it would become more and more the custom for the Chancellor's Budget speech to be a review of the economic health of the country as a whole. I feel that is a very good suggestion. I hope it will be followed, and if the Chancellor is to review the economic health of the country as a whole he must not only consider the finances which make up the Budget, but must also have at the back of his mind that he has a Budget of manpower, a Budget of the real production of this country. That is as far as my congratulations go, and I feel I must protest, and indeed utter some condemnation for the considerable space which the Chancellor gave to an attack, as I see it, on the increases of wages which have taken place during this war.
If hon. Members will refer to page 14 of the White Paper they will see set out quite fully the wage distribution of the year 1942–43, and the most significant fact in that table is that between two-thirds and three-quarters of the incomes of the people of this country are under the £250 a year mark. Again, if you apply the increase in the cost of living which has taken place since the war, even on the published figures in the White Paper, which appear to me, from my personal experience of what it costs to live, to be exceedingly low, it will be found that to-day two-thirds of the population are receiving a maximum income which would have bought in 1938 the value of £10s. a week. That is the maximum, the average must be lower than that—something under £3 a week. No one will maintain that that is an excessive standard of living. I deprecate the suggestion that wages have gone up so much that the Chancellor ought to allow costs to go up too. This policy of increasing the cost of living will make nonsense of the increases which are being made in the pensions of certain Government employees, and the Government are taking away with one hand those concessions to the dependants of serving men which they are going to give with the other. The Committee should protest very strongly against this policy.
The hon. Member for North East Leeds (Mr. Craik Henderson) went, in some detail, into his scheme whereby saving could be made attractive, as he said, to the working man. If the Chancellor is thinking of making saving more attractive to those who have the smallest incomes, I would suggest that he should guarantee their savings against ever being submitted to a means test for public assistance, or anything of that sort. So long as there is the fear of a means test for savings in regard to public assistance, people will hesitate to save.
I am suggesting that if the Chancellor really wants to encourage manual workers—those with the lowest incomes—to save, he should say that the first £4 a week of income from these savings shall be completely free from any means test in future. Perhaps the hon. and gallant Member does not like it, but I am sure that the proposal would be very attractive.
I am very glad that the Chancellor looked largely to the post-war conditions of industry. This is the time, when we are approaching the end of the war, for all of us to look to the future as much as to the present. The hon. Member for Kidderminster (Sir J. Wardlaw-Milne) criticised those people who have suggested that it will be possible, after the war, to spend at the rate of £14,000,000 a day. When the hon. Member was making that criticism, he was staring very hard at this particular bench. I suggest that this idea that the war is being paid for by the future is completely fallacious. The hon. Member tells us that we cannot spend £14,000,000 a day in future because half of that amount is borrowed money. But you cannot use tanks in Italy to-day, which are going to be made in 1965. The only wealth that you can use in this country is the wealth you are creating now. The device of borrowing is only a rather clumsy means of taking money which would otherwise be spent on needless luxuries, from the hands of the people. We are paying for it as we go along. The only way in which the future can be said to be paying for it, is that we are, possibly, allowing capital assets, our roads and so on, to get into a slightly worse condition than otherwise would be the case. The idea that after the war we will not be able to spend at a high rate is something that I do not countenance.
I agree that we cannot have high spending and full production after the war, if industry is to be run on lines such as hon. Members opposite want. The only way in which you can have full production under the present system is to have a bottomless pit for all kinds of consumable goods. You get such a bottomless pit in war-time which you do not get in peace-time with the present system. We shall not have full employment in industry, if industry is run according to the principles of hon. Members opposite; but hope that the British people will not tolerate such a state of affairs, and that they will say, "If we have mobilised for full production in war, we can do the same thing in peace." If the people who now control industry will not do that, the logical thing is to see that others, who will run it on different principles, are given the management of industry. The Chancellor suggested yesterday that if there were to be full production and prosperity in this land after the war, it depended largely on our technicians, our managers, and our workpeople. So long as we have the men, the machines, and the material, there is nothing which can prevent us from having full employment and prosperity.
There are markets in this country for a tremendous amount of both consumer goods and capital goods. We have to rebuild this land. We have markets overseas as well. It does not matter whether we will have to trade with a Socialist State or with a capitalist State; so long as we can produce, there is nothing to stop us from exchanging our production with some other country, for raw materials or goods which they can produce. The only thing that can stop us is inability to do it at a profit. Other hon. Members have referred in some detail to the profit motive in industry, so I feel that I shall not be out of Order in suggesting the way to get rid of the bottleneck of production which is likely to occur after this war. Men, machines and materials should be the only technical considerations that are really needful for full production, but first it is necessary to remove the private profit motive. The need of the State should be the regulator and deciding factor whether production shall take place, and to do this, it is quite obvious you must have a plan for getting rid of private profit as the regulator of industry.
I bow to your Ruling, Mr. Williams, but I would suggest that I am in Order in indicating, as other hon. Members have addressed their remarks to the ownership of industry, that, if we are to have full production and employment, it must be on a basis of public ownership of the means of production. That is the point to which I was just coming, and public ownership is the only way in which profit or the regulation of production can be removed.
No, I ruled quite definitely that we cannot debate, on this occasion, the question of public ownership of the means of production. This is clearly beyond this Budget. It is not in the Budget.
There is one further point to which I wish to draw attention. An hon. Member opposite referred to the national pool of wealth which this country produces, and which was referred to by the Chancellor when he said that the Budget should be the occasion when the financial and industrial condition of the whole community should be reviewed. I suggest that we should consider, therefore, how this pool of wealth should be created and distributed. I do not want so much to turn the attention of the Committee to how it is going to be created, but I think the distribution of the national income is something that should come within the purview of a Budget speech. I suggest that there are only two considerations which will bear one moment's consideration as to the way in which that distribution of the wealth that this nation can produce should be made. First, there is the need of the individual. Secondly, there is the amount which the individual has contributed towards the common pool. If you distribute your national income on these two considerations alone, I am quite sure you will have a prosperous and happy community, but I suggest that, if you try to distribute the national income in accordance with the ownership of the means of production, you will not have your full production. I am not going to elaborate this argument, because this is not the time to do so, but I would suggest that my hon. Friends on this side believe in this principle and that hon. Members opposite do not. I know I cannot convince the hon. Members opposite and the only thing left for me to do is to work for their removal from this House.
Listening to the hon. Member for Skipton (Mr. H. Lawson) makes one feel how easy of solution all our problems would be if they were only handed over to him. I am quite sure he will now be enlisted to deal, as rapidly as possible, with the grave financial position which has arisen in the Common Wealth Party owing to the defection of two prominent capitalists. When the Chancellor entered the House yesterday for the purpose of delivering his speech, I was irreverent enough to say to an hon. Member sitting next to me, "Here comes the Lord High Executioner, give him a cheer; it is the last chance you will get." An unprecedented scene followed. The spectators witnessed the victim place his head resignedly upon the block, but the headsman, instead of wielding his axe, engaged in a dissertation lasting one and three-quarter hours on the kind of conduct to be observed during the reprieve and hinted at blessings to be enjoyed in the hereafter. The result had a most heartening effect upon the Committee, and on the country as a whole, as showing the Government's determination—and this was the most prominent feature of his speech—to re-establish our export trade by vigorously making preparations here and now.
May I congratulate the Chancellor upon the buoyancy of the revenue? I really think it is remarkable how, year after year, it stands up. I think the wider sweep of the Income Tax has brought its reward, and there is also the success of the apparatus provided by this House for dealing with tax evasion which is now beginning to show concrete results. I think, too, that we might pay a tribute to one often forgotten—the indirect taxpayer, the humble consumer of tea—whom I put at the head of the list for the purpose of record, in the absence of the Noble Lady the Member for Sutton (Viscountess Astor) and of the Liberal Party—and also the consumers of beer and tobacco, so many of whom, as we were told yesterday, will shortly be leaving our shores, and who have made, during the past 12 months, a huge gift to the Exchequer by their consumption, without placing any problems of repayment, interest or sinking fund upon the shoulders of posterity. The goose, which no longer lays golden eggs but lays paper eggs, is showing amazing toughness in its constitution. It is upon this that our post-war social and economic structure must depend, and I want to ask the Chancellor a definite question about our post-war policy, because I am still in a little doubt about it in spite of his declaration yesterday. Is the Government now committed to an expansionist policy? Recent proceedings in this House, regarding a national health service, education machinery and housing, suggest that it is, to say nothing of the reforms based on the proposals of Sir William Beveridge. Yet every day that the war lasts jeopardises the chance of that policy coming into effect by increasing the cost of servicing Government loans.
At this stage, I wish to insert one question which perhaps the Financial Secretary to the Treasury, who I understand will reply, might be able to answer. When is the post-war credit, or nest egg, to be paid? In homely language, when does the taxpayer touch? Many people are making plans on the assumption that they are going to draw hard cash immediately the fighting ends, in regard to their postwar credits. I believe I am right in saying, that, at the conclusion of the last war, the official termination of hostilities was declared by Order in Council, which said: "The war has now ended." That Order in Council did not appear until 1921. It was approximately three years after the cessation of hostilities. Are we to have a similar procedure? If so, I think the country should know now, because many people are making plans on the assumption that they are going to draw this post-war credit almost immediately the fighting is over.
I am not here in this Committee to discuss my appearance or my bank balance, and I do not think I am saying anything untrue when I suggest that there are thousands of small taxpayers wishing to know when this post-war credit is going to be paid. It may be that they are simply planning to go away for a holiday, but many are making plans on the assumption that it is going to be paid. How are the Government going to make this payment? Are they going to make it by increasing the fiduciary issue—for this is a point with which the hon. Member opposite may agree? Surely, there will have to be a great campaign to persuade the public to invest this money if possible, either in Government securities or in the many new issues of industrial capital, which will then be necessary to the tune of many millions, to finance trade recovery and expansion. It will certainly be an embarrassing moment for the Chancellor of the Exchequer if everybody wants to cash in at the moment that the post-war credit becomes available for release. After the war we shall have to return to Budgets which balance, at least approximately, or enter a period of inflation, to which reference has been made by almost every hon. Member who has gone before me to-day, and which must damage national credit and reduce the purchasing value of wages, not to mention the savings of the people. The Chancellor has, rightly, determined to avoid this, and has said so in the plainest possible language. May I quote something which the right hon. Gentleman said in this House as recently as 6th April? He was asked by the hon. Member for Chislehurst (Sir W. Smithers):
Will the Government, so far as it lies in their power, give an undertaking that the purchasing power of the pound sterling to be drawn out, will be the same as that of the pound sterling which these loyal people lent to the Government?
The reply of the Chancellor reads:
I have made it quite clear in a public statement and my right hon. Friend the Prime Minister has done the same that the maintenance of the value of these subscriptions will be a paramount object of policy."—[OFFICIAL REPORT, 6th April, 1944; col. 2160, Vol. 398.]
That is clear enough, and obviously the policy of the Government must be to try to maintain the value of our money as far as they possibly can. But we have also had the less happy declaration of the Secretary of State for War. I gave the right hon. Gentleman notice that I was going to raise the matter, but I do not complain of his absence as I realise that he has plenty to do. It is in his speech when he replied, on 2nd March, to the Debate on Service pay and allowances. The right hon. Gentleman said:
I have made some rough calculations of the cost of the proposal of the hon. Member for Grantham (Mr. Kendall)."—[OFFICIAL REPORT, 2nd March, 1944: col. 1723, Vol. 397.]
Hon. Members will remember that it was for 5s. basic rate and 5s. for a wife—
The hon. and gallant Member was in Order as far as he was dealing with it on the lines of finance, but when he appeared to be getting to the position of dealing with individual cases, it would seem that he was making a speech more appropriate to the Army or some other Estimates than to the Budget Statement.
I will not give the rest of the quotation I intended, but will merely make the reference that the Secretary of State for War remarked that an expenditure of £200,000,000 would cause wild inflation. I want to ask the Government why that particular expenditure was regarded as so disastrous. The Chancellor yesterday told us that, approximately, this sum has, in fact, been expended during the past financial year, in an effort to stabilise food prices. Surely that which was referred to yesterday is, in effect, camouflaged inflation, and the logical conclusion to be drawn from the speech of the Secretary of State for War was that, if any increase of this kind cannot be averted, there is grossly unfair distribution of the national income as between the fighting man and his confrère in civil employment. I understand that there is a White Paper on the subject—I have not yet had the opportunity of looking at it—which, presumably, contains the Government's second thoughts.
The Chair would intervene if I were to comment on that. In the same speech, the Secretary of State for War also referred to the gratuity to be paid to fighting men at the conclusion of hostilities as bearing some relation to the post-war credit or income of the taxpayer. Again I ask, How is that payment to be met? Will it have to be met by increasing the fiduciary issue? I therefore ask for some further enlightenment on Government policy in this connection. I referred just now to expansionist policy, and here I hope I shall carry with me the hon. Member for East Aberdeen (Mr. Boothby). I want to state the position as I see it. Deflation has many theoretical attractions, but we know from bitter experience that it was the primary cause of unemployment following the last war. I hope that deflation will remain in retirement in company with its principal sponsor, Mr. Montagu Norman. But uncontrolled inflation, on the other hand, is an equal evil. It must depress the purchasing power of wages and cause the vicious spiral to which reference was made by the Chancellor yesterday, and which we are all anxious to avoid.
I mention these things because of something which was referred to earlier in the Debate to-day by the right hon. Gentleman the Member for East Edinburgh (Mr. Pethick-Lawrence). He referred very briefly, as I shall, to the Memorandum resulting from the Anglo-American monetary conversations, which was published last week-end. I understand we are to have an opportunity of debating it separately, and so I will not impinge on that subject except to refer to two points of a general character affecting our budgetary policy. I hope that I shall have the hon. Gentleman the Member for East Aberdeen with me when I say I am not afraid of the Gold Standard as such. He was Parliamentary Private Secretary to the present Prime Minister, who was then the Chancellor of the Exchequer, when he put us back on to the Gold Standard, in 1925. Much criticism was made in after years of the Prime Minister for that action. I have always felt that he was rather harshly dealt with—
Not that I think it would make much difference. When the hon. Member for Rugby (Mr. W. J. Brown) tells me that the Prime Minister subsequently expressed a different opinion, there are precedents for that. I only wanted to make the point that the return to the Gold Standard at that time was not a matter of such universal condemnation as it has since seemed Lord Keynes, who is now a Director of the Bank of England, was unkind enough to produce a work entitled "The Economic Consequences of Mr. Churchill." I only hope that when the time comes for the Prime Minister to spend a well-earned retirement, he will not have to write another work on "The Economic Consequences of Lord Keynes as Director of the Bank of England.". Surely, the trouble was not so much the re-introduction of the Gold Standard as the manner in which it operated, and that there resulted a one-way traffic of gold across the Atlantic owing to the American debt. If there is to be a return to any form of Gold Standard, it must be on the understanding that the metal is going to circulate, as it used to do in the old days of the Gold Standard, and not lie sterilised in the vaults of the American banks.
It seems to me that the country is up against this problem. The United States of America holds the vast majority of the world's gold; Russia is the second greatest gold producer in the world; the Union of South Africa literally lives upon its gold-mining industries. It was obvious that some such proposal would be forthcoming. A pledge has been given that no arrangement will be made without the consent of Parliament, and that is reassuring so far as it goes. I think, however, that we are bound to ask, in what circumstances will the House be asked to approve or disapprove? Shall we be confronted with a fait accomPli and told, "Here is the monetary agreement. The Government regards its acceptance as a question of confidence." I trust not, as an acute constitutional situation might arise if we were so confronted. I confess that what I would like to see is a policy of what I would call "noflation." I invented that word. That is a situation in which the pound finds its level based on sterling currency, and the sterling character of the British people in the post-war world—I think "noflation" is as good a contribution to our vocabulary as "disinvestment"—with carefully controlled inflation, employed in good time, to counter any trade recession.
In the meantime, I think the Committee must address itself to this problem. The Chancellor addressed most of his speech yesterday to our industrial future. I think we have to take a rather different view in addition. It is a very serious responsibility upon us. How can we safeguard our prospects of social security in peace against the huge daily expenditure on war? Only so can the Beveridge Plan become a lifebuoy, rather than a millstone around the necks of our returning warriors. They may find themselves condemned to carry on their backs a rapidly ageing population. "Pennies from Heaven" may be an excellent signature tune for the B.B.C. Red Cross Radio Contest but it will never do as a signature tune for this House of Commons. Our responsibilities lie very heavily in this direction. What can we do to safeguard the future of our social security policy?
I want to suggest something which has not been said in this Debate yet and which is always unpopular. Will the Chancellor and the Government as a whole, even in this hour of great events, look on both sides of their ledger, particularly the expenditure side? Are we not wasting our resources prodigally and unnecessarily in certain directions? Is all well? I would mention four adverse factors which I do not think hon. Members will question, on whatever benches they may sit. First, how many unjustified millions has the taxpayer had to find as the result of the system known as "Cost plus"? Secondly, surely the theory cannot hold water that wages or pensions must be increased because taxation has been increased. That is merely eating our own tail, for it increases the cost of goods which the Government must buy.
Certainly, but if the hon. and gallant Member will allow me to say so, he is discussing as a positive fact something which has not occurred. He is knocking down a bogy which he himself has erected.
On the contrary, it is within the hon. Member's knowledge that only a year ago we had a request made that old age pensions should be increased to meet the increased Tobacco Duty. I am saying that that policy cannot hold water because it is merely eating our own tails. Many claims for advances have been made by employees of various kinds with the argument that they have to find money for Income Tax now which they have not had to find before. Thirdly, and I hope the hon. Gentleman will not disagree with me—
There is a change in the financial morality of the average man as soon as he begins to work for the Government. I think we are all susceptible to this. There is a great temptation, when one has an expense sheet in one's pocket, to jump into a taxi quite unnecessarily to cross London when, if we were working for ourselves, we should take the democratic and equally rapid tube. In that direction, all of us have a tendency to worry less about spending Government money than about spending our own. Fourthly, certain questions have been put in this House lately, and my own investigations lead me to believe that they disclose a state of affairs existing in certain parts of the country. At the moment there are certain pockets of unemployment arising here and there. They do not appear in any official returns because the people affected are not dealt with by the employment exchange. The unemployment is inside, instead of outside the factory. When machines are standing, payment is made just as if they were working full time. I am not arguing whether this is a good or a bad system but it is undoubtedly adding to the daily cost of the war.
During the Budget Debate of 1942, I referred to these matters and I made a statement which brought a rebuke—I think it only fair to tell the Financial Secretary, in case he is going to reply—from the right hon. Gentleman's predecessor who is now the Postmaster-General. I made the statement that we were in my opinion spending unnecessarily some £2,000,000 per day. I was asked to produce the necessary evidence. Following that speech, I had letters from civil servants in Departments all over the country, permanent and temporary, saying, "Do come and see our Ministry if you want some support for your case." Now, two years later, I believe that figure to be, if anything, an understatement, but let us take it at £2,000,000 per day, that is £730,000,000 per annum. May I remind hon. Members that in the Budget of 1934, ten years ago, there was a total expenditure of £734,000,000? In reviving this matter I am not attempting to score a debating point; I am putting it forward in the hope of extracting some words of cheer from the Minister who is to reply.
It is still, in my view, the primary duty of the House of Commons to scrutinise expenditure. We have become far too apt to say, "Here are the Estimates of the Departments; let us turn the screw and find the money." We should certainly apply ourselves to a scrutiny of that expen- diture. I am quite sure that no hon. Member desires to deprive the Government of a single penny necessary to win this war and to win it soon but, while congratulating the Chancellor on his workmanlike and courageous speech, I submit that we are not paying sufficient attention to simple economies which, added together, would reach a formidable figure. Thus all of us are endangering the whole structure of social security, which we hope to build when our nation once more treads the paths of peace.
Many tributes are being paid to the lucidity of the Chancellor's Budget speech yesterday. I think everybody who listened to him will quite definitely appreciate the clarity of his statements and the way in which large figures were handled and problems dealt with so that the layman could comprehend the significance of his statement. Like many other hon. Members I reflected on the previous statements of his predecessors, and it was crystal clear to me as I listened that there was one note missing with which his predecessor had familiarised us, that was the human note. His statement yesterday dealt almost exclusively with his concern for industry, and for its being put into working order in the post-war years. That may be quite all right, and I think the Chancellor was justified in dealing seriously with this important problem while we are committed to private enterprise, with all its limitations and uncertainties, but I wish the human side had been stressed, so that the country would have felt that there was genuine appreciation of the burden which is being carried by the population.
More regard than ever before is, rightly, to be paid to the encouragement of research. The Chancellor said there were three stages of research and that if one broke down all would break down. But there is another stage, the preliminary stage, in which young men and women with talent have the opportunity of acquiring the necessary knowledge to fit them to handle the instruments of research, so that they can make a contribution to its problems. Unless you have young men and women able to initiate research then research will never be born. What is the position of these who are having to make sacrifices to send their sons and daughters to the universities? They are offered a paltry allowance, as though their children were at elementary schools. If the Chancellor had appreciated the human aspect of that problem, and had promised relief to those parents who appreciated their responsibilities by seeing that their children are equipped for vital tasks in the restoration of the country, then he would have made his Budget much more palatable to those who are being asked to bear heavy burdens. Scholarships, in some areas, are at present almost negligible, and the only opportunity many have of going to a university is by their parents' financial assistance. Those who are on fixed incomes, such as ministers of religion, will have to forgo the duty to their children which they would have liked to perform. A small concession, designed to cover a contribution towards educational endowments and expenses of university courses, would have been welcomed.
I think many people will be alarmed at the fact that the rein on the cost of living is to be slackened, so that it goes up to about 35 per cent. It is all very well to say that because wages have gone up we can allow the cost of living to go up. The Chancellor referred to the grand old Victorian virtue of thrift. There are many people who have attained a degree of independence on their £3, £4, £5 or £6 a week, and who have no possibility of adjusting it. Many are rendering substantial voluntary service to the war effort, and if the Chancellor had been able to help them through the assessment of their Income Tax it would have been a recognition of the contribution they are making and the hardship which the adjustment of the cost of living basis will cause them.
There is to be some adjustment of the Purchase Tax. Since this tax was first initiated, certain things which are definitely necessary have been removed from its operation. The technique of Sir Kingsley Wood was to make a small concession each year. The only substantial thing that remains is crockery. I cannot conceive of anybody purchasing the present utility crockery unless compelled to do so, or using it unless there was no alternative. It is a scandal that this sort of crockery should still remain subject to the Purchase Tax. There is also to be some adjustment in the collection of E.P.T., and some concession to 30,000 business people. There is one anomaly which I think should be reviewed, and that is that old businesses which are on the capital assessment are on the basis of 6 per cent. while new businesses are on the basis of 8 per cent. I think an average of 7 per cent. should be struck or the lower figure increased to 8 per cent.
I would like to make a brief reference to the speech of my hon. and gallant Friend the Member for Holderness (Lieut.-Commander Braithwaite) and to say how much I agree with him when he pointed out, at the conclusion of his remarks, that it was the duty of this' House to scrutinise expenditure very closely. I am sure he will agree with me that such scrutiny is by no means incompatible with a general policy of expansion. Indeed, a careful scrutiny of the actual details of expenditure, by this House, is an essential condition of a policy of expansion. My hon. and gallant Friend accused me, by implication, of facilitating the return of this country to the Gold Standard in 1925; but I hasten to assure him that I was one of four Members who opposed this action in debate in this House. There are limits to the burdens I can bring myself to bear. I do not know whether I should have been able to influence policy if I had been Parliamentary Private Secretary to the Chancellor at that time; but at least I can claim that I was not. As my hon. and gallant Friend said, the then Chancellor, the present Prime Minister, lived to rue his action and to regret that he had done it.
I have only one other reference to make to my hon. and gallant Friend's speech, and that was when he referred to what the Secretary of State for War said about the effects of an increase of pay and allowances to the Services. When the Secretary of State said that an additional expenditure of the order of £200,000,000 a year would produce a wild inflation, he was talking the most utter nonsense; and, as he has since been vehemently repudiated by every economist of repute in this country, we need not bother very much about that.
With regard to the Budget itself, the greatest tribute that the Chancellor could have paid to his predecessor was to repeat, practically without substantial alteration, his financial proposals of last
year. It shows more clearly than anything else how well founded and well considered those proposals were. I was glad also to hear the Chancellor pay a tribute to another innovation of Sir Kingsley Wood, namely, the White Paper on national income and expenditure. That will have repercussions of profound importance in the years that lie ahead. It is of immense significance, so important that I am going to quote my right hon. Friend's words yesterday. He said:
For the purpose of a policy of full employment it will be necessary, year by year, to bring under review the income and expenditure not only of the Exchequer, but of the country as a whole, and not only its income but its capital expenditure and its savings."—[OFFICIAL REPORT, 25th April, 1944; col. 653, Vol. 399.]
This is a clear recognition on the part of the Chancellor of the Exchequer of the fact that the modern Budget is a great instrument of economic policy, and that it should therefore give effect not merely to a short-term but also to a long-term prograrmne.
The cause of the breakdown of our economic system, in so far as it broke down between the two world wars, is now generally admitted on both sides. It was the failure of distribution. It was not the failure of production or of productive capacity. It was simply that the power to consume all over the world failed to keep pace with the power to produce. The lesson that I hope we have all learnt is that in future distribution must no longer be subordinated entirely to production for profit, but must also be related to human needs; and that in time of peace the productivity of the modern world must be balanced with adequate purchasing power. We know now that production can only be maintained through the expenditure of incomes previously earned. The key-note of prosperity is expansion; and, from an economic point of view, contraction, such as was deliberately imposed over a large part of the globe between 1930 and 1940, is death.
We have solved our economic problem during the war because the Government have decided that certain things had to be produced, and have seen to it that money has been available to purchase them up to the limit of our productive capacity; and we shall solve our economic problems after the war if, but only if, the people and the Government of this country decide that the social objectives of peace are of equal importance to the military objectives of war. In other words, that full employment, adequate food, housing and clothing, and light, heat and water for the masses of the people, are of equally vital importance as victory. If we decide that, we can get all these things, just as we are going to get victory. In time of war, thrift on the part of the individual is essential, and I am sure the Committee was well satisfied with the figures of consumption given yesterday. Not the least satisfactory part of the Budget statement was that consumption had actually gone down during the past 12 months. In time of peace thrift is often socially desirable; but when depression threatens, mass hoarding, as Lord Home used frequently to point out, may be fatal to recovery. It has been so in the past, and it might be so again. This Budget is in essence a preparation for post-war policy; and the price of giving to the individual the right to save what he wants, and to the extent that he wishes, is that the State must have the power to ensure that the aggregate savings of the community are offset by a total expenditure sufficient to absorb the available factors of production. Otherwise we shall not achieve full employment in the years that follow the war.
The Chancellor said that the loss of export trade was the main cause of the long continued unemployment in our depressed areas before the war. Strictly that statement is true; but I maintain that it need not have been so, if we had pursued a sane instead of an insane economic policy. It would not have been so if we had not allowed our policies and our lives to be dominated by an abstract economic theory which, in the conditions of the 10th century, has ceased to have validity. Trade is of course a vital topic, which is related to the Budget, but can perhaps be better discussed when we consider the currency proposals of the experts. Nevertheless, I think it would now be generally agreed that the object of trade should not be the piling up of export surpluses, which get a number of countries into unpayable debt and sooner or later freeze up the economy of the entire world. The object of trade should be the mutually advantageous exchange of goods between countries. In other words, our object must be to get goods into this country and not out of it; whereas the main object- tive of the Governments both of the United States and of this country during the years between the wars was to get goods out of their respective countries at almost any cost, in an attempt to export their own unemployment.
This was the beggar-my-neighbour policy referred to by the hon. Member for Birkenhead, East (Mr. Graham White), which in the long run does not affect the total volume of world employment, and does not do any good to any one. Incidentally, the beggar-my-neighbour policy is implicit in the policy of free imports, free trade, and laissez-faire. It is part of that game. But, as the hon. Member is not here, I will not argue the point. Our object as far as international trade is concerned after the war must be to get into the country the raw materials and the food that we require to maintain, and as far as possible and practicable increase, our standard of living. It is not, and should not be, to give goods away to people all over the world, in order to pile up an export surplus which in the long run cannot do us or anyone else any good.
It is of course essential that we should export; but trade should be the mutually advantageous exchange of goods, and we should never again devote all our efforts to trying to export more goods than we import.
The picture that the Chancellor painted yesterday was a little too sombre for my taste. I am all for due caution, but I think we have grounds for great hope. After this war we shall no longer be the great creditor nation in the world. I often wonder whether that will not prove in the long run to be an advantage rather than a disadvantage. Certainly a good many heavy responsibilities and heavy losses will he removed from our shoulders on that account, because if we added up all the money that the people of this country have lost by reason of our being for 70 years the world's greatest creditor nation, it would total up to a tidy sum. I do not know whether it has ever been computed. We shall enjoy many advantages and assets, both political and economic, when this war is over. It is most important—and here I would like to take up a point made by the hon. Member for Kidderminster (Sir J. Wardlaw-Milne) in his interesting speech—to distinguish between external and internal debt. We have enormously increased our internal debt during the war, and we shall have to find ways and means of dealing with it; but that we can do so admits of no doubt.
In all the circumstances the increase of our external debt is remarkably small, considering what we have had to do. It has been caused mainly because, owing to the war, we have been prevented from exporting anything. That really is the origin of Lend-Lease. A lot of people have got into the frame of mind that we are now utterly dependent on foreign supplies being given to us. That is not the case. The reason for Lend-Lease is that, owing to the war conditions, we cannot possibly export. But that reason will not apply when the war is over. We shall then have to export again—and there is no reason why we should not export in very large quantities—in order to pay our way. It is a false assumption to suppose that unless Lend-Lease is continued indefinitely we shall have to lower our standard of living. We have received, but we have also given; and the reason why we cannot at present pay for what we have received is the war, and nothing but the war, which has prevented us from exporting.
I agree, and that is a valuable additional point which reinforces my argument. With regard to the internal debt, I think it is true to say that the taxpayers and the lenders of money are to a large extent the same people, and to that extent I do not dissent from the view of the hon. Member for Chesterfield (Mr. Benson) that our internal debt amounts to a bookkeeping transaction. What is absolutely true is that the internal debt does not in any way diminish the national income, the real wealth of the country. After the war we can reasonably expect to increase that national income by means of a greatly increased national production.
Take, for example, agriculture. I am one of those who believe that there is no reason why our production of food in this country should not be increased by £200,000,000 worth a year, in comparison with pre-war. We want to grow, and we can grow, in this country those protective foods which every scientist assures us are essential for the health of any community. I think that the Chancellor is right, on the whole, to raise the cost of living index by 5 per cent. That is a reasonable proposition, and I do not agree with some of my hon. Friends behind me who complain about it. But the principle of price control for essential foodstuffs such as bread, milk and meat has been applied with brilliant success, and it should be retained as a permanent feature of our national economy after the war. Nobody suggests that we should retain subsidies at the present level. I remember that in 1940 the total amount we paid out at the Ministry of Food was of the order of £60,000,000. It has risen a great deal since then. But it certainly met the case at that time; and I think we can reasonably expect to go back to what I call a consumers' subsidy for essential foodstuffs of that order after the war. I therefore hope that the principle of price control will not be hastily abandoned when the war is over.
No; I suggested that we could produce about £200,000,000 worth more. We shall, of course, still require to import some food. But we could to that extent increase the real wealth of this country. Perhaps our greatest advantage will be our own internal market, which to many countries will be indispensable. I suggest that in the final analysis, the volume of our trade will be determined by the productive capacity and the purchasing power of the people of this country. And if that be true, I do not think we have very much to fear.
So far as industry after the war is concerned, the development of new industries, the modernisation of plant, and re-equipment, will be of vital importance. That is why I think the Committee so heartily welcomes the proposals of the Chancellor, with regard both to expenditure on new plant, machinery and buildings, and not least to expenditure on research, upon which we may have to depend a great deal. At the same time, I think we will have to face the fact, as one or two hon. Members have stressed, that capital expenditure after the war, both by industry and the Government, will have to be considerable, if we are to put this country into really good order and if we are to make our indutsries well found. Capital expenditure will have to be considerable on the land, on water supplies, electricity, drainage and so forth; and also in the whole field of rebuilding, re-equipment, new plant, etc. Sooner or later the Excess Profits Tax, and the Purchase Tax, will have to be entirely recast in order to facilitate this.
There is one other point which I would like my right hon. Friend to consider. Something will have to be done—it is related to the whole problem of reconstruction—about the location of industry. That was one of the main causes of the stagnant pools of unemployment which were left about the country in between the wars. It is far better to take industry to labour than order labour to go to industry. Something in any case must be done to stop the fantastic growth of London if we are to achieve a balanced national economy. I would like to support the view of my hon. Friend the Member for Walsall (Sir G. Schuster) that the Government should now undertake a comprehensive study of the structure of British industry, so as to be ready with their plans as soon as the war comes to an end.
Finally I hope that my right hon. Friend will give serious consideration to the advisability of separating capital from current expenditure after the war. I believe that the latter should be covered out of revenue. If we are to find the capital which will be necessary for the re-equipment and reconstruction of this country, it should be found out of the taxation of capital, such as Death Duties, and the floating of loans against capital assets; and it should be a long-term job and not an annual job. Otherwise, I do not believe that we shall ever succeed in doing it. A State cannot go bankrupt so long as it is able to obtain from the real wealth of its own citizens, either by taxation or borrowing or both, the necessary resources to finance its activities. The Chancellor admitted that in his Budget speech yesterday, just as his predecessor admitted it in more than one Budget speech. What matters is the national income. And this rises at full employment to a level at which a programme of continuous expansion can be financed.
The Budget is no longer concerned merely with Exchequer revenues and expenditure; it must be designed in the future to ensure that total outlay is sufficient to absorb our available factors of production, including man-power. In other words, it must be designed to produce effective demand.
Surely, after the bitter experience of the 20 years between the two world wars, we have learned by this time that real wealth consists of goods and services produced by man-power, and that money has not a separate independent value of its own. Money is no more than a convenient method of measuring the value of goods and services, and of facilitating their exchange. If once again we try to set up money as an independent, invariable pivot of the whole national economy, around which everything else must revolve, then, once again, we shall come to grief, as we did between the two world wars. Our strength and hope for the future lies in the fact that everything depends upon our production of real wealth, the production of goods and services; and that neither gold nor paper notes are of value except in so far as they represent that real wealth.
I agree entirely with my right hon. Friend that sterling is of vital importance to this country, and must command the confidence of the world. It will do so so long as it represents the productive capacity of this country, the real productive capacity. It will not—and I now trespass upon another field—necessarily do so if it is tied to gold. That is, however, another issue, with which we shall deal later on. I am sorry to have delayed the Committee for so long; but I have always believed with passion, and I believe it no less to-day—and all the events that have taken place in the last 20 years have done nothing except confirm my belief—that so long as human needs remain unsatisfied, the fundamental solution of our economic problem is to be found in clothing those human needs with the means of purchasing the abundance which modern science has placed at our disposal. I believe that the answer to the economic problem is to be found not in artificially contracting the productive capacity of this or any other country in the world, but is rather to be found in giving to the mass of the people who want goods the facilities and the means of buying them. Our problem therefore is fundamentally a problem of distribution rather than of production.
It is clear that there has been general approval on all sides of the Committee of the main proposals put before Parliament by my right hon. Friend. From what I was able to read in the Press this morning, there too there has been general approval. I should like to thank hon. Members for what they have said in the course of the Debate yesterday and to-day. My right hon. Friend will wind up the Debate to-morrow, when he will deal with a number of matters of great importance. He will deal in particular with matters which were raised first by my right hon. Friend the Member for East Edinburgh (Mr. PethickLawrence) to-day, and which have been referred to by more than one hon. Member since.
In his contribution to the Debate the hon. Member for Leigh (Mr. Tinker) asked for an explanation of the Government's stabilisation policy, and, in particular, whether subsidies were to be cut down in order to allow the cost of living to rise. My right hon. Friend will be making a further reference to this matter when he comes to reply to-morrow, and he will deal particularly with the point as it was put by my right hon. Friend the Member for East Edinburgh and by the hon. Member for East Birkenhead (Mr. G. White). In the meantime, however, I can give the hon. Member for Leigh some explanation of how the stabilisation policy has worked hitherto, and can explain what change is involved in the announcement made yesterday by my right hon. Friend.
I know that the Committee will appreciate that if the cost of living index is to be kept constant at any particular figure, increases in the prices of particular commodities which enter into that index must be counterbalanced by reductions in the prices of other commodities. I think that is clear. I think the Committee know what has been done in the past. The necessary reductions have been achieved by additional subsidies to reduce the selling prices of other commodities. What the announcement yesterday of my right hon. Friend meant was that, to a limited extent, we must in future expect that the prices of some items in the index will increase without reductions being made in prices elsewhere; but it would not therefore be correct to say that the amount of subsidy at present being borne by the Exchequer is to be cut down. As my right hon. Friend showed, the cost of subsidies has been increasing. What the new arrangement means is that the cost in future will not rise by so much as it would have done if the change now proposed were not made. To-morrow my right hon. Friend will deal more fully with the principles underlying that situation, but I thought it might be useful to the Committee if I gave the explanation asked for by the hon. Member for Leigh.
There are a number of smaller points with which I will try first to deal, and then I will try to gather up some of the more general comments made in the course of the Debate. My hon. Friend the Member for Holborn (Sir R. Tasker) made some criticisms in his speech. He raised the question of the small man not being able to face the cost of legal proceedings, and therefore having to bow to the rulings of the Inland Revenue Department. The issues which arise between the small man and the Inland Revenue Department nearly always relate to Income Tax. Where a difference arises there is an appellate tribunal in the local Commissioners of Income Tax. The small taxpayer can get his case decided there without any cost, and the decision of the Commissioners on appeal is subject to the right of the dissatisfied party to demand that a case shall be stated for the High Court on a question of law.
It is very rare for the Inland Revenue Department to demand a case for the High Court where a decision in respect of personal allowances has been given in favour of a small taxpayer. It is done only when some important question of principle is at stake. In fact, there have been only four such appeals to the High Court by the Inland Revenue Department since 1933, and in all of the four cases the revenue won but did not ask for costs against the taxpayer. My hon. Friend also had in mind valuations for Estate Duty. Here again of course, where a higher value is placed upon a property by the Valuation Department or by the Board of Inland Revenue than is placed upon it by the executors, it is open to the executors to lodge an appeal to a Referee within 30 days.
Finally, my hon. Friend the Member for Holborn made some criticisms of a Sub-section of a Section of the Finance Act of 1894. I have not yet had time to examine that Sub-section closely, but I do not expect it will be very surprising if I find something which I do not like, because I was brought up to believe that the Finance Act of 1894 was one of the worst Acts ever passed by Parliament.
Yes, Sir. I am afraid I have not got any other figures with me, at so short notice. My hon. Friend the Member for East Willesden (Mr. Hammersley) raised a question about the £1,000 increase proposed in the Budget speech, and he wondered whether a trader would remain tied to the profits standard, even if the other standard, as increased by. £1,000, would be higher than the profits standard. What he really asked was what options would the taxpayer have. The answer is that the taxpayer will not be tied; he can take whichever standard is the better. If the alternative standard, as increased by £1,000, is higher than the profits standard which he at present enjoys, he can elect from 1st April for the alternative standard, as increased. I think that the Committee will recognise that that is very reasonable.
That is the position, including, of course, the remuneration of the proprietors of the business. The hon. and gallant Member for Ormskirk (Commander King-Hall), in one of his thoughtful speeches, made a suggestion that we should do something more to educate the taxpayers and people of this country on more popular lines. Of course, the speech which my right hon. Friend the Chancellor of the Exchequer made yesterday, and the speeches which Chancellors make on Budget Day, are the principal means of seeking to educate the public with regard to our financial affairs. In addition to that we have this extraordinarily useful White Paper which accompanies the Budget Financial Statement which does give an enormous amount of information to hon. Members in this House and also to people outside. But I do recognise that that document is not what the right hon. Gentleman the Member for East Edinburgh described to-day as the "breezy little manual," and that if we are to have something which is rather more popular, it will have to be designed in a different way and in a somewhat different style. All I can tell the hon. and gallant Member for Ormskirk, is that his proposal will be considered, and if it is possible to make any suggestion to meet it, I will take an opportunity of having a word with him at some time in the future. I do not make any promises.
I should like to thank the hon. Member for Harwich (Mr. Holmes) and other hon. Members who have congratulated the Board of Inland Revenue on the success of their Pay-as-you-earn system of collecting taxation. I think it is only right that the Committee should pay these tributes to a piece of work which both employers and workers recognise as being extraordinarily good. My hon. Friend the Member for Kidderminster (Sir J. Wardlaw-Milne) raised a number of important points, and some of these will be dealt with by the Chancellor tomorrow when he comes to discuss again this question of wages and prices and so on. My hon. Friend also talked about motor car taxation, and that is a matter which the Chancellor hopes to deal with to some extent in his winding up speech to-morrow.
My hon. Friend the Member for Duddeston (Sir O. Simmonds) made a useful contribution, and gave some interesting figures with regard to the Excess Profit Tax and how it affects medium businesses. These figures will, of course, be carefully studied by the Department. The hon. Member for North-East Leeds (Mr. Craik Henderson) made a proposal for an alternative form of loan which should, he thought, appeal to the working man and especially those who are not accustomed to paying Income Tax. He suggested some form or other of premium bonds. My right hon. Friend the Chancellor does not feel that anything has happened so far to show that the well tried method of finance should be discarded. I think one ought not to overlook the fact that there would be a sharp difference of opinion over a proposal of that kind among those very many voluntary workers who help us so greatly in our War Savings effort. It would be highly controversial. The hon. and gallant Member for West Woolwich (Major Beech), who made a maiden speech to-day, naturally found a very ready response when he referred to the late Sir Kingsley Wood, whom he has succeeded as Member of Parliament for that Division. All that he said, I need hardly say, was very welcome to me. The hon. Member for Ealing (Sir F. Sanderson) made a valuable contribution,. as he always does, and pointed out how extraordinarily high taxation was in the case of the highest incomes, and pointed out what has been pointed out in this Chamber before now, how little there is left for those in the highest range of Surtax payers.
I think that Members of the Committee all appreciate and realise that we are now on the eve of enterprises which will represent one of the most intense military efforts, or the most intense military effort, of the war. We still have that before us and certainly we have not reached the stage at which we can take for granted an early ending. On the other hand, we have now virtually completed the long drawn-out process of mobilising our economic resources so as to make possible the most intense and indeed, if need be, the most sustained military effort. The stage has been reached at which it is both legitimate and prudent in the financial sphere to make preparations for the problems of the future.
I should like, if I may, for a few minutes, to look into that future beyond the period immediately after the end of the war, and to begin by referring to a question which has been causing some concern to various hon. Members, and to which reference was made, not only by the hon. Member for Kidderminster, but also by my hon. Friend the Member for Chislehurst (Sir W. Smithers) in his excel- lent speech yesterday. It was also referred to by the hon. Member for Skipton (Mr. H. Lawson). The question which is being asked is: If the Government can spend £14,000,000 or £5,000,000 a day during the war, why cannot we spend the same on more constructive objects in peace time? It was suggested by more than one hon. Member that that question is being asked and needs answering. I think everyone is familiar with the fact that the huge war expenditure of the Government has two aspects. It has the physical aspect and the financial aspect. The physical counterpart of the question which is being asked is really this: how are we able to carry on and maintain a tolerable standard of life when we are diverting so large a part of our labour and other resources to making armaments and to the Fighting Services. There is the financial counterpart of the same question. The physical aspect, of course, as my hon. Friend the Member for East Aberdeen (Mr. Boothby) pointed out, is a matter of man-power and materials and also of shipping—man-power to provide the Fighting Services and the workers in the munition factories and the Civil Defence workers and those services which the community cannot do without; materials for clothing, equipment, aircraft, weapons, ships—ships to fight and ships to bring our imports of food and raw materials and other necessary needs.
The great physical contribution in these years has been achieved in four ways. First, by much more strenuous work, in which women, in particular, have played a most notable part, and by hours of work much longer than are normally acceptable. Secondly, by curtailing less essential consumption of all sorts. Thirdly, by living on capital at home, in various ways which I will try to elaborate in a few minutes. Fourthly, by realising our foreign investments to provide food and materials, in addition to those very large quantities which we are receiving under Lend-Lease. It is not necessary for me to enlarge on the question of harder work and longer hours; we are all familiar with that from our own experience throughout the country, and the population as a whole is well familiar with it. On the second point, that of curtailing the less essential types of civilian consumption, it is obvious that the great war effort could not have been carried on if manpower, materials, and shipping had con- tinued to be made available for those ordinary civilian needs which we were accustomed to satisfy in peace-time.
It is clear that labour and materials have been diverted from civilian requirements to war purposes. We have not merely gone without current consumption goods and services, but we have eaten into our national capital: in the first place, stocks of all sorts, which were accumulated for peace-time needs, have been drawn upon for the war; in the second place, during the war we have suspended civilian building almost entirely, and have perforce neglected the repair and decoration of our houses and, similarly, the renewal of much of our domestic equipment, our motor buses, motor cars, railway rolling stock, plant and machinery. All this replacement has been neglected for five years so that we could use all our resources to win the war. Incidentally, this war has drawn our attention very clearly to the fact that in far too many of our industries our capital equipment is sadly behind that of the United States of America and the standards which we must attain if we are to rebuild the export trade which is so essential to us. That is a deficiency which we have to repair, and my right hon. Friend the Chancellor of the Exchequer made it clear that that was the governing purpose of some of the arrangements which he foreshadowed in regard to the future of taxation on industry and on agriculture.
A moment's reflection will show that the country would not, and could not, resort to such expedients as we have had to resort to during the war, to support Government expenditure of a similar nature in peace-time. That brings me to the financial side of the picture. Finance is but one of the two sides from which we can examine the realities of the situation, whether it is the finance of business or of the nation itself. It is not surprising to all of us that on the financial side the picture is very similar. We have been able to spend £14,000,000 or £15,000,000 a day during the war because we have been willing to work harder, to restrict consumption, and to accept the rigorous control of our personal habits and economic conditions, and because we have been able to secure many imports without paying for them by exports. We have denied ourselves a great deal of the expenditure that we made in peace-time. By taxation, which is compulsory, and by saving, which is voluntary, we have given up a great deal of our purchasing power, so that the Government might spend it on the war. If we have capital to invest, the Capital Issues Control keeps to the minimum any new issues which might compete for that money with war loans. Many hon. Members know what that means. Remarkable as the effort of the country has been in paying taxes, our National Debt is now increasing inexorably and rapidly. It is to-day very close upon £20,000,000,000. One hon. Member said yesterday that it is very difficult to understand what that means, and, to help the Committee, he reduced it to the number of pounds per head of the population. I would like to remind the Committee that after the war the service of that debt will make a very big draft on the proceeds of taxation.
Again, many of the goods and materials which we have been importing during the war have been paid for by realising our foreign investments. We started the war with some thousands of millions of pounds invested overseas. The interest on those investments, built up, as more than one hon. Member has pointed out, by previous generations, flowed into this country in the form of food and materials, for which we had already paid years before. To-day many of these investments have gone, and the capital has, been spent in paying for the war. We shall no longer have vast quantities of food and raw materials coming into this country which we do not have to pay for by current exports. I believe that the country as a whole is beginning to realise that, but it cannot be said too often, because many people have never thought about these things. Although here we are quite accustomed to thinking about such things and to debating them, in the country in general such matters are not fully discussed and understood. The more Members can do in their constituencies to help in the understanding of this problem, the greater the contribution they will be making to a sound financial situation in this country.
Yet again, quite apart from the supplies which we have received under Lend-Lease arrangements from the United States and the generous help given to us by Canada, which the hon. Member for Kidderminster and my right hon. Friend the Member for East Edinburgh and others have referred to, we have obtained from some countries supplies which we have paid for in sterling. Our suppliers have left that sterling here. One day they will want to take it away in goods and in services. That means that a proportion of our production after the war cannot be consumed by ourselves, but will have to be devoted to meeting our obligations; and this again is a point which gives one much to think about. So we have been not only living on capital, but we have been piling up liabilities to be discharged in the future. On the financial side, therefore, as on the physical side, our huge war expenditure requires measures some of which in peace time would not be thinkable at all. By the way, in referring to these sterling balances there is one point which I cannot refrain from mentioning. When I read the almost eulogistic references which some people make to exchange depreciation, I wonder whether those who suggest this expedient have stopped to think that it is in return for a growing balance of sterling that we have not only obtained these supplies during the war but hope also to obtain them in the early post-war years.
I recognise that there are few responsible and informed people who would seriously attempt to argue that the Government should spend in peace time on anything like the same scale that we have been spending in war. Nevertheless, some of the considerations which I have mentioned to-day point the way to the judgments which we shall all have to make in deciding how far and how fast we can safely give effect to the very extensive plans which are being canvassed on all sides for the improvement and development of our national life. I have no particular policy or programme in mind. I am thinking of the attitude we should adopt to our post-war problems and plans generally.
if our national economy is to remain sound and healthy, and the vicious circle of inflation of prices and values avoided—and judging by past experience the practical danger of inflation seems to be greatest when the fighting has ended—let us ask ourselves one or two questions. First, on the physical side, can we be sure that the competition for labour and materials can satisfy, at one and the same time, current consumption on the scale that we should like to have it and the improvement, as well as maintenance, of our capital goods and the capital equipment of our industries, and also all these plans for national development, without causing scarcity values for the labour and the materials available? And if there is a danger of such results will the country recognise the imperative need of keeping its equipment up-to-date, and be prepared to choose, for a time, between the standard of current consumption which it would otherwise desire to have and the plans for new developments placed before it?
My hon. Friend will be able to develop his argument to-morrow. I hope he will allow me to finish mine. In an interesting leading article which I have just read in the current number of "The Economist," the writer reminds us of a principle sometimes neglected which I have been trying to put to the Committee to-day. It is that "if the physical resources are not adequate to do everything at once, no financial contrivances can make them so." That is the point we have to bear in mind.
On the financial side, too, we shall have to ask ourselves some questions. Will the capital required for such plans, when added to the existing demands on the market from Government, industrial and other sources, cause such competition for the capital available as to jeopardize the level of interest rates which we all look to see maintained for the general benefit of the community? Again, will the current cost of central Government and local government, including all additional borrowings, involve such a burden on taxation, direct and indirect, as will prove insufferable to individuals, whether with large or small incomes, and prove a serious deterrent to business enterprise?
With such questions I think we must leave the matter for the present. This is not the occasion to anticipate discussion of particular policies. But I should like to point out to the Committee that these questions will have to be faced when the time comes and the answers will have
to be weighed against the merits of every proposal, however desirable it may be in itself. I think the Committee will agree that the Chancellor's Budget speech will have been a landmark in our financial history, and that, though he gave us some much needed warnings about the future and about our behaviour in the future, he showed throughout the whole statement, as "The Times" said in a leading article to-day,
A humane and constructive spirit which lends conviction to his balanced confidence in the future,