I feel inclined to apply to this Resolution on Income Tax the same tests as I applied yesterday to the Resolution on tobacco. Would large reductions in Income Tax—much larger than those given by the Chancellor—act in an inflationary way, and would they act as an incentive? There seems to be a fairly widespread disposition in the House, with which I am afraid I do not agree, that large reductions in taxation now would actively promote inflation. Now there are two sources from which the Chancellor can draw to meet a given figure of Government expenditure. They are, the sources of taxation and the sources of loans, If taxation is reduced, loans can be increased. That is a self-evident fact. We have seen throughout the war years very sharp changes in the ratio between loan receipts and taxation receipt. I am not opposed to deficit financing even at this time of high employment and economic crisis. In fact, I am pretty sure that if the Chancellor had used that method of definite financing in this Budget and reduced taxation that would have acted as an incentive and helped us to overcome the crisis faster than we shall as things now are.
Perhaps that looks a little odd to hon. Gentlemen who know my views about national savings. My opposition to national savings is not because savings provide money to meet a deficit in the Budget. It is because the interest offered on national savings is poor, because the money is inflated away and because the objects of the savings are party political. The money is inflated away because the aggregate of personal spending by the community at large—everyone's individual expenditure—coupled to the spending by the Government—national expenditure—is greater than national productivity, and not because of deficit financing per se. Reduction in Income Tax and consequential deficit financing is not, in my view, necessarily inflationary
If the Chancellor knocked a shilling off the Income Tax it ought not to be assumed that that shilling would be immediately spent in the shops. In these days it is much more likely to be used to reduce an overdraft, to increase a deposit, to increase the fluidity of the money market, all of which helps the Chancellor with his loan operations. The money comes back to the Chancellor but it is in another form. It comes back to him in another form after effecting an enormous easement in the individual's personal position. It is not inflationary to pipe water from one cistern into another. What is inflationary is the pressure in the cistern. That pressure, surely, is introduced by the very high level of Government expenditure placed directly alongside the aggregate personal expenditure.
Then there is the other test of incentives which has been liberally discussed this afternoon. Hon. Members opposite are in this difficulty about incentives. They seem to think it wrong for persons coming from private industry and persons who are associated with this side of the House to earn large salaries, whereas it appears to them to be quite right that the Prime Minister should have a gross salary representing £105,000 per annum, and that members of the Coal Board and the Air Transport Boards should all have high salaries. They seem to think in the case of these people that high salaries in office are associated with incentive. If they objected to that they would ensure that such salaries were not paid. Further than that, they realise the curbing effect of high taxation upon the salaries of these persons, because they agreed with the decision of the Government to put these people in a separate class where free emoluments are given and the full scale of taxation is not paid.
I believe that a large reduction in taxation ought to have been given in this Budget. It would have had an enormous effect upon incentive. A reduction of is. or 1s. 6d. in Income Tax would act as an incentive, I suggest to hon. Members opposite, in exactly the right place. This afternoon the Chancellor of the Exchequer referred us to the Tables in the Financial Statement. I take the very page he mentioned, page 30, and I look there at the scale of incomes between £350 and the more or less fictitious £100,000 which are those upon which Income Tax is paid. I am not particularly concerned with Surtax. I agree that there should be reduction in Surtax, but I think that the effect of the reduction in Income Tax of 1s. would have been much more wide- spread throughout this whole range of income. We want to increase incentives in the scale below £2,000 a year. It is just as important that the professional man and the small trader, and persons of that quality, earning between £350 and £2,000 should have this reduction in tax, as it is that the higher paid man should receive benefit by way of a Surtax reduction. From the Table it will be seen that a married couple with two children pay no tax at all until £400 a year is earned. After that, of course, taxation is paid on a steadily increasing scale.
For reasons which I gave to the House yesterday, I do not want to reduce taxation on the very low incomes because I do not think that it would act as an incentive. Here is a case where a shilling reduction would tackle exactly that range between the £400 a year scale and the top level. I think that ought to have been done in this Budget. There are £270. million surplus in the Budget to provide the money. I am not so concerned about the surplus. The Chancellor argued that part of that surplus might be said by us to be really and truly below the line. That may be the case. I have already said that I would not object to an unbalanced Budget this year for this purpose. Even if that £270 million was inaccurate, I would still be prepared to finish this year with a deficit. The Chancellor gave the cost of a shilling reduction as £130 million—