Orders of the Day — Budget Proposals and Economic Survey

– in the House of Commons at 12:00 am on 8th April 1948.

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4.5 P.m.

Photo of Sir John Anderson Sir John Anderson , Combined Scottish Universities

For an ex-Chancellor, for that matter two ex-Chancellors, to contemplate the Chancellor unfolding his Budget, amid the manifold complexities which the whole subject presents under the extraordinarily difficult conditions of the present time, must inevitably be a rather moving experience. Whether the ex-Chancellor in those circumstances may or may not feel tempted to say to himself, "There, but for the grace of God—" and so on, will depend, I suppose, on personalities, and also on circumstances. At any rate, one can recognise, with the knowledge of all the difficulties that it involves, a task discharged with complete mastery alike over principle and detail. And if I may do so without appearing to be in any way patronising, I should like to express admiration of the manner in which the Chancellor discharged his function last Tuesday.

Among all the many points presenting themselves to one with experience of the problem of framing and expounding a Budget, it must inevitably be somewhat difficult to make a proper selection. The field is very wide. In conformity with the general understanding as to the organisation of this Debate, I propose to confine my remarks, as far as possible, to the strictly budgetary aspects of the Chancellor's statement. I will, however, find it necessary to say something of a general character upon the bearing of the Budget on our general economic situation.

As to the budgetary aspects, it is surely quite clear that the problems which con- front the Committee at this moment might have been very different if our financial and economic affairs had been differently handled during the past two and a half years. But we must, of course, recognise that the Chancellor's proposals are necessarily related to the situation as it in fact exists. I will direct my comments from that point of view. In the first place, I welcome wholeheartedly the Chancellor's insistence on the necessity for an adequate, real, surplus. As we pointed out at the time, the surplus shown in the statement of the former Chancellor was largely unreal, to use no harsher term. I welcome the present Chancellor's realistic approach. I do not propose to take up time by endeavouring to analyse his figures. That I can safely leave to those who have already spoken, or who will speak later in this Debate.

In seeking means of securing a real surplus any Chancellor must, of necessity, take account of what is, in fact, a struggle, a conflict between incompatibles. That is a problem which confronts every Chancellor. For example, every attempt to reduce a deficit on external account tends inevitably to increase inflationary pressure at home. Similarly attempts to increase incentives to production by tax reliefs must have, in the first instance at any rate, some inflationary effect. Again, any inroad upon accumulated capital tends to discourage saving, and so on. It is always a question of a balance of advantage and disadvantage. This the Chancellor has recognised. He, has not attempted to burke the issue. Whether in every case he has chosen what on balance is the right course, may merit further examination. With regard to the increases in the already very heavy duties on beer and other alcoholic liquors and tobacco, I have little to add to what was said yesterday by my right hon. and gallant Friend the Member for Gainsborough (Captain Crookshank). Undoubtedly, those additions to what, as I have said, was already a heavy burden, may stimulate demands for wage increases.

In that connection, I wish that the Chancellor had been more definite as to the objective of his Tobacco Duty. Members of the Committee may recall that last year we criticised the former Chancellor on that score. He had, he made it clear, two objects in view—the reduction of dollar expenditure and the question of revenue. I think that he gave the impression that he attached greater weight to the former purpose, and he told us yesterday that he was disappointed, as we warned him clearly that he would be, by the result. He said that a reduction of 20 per cent. was small in relation to the total amount involved. Of course, a reduction of 20 per cent. is a reduction of 20 per cent. irrespective of the amount involved, but we will let that pass. I do not, I confess, know what the dominant purpose of the present Chancellor was. I hope that it was to secure revenue. I think that perhaps I am right in that. After all, even if one incurs dollar expenditure, if an expenditure of £1 brings in £10 in additional revenue, which I think is in fact the position, that is not something in present circumstances to be lightly disregarded.

The reorganisation of the Purchase Tax, as my right hon. and gallant Friend said yesterday, is welcome to those on this side of the Committee who have been asking for some such simplification and rationalisation. I think the new scheme, though I have not been able to examine it in detail, represents a definite improvement, as has been generally recognised. Whether it was altogether wise in present circumstances to seek a reduction in tax revenue of as much as £24 million by this process of reorganisation is, I think, a matter on which there is room for some difference of opinion. I have made my own view in regard to Purchase Tax quite clear on previous occasions. I do not regard the Purchase Tax as a suitable or an ideal form of taxation in normal times, except in so far as it can be brought down to the character of a luxury tax. The figure that I had indicated as a reasonable objective—a revenue of £100 million a year—is, of course, very far short of what is being collected at the present time even with the reduction of £24 million to which I have referred, but the present circumstances are exceptional, and exceptional measures are justified.

I heartily approve, as other hon. Members have done, of the proposed Income Tax adjustments in all their aspects. I wish indeed that the process could have been carried further. I agree that the changes that have been made will have some useful effect in mitigating the incidental consequences—what may be described as the psychological conse- quences—of the system of tax collection known as P.A.Y.E.; but they are only a mitigation. They do not go the whole way. I have had an opportunity within recent months of examining statistics collected in the Port of London from the different dock systems, and an examination of curves recording the relation, for different classes of employees working in different geographical positions, between output and earnings shows, in a quite impressive way, the same characteristic. The curves all show that at the point at which earnings become subject to a higher rate of tax there is a falling off in effort. That fact, which was to me very impressive, suggests the desirability of going further than the Chancellor has so far found it possible to go.

I would like, therefore, to repeat a suggestion which I threw out in an earlier Debate that the whole system of P.A.Y.E. which is an essential feature of our Income Tax structure, ought to be further examined. I believe that it would be possible to find a way of continuing the collection of tax from wage earners and salary earners in the lower grades by P.A.Y.E.—payment on current earnings week by week—which would not produce the undesirable consequences that have attended, in practice, the operation of the system. I hope, therefore, that there will be a further examination of that problem. It is not an easy problem, but there are many ingenious people in the service of the Board of Inland Revenue, I believe that something could be worked out and that a system could be devised, not so theoretically perfect as the present system, but still good enough for the purpose of securing the collection of the revenue which is properly due to the State without the unfortunate psychological effects of the present system.

Still on the subject of Income Tax, I would like to say how heartily I approve of the proposals for checking evasion. Some hon. Members may remember tint I referred to this subject two years ago when I emphasised the importance of looking into the whole matter particularly with a view to ensuring that in practice the administration of the rules which are relevant in this connection—I think that they are rules 9 and 10 of the rules under Schedule E—should be brought, arid kept, strictly in line. I think there has been some divergence. Under one rule, the administration governed by the formula which the Chancellor quoted, "expenses wholly, necessarily and exclusively incurred" has been allowed to diverge from the administration under the other rule, which is in the hands of the Treasury and not the Department of Inland Revenue, and I am quite sure that any divergence in the administration of these two rules must be seriously embarrassing to the officers of the Board of Inland Revenue in the discharge of their difficult and delicate task. I am quite sure that, as the Chancellor said, no one would wish to levy taxation on expenses which are properly and reasonably incurred in connection with the services for which remuneration is earned, but I think there is very great need for examination of the whole field of administration in that connection, and I hope that that examination will take place.

Photo of Sir John Anderson Sir John Anderson , Combined Scottish Universities

Yes, Rules 9 and 10. I need not go into that in more detail, because I am sure it is quite clear to the Financial Secretary.

Now I come, while still within the field of direct taxation, to a feature of the Chancellor's proposals in regard to which I cannot express the approval that I have been able to give so far to his other proposals. I refer to the Special Contribution on investment income. I wholly disapprove of that proposal. The first purpose of the Chancellor in proposing that levy was, as he explained, to provide, together with additional revenue to be secured by the other increases of taxation, a sufficient addition to the real balance of £330 million to admit of granting certain highly desirable Income Tax reliefs, but the Chancellor himself admitted that all the figures in that connection are in some degree conjectural, and I doubt very much whether he will question my view that the possible margin of error is much more than the £50 million which he expects to get from this Special Contribution in the present financial year. In any case, in so far as the proceeds of this levy will be drawn from capital—and the Chancellor emphasised that the tax must be regarded as a capital tax which would be paid in considerable measure by the realisation of capital assets—I suggest that the revenue will not, in fact, add to the real balance, and that it will not be deflationary in its effect.

The Chancellor said that the levy was something to be imposed once and for all. Well, it is certainly too crude an expedient to be capable of repetition. It depends entirely for its effectiveness as an instrument of taxation on the fact that it is related to the receipts of a previous year. On that matter, I need add nothing to what was said by my right hon. and gallant Friend the Member for Gainsborough but, in regard to what the Chancellor said about it being once and for all, I would like to put this question. If that expedient was necessary on the present occasion, what is the position to be a year hence? Does anyone expect that the situation in regard to the necessity for a real balance will be any different then from what it is now, and what will the Chancellor contemplate doing then?

Looking at the matter from that point of view, I say that this levy must have a gravely disturbing effect and must react disastrously on savings. What does it do? It imposes a tax on those who have used their savings wisely, those who have listened to the exhortations of the Government. Those who have behaved in an anti-social way, who have kept their savings liquid, or used them for extravagant expenditure, or converted them or used them to purchase racehorses, pictures, jewels and so on, and again those who, instead of investing in order to secure a regular investment income, have used the money to operate speculatively on the Stock Exchange seeking to gain capital appreciation, are untouched by it. I think it is very difficult indeed to justify.

In fact, I find it very difficult to resist the conclusion that here the Chancellor allowed himself to descend from the high level upon which his other proposals have been framed and to offer a sop to supporters who have been disappointed at his failure to introduce what he called a real capital levy. On that point. I want to refer to something that fell from the right hon. Member for Bishop Auckland (Mr. Dalton). The Chancellor made it clear that he was opposed, in present circumstances, to a capital levy. He pointed out the impossibility of carrying out all the valuations that would be required, and he explained that any revenue resulting from a capital levy could only be collected over a long period of time. I think he might have gone very much further.

I do not wish to trouble the Committee with biographical details, but it happens to be the case that I was the chairman of the Board of Inland Revenue during the period of the deliberations of a Select Committee set up after the first war to examine the problem of a special levy on war wealth. I was the principal official witness before that committee, and I had occasion at that time to go very fully into the whole question of a capital levy, and I have gone into it again since. I made special inquiry when I was Chancellor of the Exchequer. I think it is quite clear, and I venture to state this with some conviction to the Committee, that, under present conditions, with Surtax at its present level or anywhere near its present level, a capital levy, apart altogether from all other considerations, would simply be, from a revenue point of view, not worth while. The amount collected after a terrific effort, great difficulty and disturbance would not, in fact, compensate for the loss of the Surtax revenue and Death Duties year after year in future. That is all I want to say on that subject.

As I have been referring to the speech yesterday of the right hon. Gentleman who succeeded me as Chancellor of the Exchequer, I would like at this point to take up another matter to which he referred. He made what I confess seemed to me to be a most extraordinary and quite outrageous allegation of a conspiracy against his cheap money policy. The right hon. Gentleman was not the author of the cheap money policy. I had as much to do with it, more, in fact, in its inception, than he had. I told him after he became Chancellor, again and again, that I thought he was going too far and too fast in carrying out a policy which I regarded as in itself desirable. I was myself, as Chancellor, always in some doubt as to how far the policy could safely be carried. I know the view of the eminent economist who had more to do than anyone else with that policy—the late Lord Keynes; I know, and I state here with conviction, that it was his view, rightly or wrongly, that 3 per cent. represented the limit to which that policy could in present circumstances be carried. I know that and I state it with conviction.

The immediate effect of cutting down to 2½ per cent. was to create a great deal of capital appreciation over the whole range of gilt edged securities and it was not until that process had worked itself off that the natural and inevitable reaction to the reduction in the rate of interest from long term securities to 2½ per cent. began to make itself felt. When that effect wore off, the market inevitably reverted to a more natural rate. I quite see that the right hon. Gentleman may well be concerned by the effect on the holders of 3 per cent. Local Loans who trusted the Government and accepted conversion to an undated security carrying interest at 2½ per cent. That security, commonly known, I believe, as "Dalton's," stands today at 76, a discount of 24 per cent. That is the capital levy which has been imposed on those who trusted the Government. That very hard fact is not to be explained away by any imaginary conspiracy. There was, no doubt, a consensus of opinion over a very large field that 2½ per cent. was too low, but that does not constitute a conspiracy and I would challenge the right hon. Gentleman to produce any evidence, if he can, in support of what he said yesterday.

I have two other points to make before I come to a final word on our economic situation. First, I want to refer to a matter on which, I think, the Chancellor said nothing—the question of the external capital drain from which we have suffered. The White Paper on balance of payments made it clear that over a period of 12 months there had been a capital drain of no less than £300 million. I raised the question a year ago, and got no answer, as to the steps that had been taken to stop such a capital drain. We have, of course, an effective machinery to control capital movements from the sterling area, or at any rate from this country, to hard currency areas, but what I suggested was that we required a similar control, different perhaps in detail, to check movements which might result in a serious loss of capital between one part of the sterling area and another; and I want to ask whether now, at long last, the necessary measures have been taken for that purpose; whether we can, in fact, be assured that there will not be a continuance of the very serious drain from which we have suffered in that way and which has resulted in so great a loss of capital resources. Has anything effective been done in that connection and may we have some details of the machinery set up?

I want next to say a word on a matter to which the Chancellor of the Exchequer did make reference—food subsidies. He said that he had decided deliberately to stabilise food subsidies at the present figure of £400 million. The reason which he gave for that statement was to me the most depressing feature in the whole of his speech. The right hon. Member for Bishop Auckland naturally appeared to derive encouragement from what the Chancellor said. He contrasted the Chancellor's statement with my attitude. He said I had stated that food subsidies must be reduced to negligible proportions. That was not an entirely accurate quotation; what I said, in fact, was that they were demoralising and that our economy would never be in a healthy state until they had been reduced to negligible proportions, and in support of that I can muster an impressive array of economists.

I feel justified in claiming—and I do claim, here and now—that the Government have, in fact, accepted my contention; otherwise why should they stop at £400 million? It is not as if the Government had deliberately bronght the figure up to that amount. They have drifted to that point. The Chancellor defended the position only on the secondary consideration that any reduction would lead to wages claims—the secondary consideration. He appeared to admit—it is all on record—that a reduction would in itself have a desirable effect, but he rejected the idea of making a reduction because any reduction would lead to wages claims. What a confession of impotence! What a confession of inability to establish a sound wages policy!

Surely we must all recognise that the position in which wages are linked automatically to a cost of living index is economically unsound. We should all like to see real wages at the highest possible level consistent with our economic position, but they must depend on production and it is production and not the cost of living, except in so far as the same factors affect the money value of the products of trade and industry, that must limit in the long run the level to which wages can be allowed to rise. The relation between wages and the cost of living has no doubt an important social aspect, but it should not be allowed to obscure the vital economic factor of productivity on which the stability of wage rates must ultimately depend.

For the time being, I am afraid, we must accept the Chancellor's conclusion, but I would ask as a step towards a more rational view of the whole situation whether action cannot be taken to secure the publication for a number of typical cases of an analysis showing how the value of a product is ultimately distributed between the various factors—wages, salaries, materials, general overheads, depreciation, prior charges, taxation, and net profit available to the equity shareholders.

Finally, a word about the general economic situation. If I may use a homely metaphor, our economy today may be likened to a machine which has been taken to pieces for overhaul and modernisation, and put together again according to a new and more up-to-date specification. The old machine was fitted with a system of automatic controls, such as price mechanism, safeguards against external drain, discount rates, the phenomena of the trade cycle and so on, automatic controls which were effective in keeping the machine on an even keel but which operated harshly, cruelly and often led to the jettisoning of both passengers and cargo. This was recognised by the Coalition Government, and, therefore, the new machine was fitted with a system of manual controls. That was the meaning of the White Paper on Employment Policy. The old machine was sensitive and reacted to every danger signal.

It fell to the present Government to operate the new machinery. They should have recognised that to work it effectively it was essential that it should be equally sensitive to every threatening danger and that they should hold themselves always ready to react by taking prompt and decisive action. At long last the present Chancellor seems to have recognised that fact, for he said in his Budget speech: We must watch the situation carefully, and be ready to detect the moment when the inflationary pressure vanishes and gives place to deflationary tendencies; if such a thing should happen, we must then make a rapid readjustment of our economic and financial policies.—[OFFICIAL REPORT, 6th April, 1948; Vol. 449, c. 49] But for two and a half years the Government have failed abjectly in that very respect. They have gone slopping along, refusing to look facts in the face, in a Micawber-like fashion, hoping apparently always for something favourable to turn up which might dispense them from the necessity for some distasteful action. That, in my view, is very largely the explanation of our present plight.

Two years ago when I made adverse comments on certain actions of the Government which I thought had aggravated our difficulties, I said that I was not disposed to blame them over much. The problems were novel and the circumstances seemed superficially more favourable than they actually were. But while I took a charitable view of mistakes which they made in the first flush of enthusiasm—ignoring inflationary trends, the effect of price control and subsidies, the effect of increases in wages not matched by increases in production, a large external drain and large new commitments incurred while we were still dependent on the charity of our overseas friends—I certainly do not take the same view now when I find members of the Government and others obstinately refusing to recognise their blunders, for I fear that they may do the same thing again. I claim that events have amply justified my words.

Yesterday the right hon. Member for Bishop Auckland gloried in what he had done. Referring to certain things which I had criticised, he said that the nation had "taken them proudly in its stride." The same claim might have been made for the Gadarene swine. The Parliamentary Secretary to the Ministry of Food, in a party political broadcast last Saturday, permitted herself to characterise my attitude in the matter of family allowances as a blow aimed directly at the children of this country. What nonsense! If she had wanted to paint a true picture, she should have said that the Act establishing family allowances was framed and passed by a Coalition Government; and, incidentally, that I was the Chancellor of the Exchequer who assented to its financial provisions.

Photo of Mr Percy Shurmer Mr Percy Shurmer , Birmingham Sparkbrook

The right hon. Gentleman did not put it into operation.

Photo of Sir John Anderson Sir John Anderson , Combined Scottish Universities

I might have made the mistake, too. If the hon. Lady wanted to make doubly sure of not creating a false impression, she might have gone on to explain how very little the Labour Party had to do with the inception of family allowances, which they consistently opposed when an Independent Member for a University constituency was fighting year after year to get the principle accepted. The Chancellor might not avow it, but I am quite sure that his task today would be greatly eased if he had the family allowances and some other items of expenditure on which I have commented in the past still in hand. I am not unduly sensitive to what hon. Members may say about me personally, but I do resent it when my attitude is distorted for the purpose of creating party prejudice.

I would like in conclusion to lay down the general proposition that the system of economic controls which has been established will never work satisfactorily unless those directly responsible keep party polemics entirely out of the picture. I have nothing more to say on the economic situation. On the Budget proposals in general, while I disagree in detail with certain of the proposals, I most heartily welcome the honest and realistic approach which the present Chancellor has made to the very difficult problems with which this country is at present confronted.

4.47 P.m.

Photo of Sir George Benson Sir George Benson , Chesterfield

The right hon. Member for the Scottish Universities (Sir J. Anderson) made a very courteous bow to the Chancellor of the Exchequer, and then in the same movement he gave a backhander to my right hon. Friend the Member for Bishop Auckland (Mr. Dalton). He accepted almost without criticism the claim of the Chancellor that the present Budget is a strong anti-inflationary Budget, and then he contrasted it with the finance for which my right hon. Friend the Member for Bishop Auckland has been responsible. As a matter of fact, the claim of the Chancellor that this is a strongly anti-inflationary Budget is rather exaggerated, and the right hon. Member for the Scottish Universities does not seem to realise that the effect of this Budget is almost identical with the effect of the Budget of my right hon. Friend last year.

I would like to turn to a few of the more controversial statements of the right hon. Gentleman. He said we were in a parlous state, but, so far as I can see, the only practical proposal that he had to make was once again a cut in the food subsidies. He said they were demoralising and, apparently, mainly responsible for our present difficulties. They are not demoralising and, as a matter of fact, they are a very small proportion—less than two-fifths—of the total number of subsidies that are granted by the community. They are paid for by their recipients. They amount to some £400 million. The recipients pay in direct taxation £1,500 million, and in indirect taxation £1,500 million. Why is it more demoralising and more economically wrong to provide food subsidies which amount to 25 per cent. of the cost of the food, and charge the cost to taxes, than it is to give water out of the tap entirely free and charge the cost to rates? What is the difference? Does the right hon. Gentleman really think that the effect of withdrawing food subsidies would, in present circumstances, help us either socially or industrially?

There was some noise at the beginning of the right hon. Gentleman's speech, and I am not sure whether I am quoting him accurately, but I gathered that he said that the increased taxation on beer and tobacco might tend to lead to increased wage demands.

Photo of Sir George Benson Sir George Benson , Chesterfield

If increased wage demands are to come from a penny a pint on beer and 2d. on tobacco what increased wage demands will come from an increase of 25 per cent. in the cost of basic foods? However, I will get on to something less controversial for a moment. It has been said that this is an anti-inflationary Budget. Within certain limits it is, but I suggest that those limits are very narrow. I further suggest that they have been designed specifically to deal with inflation arising from one cause, and only one cause. There has been a great deal of loose talk about deficits and surpluses and bogus surpluses. I think we ought to analyse what we mean by all this. The right hon. Gentleman the Member for the Scottish Universities suggested that £50 million from the levy was not anti-inflationary—

Photo of Sir George Benson Sir George Benson , Chesterfield

I entirely agree. But on the other side of the balance sheet we find figures which are not inflationary. Let us submit this Budget to a rigorous analysis as to whether the receipts are deflationary and whether the outgoings are inflationary. It is only when we have done that, that we can see what this Budget really means. All outgoings are not necessarily inflationary and all receipts are not necessarily deflationary. The Chancellor starts off with a Budget of £790 million. Death Duties, paid out of capital, will yield £160 million. Certainly, they do not curtail consumption and, therefore, they are not deflationary. There is the capital contribution, another £50 million, and then there is the very doubtful item called "Miscellaneous Assets," of the deflationary effect of which I am highly sceptical. That means that out of £790 million there are £278 million which are not deflationary receipts. That reduces the Chancellor's surplus to £500 million.

He has to meet outgoings, below the line, amounting to £473 million, but of all those outgoings these are not inflationary. There is £140 million for war damage payments, which are value payments, and which will not come into the ordinary flow of expenditure on consumption. They will not create expenditure until the time arrives when building permits can again be obtained. So, we get, against the £500 million surplus outgoings of £330 million, leaving a surplus of £170 million. On the other hand, we have to make a rather curious and complicated adjustment. There is an outgoing, in last year's financial accounts, of £85 million in connection with the Argentine. That is not inflationary because it does not involve any expenditure in this country. What it does do is to ensure that we get meat sent to us without payment from our ordinary income this year. To balance up the effect, we have to introduce that as an asset in this year's balance.

That brings us to the figure of £275 million, which is the real deflationary surplus. I suggest that this figure is not merely fortuitous. If Members will turn to the Economic Survey for 1948 they will find that the figure of £275 million is exactly the figure estimated to be necessary to balance private savings with in- vestments. What the Chancellor has done is to aim at preventing any inflationary effect from a surplus of investment. Let us realise exactly what he has done, because if we are to understand this question of inflation, and the problems which face us, we must understand what the Chancellor is doing. What the Chancellor has done is exactly the outcome of the Budget of my right hon. Friend the Member for Bishop Auckland last year. If we submit that Budget to the same rigorous analysis that I have attempted in the case of this Budget, striking out what is not deflationary from receipts and what is not inflationary from expenditure, we find that the figures balance almost to a penny. Last year, we had £675 million from overseas borrowing, which made it unnecessary, so far as our investment was concerned, to have a Budget surplus. The point was met by a balanced Budget and overseas borrowing. This time, because overseas borrowing is not available, we have met the problem of investment by a very carefully calculated Budget surplus.

Photo of Sir Arthur Salter Sir Arthur Salter , Oxford University

I take it that it would follow that the Budget now presented makes no contribution to dealing with the extra-inflationary pressure that will come from the reduction in our overseas deficit this year.

Photo of Sir George Benson Sir George Benson , Chesterfield

I will deal with that in a few moments. My right hon. Friend the Member for Bishop Auckland achieved by his Budget exactly what the present Chancellor proposes to achieve by this Budget. Despite that, we were under very heavy inflationary pressure all last year. It did not, however, as I have shown, arise from bad budgeting. The inflationary pressure we are facing today is due to the fact that the people of this country are steadily refusing to recognise the physical limits of the standard we can afford. They are trying to improve their standard by forcing up money incomes, and it is from that source that the major problem of inflation arises. We have been deluged with White Papers, and complicated and difficult figures, and I discuss this whole matter with great diffidence, but if we turn to the White Paper on National Income we can, by comparing the various tables, arrive at this very interesting result in the last three years there has undoubtedly been an increase in the real standard of living, but the increase in expenditure has been three times as great as the increase in the standard itself, which creates some measure of inflation.

What about next year? The Economic Survey not only visualises inflation but it visualises accelerated inflation. What is more melancholy is that, although there has been a steady improvement in the real standard of living in the last three years, for next year the Economic Survey visualises an actual cut in our standard of living. The figures it gives are roughly these: there will be an increase in the national income of 4½ per cent. in 1948, over 1947, and the decrease in the national standard of living will be anything between 3 per cent. and 5 per cent. That calculation is based upon an assumption that we achieve certain extremely difficult production targets. I will not go into the details of them, but they include textiles, and the like.

Those targets will be achieved only by extraordinarily good fortune. If we do not achieve those targets we shall have to rob the home market in order to maintain our imports. That will mean a greater cut in the real standard of living than the estimated 3 per cent. to 5 per cent. The power of the Chancellor of the Exchequer to deal with inflation of the kind that faces us is limited. It is true that by running a Budget deficit he can exacerbate it, but I do not believe that he can cure it by a Budget surplus, no matter how great it may be. I agree with the right hon. Member for the Scottish Universities that if we increased taxation with the people in their present frame of mind, demanding an entirely unreal standard and trying to get it by wage increases, that taxation increase would merely be followed by a general demand for increased monetary wages and by disinvestment. That also undoubtedly is an objection to abolishing the subsidies.

Until we can get across to the people that their demands are outside the scope of reality and that they cannot force up their standard by forcing up wages and by disinvesting, we shall remain in this difficulty. Nobody can blame this Chancellor of the Exchequer, because nobody has spoken more forthrightly on this subject and with greater courage. What has he gained? Snarls and sneers from the whole of the Press, who have nicknamed him "Austerity Cripps." A fortnight ago, the "Observer," which is regarded as a reputable newspaper, sank to the level of gutter journalism by describing the Chancellor's policy as "misery for misery's sake." One man's voice cannot carry against the united denigration of the whole Press.

The attitude of the Press has been backed up by hon. Gentlemen opposite. They have exploited every difficulty for party purposes. Food rationing, potato rationing, basic petrol, and every difficulty which the Government have struck they have tried to pretend was due to Government blundering. When we suffered along with the rest of the world from the postwar shortage of food and raw materials, it was trumpeted as Government incompetence. Hon. Gentlemen opposite should remember that we cannot get the real facts across to the people unless they are prepared to sink party advantage. The problem with which we are faced is psychological, although its methods and its operation may be financial. Fundamentally, it is psychological.

It is a problem that no party can meet. It can be met only if every party is prepared to say clearly and definitely that the cause of our present trouble is worldwide, that the world itself is poorer and that, party advantage or not, these troubles which have come upon us would have come upon us no matter which Government had been in office.

5.6 p.m.

Photo of Mr Stanley Holmes Mr Stanley Holmes , Harwich

It has been my privilege on more than one occasion to follow the hon. Member for Chesterfield (Mr. Benson). I always find it difficult to speak after him and to enter into the cut and thrust of vehement debate. He always very interestingly ambles slowly through the pastures of economics, and one finds that it is very agreeable to listen to him. I shall ignore the outburst at the end of his speech, which was something quite new for him and may be allowed to waste itself upon the evening air. I am going to follow the example of my right hon. Friend the Senior Burgess for the Scottish Universities (Sir J. Anderson) and say one or two things in favour of the Budget and then one or two things against it.

The first thing, which I do not think has been referred to so far, is the gratification of many of us on this side of the House at the reduction in the Entertainments Duty on sports and living entertainment. The Committee may remember that in 1945, on the first Budget which was opened by the right hon. Member for Bishop Auckland (Mr. Dalton), an Amendment was put down in my name on behalf of the M.C.C., the Football Associations of England, Scotland and Wales, and of 137 national bodies which were concerned, wholly or in part, with physical recreation, urging him to reduce the Entertainments Duty upon living sports and entertainment. On that occasion, the Financial Secretary to the Treasury said that the Chancellor could not do anything but would think about it. We divided the Committee and we reduced the Government's majority to its lowest up to that time, in the new Parliament.

The result was that in the Budget of the following year, 1946, a reduction was made in the duty. Now a further reduction has been made by the new Chancellor. I am sure that the clubs concerned will be very grateful for it. I would point out to the Chancellor that by following the action of his predecessor he has absolved a great many Members upon his benches from the danger of getting into trouble for breaking their pledges. Two very important pledges were made by them at the time of the General Election. One was in regard to friendly societies and the other was in regard to Entertainments Duty upon sports and games. At any rate, if they have not been put right with regard to friendly societies, they have been put right so far as their football and cricket clubs are concerned.

I want to add a word to what my right hon. Friend has already said today with regard to the increase in the earned income allowance and the increase from £75 to £200 in the amount of income taxed at 6s. in the pound. This, undoubtedly, will be an incentive to people to do additional work. Those of us who are engaged in industry and have factories under our control know what dissatisfaction has been felt in the last few years when men and women have worked overtime and found that half or almost half of the extra money they thought they had earned has been deducted from their pay and handed over to the Chancellor of the Exchequer. The raising of this earned income allowance will mean that a man with a wife and two children who is earning £7 a week will be able to earn £3 on over- time without having to pay hardly any tax upon it. It will be different for single men of course: their income tax limit will be different; but that will be the general effect, that nearly everybody with a moderate income, an income of up to £8 a week, will be able to do some overtime and get the full money for it. That will certainly act as an incentive.

There is a thing to which I want to refer which is felt throughout the whole of industry. It is the fact that the quality and quantity of work which is done in the course of a day by the average worker are not as great as they used to be. I can quite understand that that is partly due to the fact that in 1945 we had a new Government, a new Government which, with the trades unions that supported them, had as their programme higher wages and shorter hours. Our people worked wonderfully during the war, and the war situation urged them on. The country was in danger, and that was an incentive to work. There is however, no longer the incentive to work, and the whole tendency since the war, and after all the efforts of the war, and because of the weariness caused by the war, has been that workers should not only have higher wages, and should not only have shorter hours, but that they should not work as hard during the hours at which they are at work. I do hope that the Chancellor of the Exchequer, whom my right hon. Friend the Member for Woodford (Mr. Churchill) called the overlord of our economic life, will add to the other things he is endeavouring to do at the present time an exhortation to the workers of the country to put in as good a day's work as they possibly can, and so increase production.

The Chancellor said—I am not sure whether it was in the Budget speech itself or in his broadcast on the same day—that we wanted to give encouragement to the producer. It is not only the worker, man or woman, who is the producer. In every successful business there are people who are in high executive positions. Nothing has been done for them. They are getting big salaries, and most of them deserve their salaries; and they are highly taxed. They may pay Income Tax and Surtax. Practically no concession of any kind has been given to them. What I want to suggest to the Financial Secretary—and I hope he will communicate the suggestion to the Chancellor—is that these people should be encouraged. If there were an increase in the limit of the earned income allowance they would be helped. At the moment the earned income allowance is up to only £400. I think that for these particular people a higher limit might be put; or, alternatively, whatever their earned income allowance might be, it should be allowed for Surtax as well as for Income Tax. That might be an alternative way of doing this.

I come next to the Special Contribution, which I oppose equally with other Members on this side of the Committee. It is, as my right hon. Friend said today, a sop to Cerberus, just as the tax on bonus shares last year was a sop to Cerberus. Doubt has been expressed by more than one as to whether the Chancellor of the Exchequer can carry out, with regard to the Special Contribution, his promise that it is to be exacted once and once only. So far as I can see, he is not likely to be able to commit a future Chancellor, especially if he has nothing more to do with the government of the country. I am willing to say, however, that I believe that the right hon. and learned Gentleman's character is such that so long as he remains in a Socialist Government, whether as Chancellor or whether in some other office, he will never allow that Government to repeat this Special Contribution, having regard to the pledge that he gave on Tuesday.

We had an intervention yesterday by the right hon. Member for Bishop Auckland (Mr. Dalton) who spoke patronisingly of the Chancellor of the Exchequer, and who patted himself on the back with both hands—a very characteristic performance. Then he proceeded to advocate what I may call a full capital levy. The first thing I want to ask with regard to that is, Why did he not ever once, when he was Chancellor of the Exchequer, from the summer of 1945 until the time when he resigned—why did he never once in tips Chamber say one word in favour of putting on a capital levy? If a capital levy is desirable today it was far more desirable two years ago. It would have yielded far more. There has been a very big fall in values in the last year. Were any capital levy put on at the present time, it would yield less than a capital levy would have yielded a year or two ago. If it would be any good today in the battle to stop inflation, as the right hon. Gentleman said, then it would have been good for stopping inflation, which we have needed to do, during the last two years.

We have had a capital levy in this country since the days of Sir William Harcourt, namely, Death Duties. In my opinion, that sort of capital levy is the only one which would not cause chaos in the country, for the very obvious reason that when a man dies the Death Duties have to be paid on his estate, the requisite amount on his estate has to be realised, and the rest of the community are able to buy his shares, chattels, or whatever it may be. Therefore, the executors are able to dispose of the necessary amount of his property, and the Chancellor gets a form of capital levy. But if there is to be a capital levy for everybody at the same time, then everybody would be a seller and there would be no buyers, resulting in absolute chaos. It would throw the country into a state of chaos, which would ruin production and cause unemployment. It is a completely impracticable proposal.

For a few moments I wish to deal with the expenses of directors and employers, and to go a little beyond what anybody else has said so far. I entirely agree with the Chancellor, although I want to develop the subject a little, and to read what the Chancellor said on Tuesday, namely: It is perfectly legitimate, of course, to deduct, by way of expenses, a reasonable expenditure upon necessary entertainment; but this right has been noticeably abused by extension to cover the, ordinary living expenses of many persons, who are either directors or employees of the companies. This must be brought to an end. Under the existing law, it falls upon the Inland Revenue authorities to prove that the payments are not necessary business expenses, and because of the difficulty of substantiating the case it often happens that these payments go untaxed. The majority opinion in industry condemns this practice, but there can be no doubt that many individuals are circumventing the law, and are succeeding in maintaining a lavish standard of living at the cost of the taxpayer." [OFFICIAL REPORT, 6th April, 1948; Vol. 449, c. 70.] He proposes that they are all to come under Schedule E. I agree with the Chancellor in what he is proposing, but I must confess surprise at hearing that the Inland Revenue had not the right to do what they wanted to do. In the company over which I have the privilege to preside there are many cases in which entertainment allowances are given, and, so far as I know, in every case the local inspector of taxes has asked for details, has investigated with great care whether or not the claims were proper, and, on the whole, I think has done it very fairly. These expenses will now come under Rule 9 of Schedule E, which is a very antiquated Rule, as the Committee will see when I read it out. If the holder of an office or employment of profit is necessarily obliged to incur and defray out of the emoluments thereof the expenses of travelling in the performance of the duties of the office or employment, or of keeping and maintaining a horse to enable him to perform the same, or otherwise to expend money wholly, exclusively, and necessarily in the performance of the said duties, there may be deducted from the emoluments to be assessed the expenses so necessarily incurred and defrayed. The wording of that Rule, under Schedule E, is much more narrow than Schedule D.

A case which went to the House of Lords, which will be of interest to hon. Members, is that of Ricketts v. Colquhoun, reported in Volume 10 of Tax Cases, No. 118, in 1925. That case concerned a London barrister, practising in the Law Courts, in the Strand, who was made Recorder of Portsmouth. He claimed to be allowed the cost of travelling to and from Portsmouth, and the hotel costs incurred while he was on his recordership. The case went to the House of Lords, and in my mind—I have read the judgments of the Lord Chancellor, Lord Cave, and Lord Blanesburgh—there is no doubt that the judges felt that the appeal should be allowed. It would have been allowed under Schedule D; and it would be allowed today under Rule 10, because I think the Treasury would give permission. However, it was not allowed under Rule 9 because of the words: in the performance of the duties of the office. Lord Cave said, in the course of his judgment: They are incurred as expenses, not in the course of performing those duties, but partly before he enters upon them and partly after he has fulfilled them. On that ground the appeal was dismissed. I ask the Chancellor to consider carefully whether Rule 9 should not be redrafted. Certainly the reference to the horse might be taken out.

In this regard a very apposite example is that Members of Parliament are allowed expenses for stopping in London or in their constituencies while on their duties, in just the same way as the recorder, about whom I have just spoken, was claiming for expenses incurred in stopping in a hotel at Portsmouth while on his legal duties. At the moment Members of Parliament, although they come under Schedule E, do not come under Rule 9, because a new Rule No. 10 was made permitting the Treasury to allow Members of Parliament to claim expenses for material work, stationery, cost of living, and so on. But is it right to make a rule for Members of Parliament that they can charge up living expenses when they are in London or in their constituencies, while various other people, such as recorders, have to go about the country on their business and yet be shut out from claiming allowances under Rule 9? I hope that this matter will be considered by the Chancellor.

Finally, I refer to what the Chancellor said about the Marshall Plan. We all appreciate, as he did, the wonderful gesture which has been made by our friends on the other side of the Atlantic. I hope that what is to come from Marshall Aid will not be wasted, as was the American Loan. Personally, I blame the former Chancellor of the Exchequer for putting us in the mess we are in today. Economically, we were in exactly the same position in December, 1945, when the American Loan was granted, as in August last, when the present Chancellor of the Exchequer was Minister for Economic Affairs and put out his appeal to the country. If the present Chancellor of the Exchequer, or any member of the Government had in December, 1945, called the attention of the country to the economic position and had called for an all-out effort, and the Loan had been used not just to keep us going by means of borrowed money for the past two years, but for capital expenditure, such as rebuilding and re-equipping our factories and rehabilitating our railways, which had become worn out as a result of the magnificent work they did during the war, I have no hesitation in saying that today we should not be talking about whether we shall get through this crisis, but we should already have got through it.

At the end of the war, our country had a prestige in the world such as it never had before. Everyone felt that we had done a grand job during the war. We had stood alone for a period and had fought from the beginning to the end, coming out victorious. No country could have borne a greater burden. But ever since, our reputation and prestige in the world has been falling. If, in 1945, we had then pulled ourselves together by re-establishing production and stopping up the gap between exports and imports, our prestige would have risen still further in the eyes of the people of the world. The Chancellor of the Exchequer is bearing a very heavy burden and he has done all that he can lately in the economic sphere to face the realities of the situation and put right the errors and omissions of the past. We can only hope that he will be successful, and that those behind him will loyally back him up.

5.35 p.m.

Photo of Miss Alice Bacon Miss Alice Bacon , Leeds North East

The most animated part of the speech of the hon. Member for Harwich (Sir S. Holmes) was when he called upon the workers to work harder. It is always very easy to exhort others to put in an extra effort, but millions of our people today are putting in a very great effort and are accomplishing magnificent achievements. The hon. Member also said that we had wasted the American Loan, and suggested that in December, 1945, we were in exactly the same position as in August last. The right hon. Member for the Scottish Universities (Sir J. Anderson) also said that the situation would have been much better today if it had been differently handled during the last 2½ years. I have recently re-read the Debate which took place in December, 1945, on the Censure Motion moved by the party opposite. I noticed that right hon. Gentlemen opposite were then saying that that was the time to put more goods into the shop windows, or, in other words, not to look to the future.

I do not suppose that any Budget proposals please everyone, but if we grumble at the 10 per cent. with which we disagree, forgetting the 90 per cent. with which we agree, the Chancellor of the Exchequer will realise that it is merely the British way of life and the privilege we seem to have. It always appears, in considering a Budget, that it is much better to receive than to give. It has been stressed throughout this Debate that these are not normal times. We cannot consider this Budget as we considered Budgets in normal times before the war; we have to judge how far it helps the economic situation and closes the gap between exports and imports. If the Chancellor of the Exchequer had had a surplus in the ordinary way, he could have reduced taxation or have allowed higher public expenditure, but on this occasion he has found it very difficult to do either of these things, because reducing taxation means more purchasing power when we have not the goods, and allowing a higher amount of public expenditure, means using manpower and materials of which we are in short supply. Therefore, any extra purchasing power which is made available must be for those who need it most and where we can definitely show that it helps production.

Judged by these standards, this Budget has a great deal to commend it, but there are certain things we must criticise. Taken as a whole, the Budget is a good and a very clever one. It is inevitable that the smaller items should tend to stand out and obliterate some of the larger ones. I am opposed, in particular, to the increased taxation on tobacco and beer. The taxes on tobacco and beer will be unpopular—they always are—but I wonder if they are really worth while on this occasion. The former Chancellor of the Exchequer said that putting up the price of a packet of 20 cigarettes by 1s. had not had the effect for which he had hoped. Can we expect, therefore, that the same effect will come about by increasing the price by 2d? I was pleased the Chancellor of the Exchequer said that he would enable old age pensioners to have an increased allowance to offset the increase in price of tobacco, but there are many old people who do not qualify for this particular concession, which applies only to those in receipt of State pensions. There are many old people not in receipt of State pensions who have to exist on a very small amount of money. If the Chancellor could extend this concession to them, I am sure that it would be very welcome.

It has also been said that beer, being a luxury, can afford extra taxation. It is a moot point whether beer is really a luxury and not a necessity for some people. I am certain that many miners, steel workers and agricultural labourers would consider that beer, if not an absolute necessity, was, at any rate, an aid to production. That being so, perhaps the Chancellor of the Exchequer may think again on this point. My right hon. Friend the Member for Bishop Auckland (Mr. Dalton) said yesterday that a penny a pint on beer did not matter very much; it was the poor quality of the beer and the shortage of beer which mattered most to beer drinkers. I remember that not long ago my right hon. Friend the Minister of Food justified one of his regulations by saying that, although it had not saved any food, it had been of psychological value. This was greeted with loud laughter from hon Members opposite; but this psychological point is very important. Ministers, to be good Ministers, must also be good psychologists. I think that the great disadvantage of the extra duty on beer and tobacco is that it has a psychological effect on the people from whom we are asking for greater production. There is a tendency for them to say, Well, again, it is the working man's beer and tobacco."

I welcome the alterations in the Purchase Tax. When we look into the alterations, I think we can agree that the benefits are far more substantial than they appear to be at first sight. They are certainly designed to help housewives a great deal. I think, however, that there ought to be minor adjustments. I am not very happy about the tax on children's non-utility clothing. Also, being a woman, I am not very happy about the tax on utility fully-fashioned stockings. I believe that the Chancellor could well afford to make concessions concerning those articles and perhaps tax a little more some of the luxuries and semi-luxuries.

There are some people who would like to see the Purchase Tax abolished altogether and all taxes put on income as direct taxes. One of the difficulties the Chancellor has had to face has been to determine the relative proportion of direct and indirect taxes. Many theorists in days gone by thought that direct taxation was the best way. I know that I and many Members on this side of the Committee were brought up to believe that direct taxes were right and indirect taxes were wrong. I have changed my mind about this because, contrary to all theories, men and women seem to prefer indirect taxes. They seem to like to get what they earn and to have an element of choice in the spending of it. In the past few years, this direct burden of Income Tax—the huge sum taken out of wages earned—has caused more grumbling and discontent and lessening of effort by the people than anything else. The major P.A.Y.E. operation at the end of the week has been to some people much worse than having an appendix out, because people wish to get what they earn and do what they like with their own money. They resent the unimaginative and unchallengeable lopping off of nearly half a week's salary by some soulless Shylock whom they seem to confuse with the Chancellor of the Exchequer, always eager for his pound of flesh.

But this must be borne in mind. First, direct taxation must still be the chief form of taxation on large incomes, and, secondly, there must be no indirect taxation of basic necessities, otherwise the old age pensioner and the low-income person will be the ones to suffer. Contrary to the beliefs of hon. Gentlemen opposite, I believe that one of the best features of the Government's policy today is that, although we have indirect taxation, we have also a system of indirect bonuses in the form of food subsidies and social services. The right hon. Member for Woodford (Mr. Churchill) has on many occasions said that his party believes in establishing a basic standard of life for everybody in the country. This Government has established that basic standard of life for everybody in the country, and I would like to see the food subsidies not only maintained but increased, so that the people in the lower income groups may have a better standard of living.

Yesterday, the noble Lord the Member for South Dorset (Viscount Hinchingbrooke) said that he thought this was not the time to bring in the National Health Service. We do not intend to economise on the health services. In fact, I do not see how it will help production in any way, or help to close the gap between imports and exports if we postpone the coming into operation of the National Health Service Act. The noble Lord also criticised money spent on propaganda abroad. I agree that every one wants to save a few dollars; and I maintain that the speeches which the noble Lord made on his recent visit to America were not particularly helpful to this country. Rather than economise on our health services and other services, I would say to the noble Lord that he could at least have saved the country the dollars he spent in going to America and doing this country such great harm.

I welcome particularly the Income Tax reliefs which have been given by the Chancellor of the Exchequer, and the raising of the exemption limit, which will help pensioners and others. The change in the married woman's allowance removes a grievance, but, quite frankly, I have some doubt as to whether or not it will achieve its objective of getting more married women out to work. The position at present is that a married woman who earns £4 a week receives £3 10s. at the end of her week's work. Under the new scheme, the married woman will receive £3 17s. This is a substantial help, but I am not at all sure that the few shillings extra will be the determining factor as 10 whether or not she will go out to work. There are many factors which a married woman has to take into account in considering whether she will leave her home to go into a factory. She has to consider her children and shopping difficulties.

A few weeks ago, in the Debate on the manpower situation, the hon. Lady the Member for South Aberdeen (Lady Grant) said that the Government were breaking up home life, and we were returning to the law of the jungle by encouraging married women to go out to work. There are more threats to home life than women going out to work. One of the greatest threats to home life is dire poverty, the kind of dire poverty that we had before the war and which will come again if we cannot get our essential raw materials from overseas. The women of Lancashire and Yorkshire, in the textile areas, have always had to go out to work to earn money to keep the home going, and the fact that today they are no longer in that position is a tribute to the way in which the Government have given full employment, with reasonable wages, to the men folk in those areas. While that lightens the burden for the women, they should be given shopping facilities and should have other provision made to encourage them to go out to work, as well as Income Tax reliefs.

One criticism of the Budget has been that sufficient has not been given to the lower income groups and a great deal has been given to the middle groups. That may be perfectly true, but we have also to remember that last year and the year before great concessions were given to the lower income groups. There comes a point, however, beyond which it is impossible to give further relief in regard to direct taxation. The Government can help the lower income groups considerably by ensuring that the standard of living is maintained and that the cost of living is kept low. As far as possible we must keep down transport charges and the price of clothes, food and rents. The Government can do more in this way than in any other direction to give something to the lower income groups.

The British have always responded when they have known what was at stake. The Government must put these measures across in a way that will strike a responsive chord in the minds and hearts of men and women. I am quite sure that if this is done we shall get the results for which we hope; the Budget will be accepted with minor adjustments and the people will go forward to still greater production.

5.52 p.m.

Photo of Mr Frederic Harris Mr Frederic Harris , Croydon North

In rising to make some small contribution to this Debate I crave the kindly indulgence of this Committee which, I understand, is always extended to those who have the honour to address it for the very first time. The main reason for my desire to participate in this Debate is my deep concern that individual enterprise is not just enabled, but very actively encouraged, to play a full part in our economic recovery. People do not yet realise that financial wizardry and all-embracing plans alone cannot restore prosperity. The governing factor, as I see it, is responsible human effort at all levels of our industrial life. To my mind, the only way in which industry can give its greatest service is by the encouragement of private enterprise. I am a product of private enterprise and I respectfully suggest, therefore, that I have some slight knowledge of the subject. I feel certain that the Committee will appreciate my deep conviction that this country must rely on individual enterprise to overcome many of our present difficulties.

Happily, I believe, the pioneering spirit which built our British trade and our Commonwealth is still with us. It only needs fair conditions under which to operate. I would remind the Committee that even if the Government carried out their full programme of nationalisation, and if the big industrial units in the private sector still remained, two-thirds of our total production and manufacture would still come from firms employing 250 employees or less. I would suggest to the Chancellor of the Exchequer that this section of our industrial economy should receive his very special attention and also his encouragement and his assistance. If individual enterprise were given the incentive and help which I shall be suggesting in a few moments we could go a long way towards extricating ourselves from our present difficulties and we should not need so much help from abroad.

I am somewhat encouraged to press home my suggestions because lately the Government have repeatedly turned to the private industrial sector for co-operation and for help in their difficulties; but I want to see this carried very much further. I hope the Government will seriously consider the advice shortly to be given to them by industries regarding the relaxation and operation of controls. I urge the Government to be bold and to throw over every control whose retention cannot be proved to the satisfaction of the industries concernd to be in the public interest.

So far, I have spoken only of production, but selling is equally important. No doubt the Government were right to set export targets as long as they were sensible and reasonable, but the Government far too slowly made trade agreements with other countries which would enable us to sell in those countries. Evidence of this was to be seen when the targets were set, for at that time there were some hundred countries to which we were either unable to export at all or to which we could export only with the very greatest difficulty. My view is that the Government function should end with the fixing of trade agreements and the arranging of efficient consular services. My own experience is that a successful export trade is entirely a personal matter, bound round good faith and confidence between busi- ness houses in this country and business houses abroad. No such spirit can possibly be created or maintained by the dictates of any Government Department.

I have always maintained that the present Government overstepped its rightful function of administration by entering into industry via nationalisation. By so doing they placed themselves in a position to use their very great powers—and, indeed, their financial resources—to compete with individual enterprise, instead of supporting and assisting it. Another unfair disadvantage to the private traders of today is undoubtedly the privileged taxation position which is granted to the Co-operative Societies.

Now that our export trade is meeting competition and we must produce at the very lowest prices it is imperative that we cease the inefficient, costly bulk buying method by civil servants who are completely unfitted, both by training and by outlook, in many respects for these tasks. I maintain that industrial experts who know the work should be given the task. If so, our country would benefit materially, both by lower prices and by better terms. At the present time much of our competitive bargaining is lost. The Government must realise that such buying is often closely related to selling. The closer the contact the more successful our trading is likely to be, and the Government must also realise that industry cannot carry on its functions at second or third hand in both directions and with a Government Department interposed at both ends of what must be a two way street.

I do not want anybody to misunderstand me as advocating a complete divorcement between industry and the Government. Lately, particularly over the last few years, there has been a need for a growing co-operation. However, cooperation is a very different matter indeed from control and nationalisation. I would appeal to the Government to go further in taking industry into their confidence and in seeking their help, for such would not be abused nor the assistance withheld. Specially do I want help and incentives for the smaller industrial units. I want the widest distribution of interests and responsibilities. I believe that the preservation of the number of smaller units would result in far better industrial relationships between managements and workers. Mere size and efficiency to my mind are not synonymous. I hope that this Government will wisely encourage the smaller manufacturers and smaller traders of this country, for soon they will realise that nationalisation as such, will destroy the spirit both of human endeavour and of enterprise.

I notice regretfully that in this Budget there is no encouragement whatsoever to private enterprise in the way of tax reduction or other incentives. I suggest that if the Chancellor of the Exchequer really wishes to sponsor the development of individual enterprise with all its resulting benefits to our community and to our country, he might consider the concession of half the standard rate of Income Tax on retained profits in small businesses up to £2,500 per annum. For whatever sacrifices there would be in revenue, such incentive would undoubtedly bring great results both in new products and in new developments upon which, I would remind the Committee, we must mainly rely to hold our own in world trade in future.

Finally, I wish that similar encouragement to that which I have desired to be given to individual enterprise at home should be extended equally to those with a spirit of enterprise in the development of our great Commonwealth. The idea of Government schemes in our colonial development are in themselves very good and very sound, but to my mind they can never replace the efforts and the achievements of the individual who, should he wish to share in the development of our great Empire and Commonwealth, should be given in all ways by the Government both the opportunity and the necessary assistance. Unless we preserve and en courage a spirit of pioneering enterprise by the individual both here and abroad, I fear the outlook for our Commonwealth is very black indeed. If, however, we enable any who can to recover a spirit of adventure and enterprise which made this, great country great, we can rapidly resume our rightful place in the commerce and in the counsels of the world.

Before I sit down may I express to the Committee my grateful thanks for their kind consideration in that trying moment of a new Member's life in which he makes his first attempt to place certain of his views before what I have heard described as the world's most critical audience.

6.6 p.m.

Photo of Sir Arthur Salter Sir Arthur Salter , Oxford University

It is my duty and my privilege—and in this case it is a very easy duty and a very pleasant privilege—to express appreciation of the speech to which we have just listened. The hon. Member for North Croydon (Mr. F. Harris) developed a forcible and persuasive argument based obviously not only on personal conviction but on direct personal experience. I am sure that we all enjoyed it, and we all hope that we shall often listen to him in the future. He will pardon me if I do not follow him in regard to that argument which for the most part dealt with our economic problems, because I am anxious to speak only of the Budget, and in particular of one of its aspects, namely, its relation to the inflationary pressure which is at present distorting our economy.

The Chancellor has recognised in very grave terms the existence of this inflationary pressure, and has described very lucidly the evil consequences that follow from it. He has also pointed out that serious as that pressure is, and has been throughout the last year, it has been relieved by the fact that in this last year we imported no less than £675 million worth of goods, which were not paid for by current production here. He pointed out, rightly, that to the extent to which this year we are reducing our overseas deficit this inflationary pressure, which we must counter in some way, will be increased. He said that, as against that extra pressure, there will be, of course, the counter-inflationary effect of the cuts in capital investment. I do not think myself that those cuts will be sufficient. We must also recognise that among those economies in capital investments some, though only some, are also included in the Budget expenditure, and are therefore a factor in the Budget surplus. We must be careful not to reckon their counter-inflationary effect twice over. If we take that into account, it seems to me doubtful whether, apart from any effect of this Budget, we shall be even countering by the other measures of the Government the increased inflationary pressure that we must expect for the reason the Chancellor gave. Certainly, that would be the best we could hope would happen as a result of these other measures.

It is, therefore, common ground on all sides of the Committee that this Budget ought to have a substantial counter-inflationary effect. On balance, I do not think it will have, for reasons that I propose to give. We listened earlier this afternoon to a very interesting speech from the hon. Member for Chesterfield (Mr. Benson). I do not agree with everything he said, but I agree with a great deal of it. I agreed with him when he analysed the causes of our present condition as coming mainly from the fact that people were demanding and securing constant increases in wages and other forms of spendable income without there being a corresponding increase in production. I agreed with him when he said that every item contributing to a surplus in the Budget does not necessarily have a counter-inflationary effect. He illustrated this by going through the various items which contribute to the surplus. Conversely, he pointed out that some that had an immediate inflationary effect were not in the last resort inflationary. I agree with him. I do not propose to follow him in all the items which he discussed, but propose only to consider the new proposals, whether for extra taxation or relief of taxation, in this Budget.

The first, and in some ways the most important, of these are the increases in the taxes on alcohol and tobacco which are designed to bring in £64½ million of extra revenue this year. These may be criticised from other points of view, as, for example, increasing a burden perhaps already too heavy. It is indeed a very amazing fact that people who drink and smoke, in their capacity as such, and quite apart from the taxation which they share with other citizens, are contributing to the extent of over £1,000 million of revenue; that is to say, Ready one-third of the total revenue of the State, a sum greater than that of the total revenue of the State 10 years ago, and a sum so great that if they suddenly ceased to drink and smoke, all other taxation would have to be increased by nearly 50 per cent. to compensate for the loss. That is an amazing figure.

I am sure that every Chancellor, even the most austere, and even if he were himself a teetotaller and a non-smoker, must congratulate himself and the Treasury upon the fact that, though he does not himself like cakes and ale, his fellow citizens are not so virtuous. The Chancellor must be very glad indeed that people are the victims of these vices to the extent to which they are. If he regards them as vices, he must reflect with Mandeville that very often private vices are public virtues. I remember hearing that an old French woman who made her living by selling tobacco was asked during the great depression how she was getting on. She said, "Not so badly, Sir; you see, I have the great good fortune to have my business founded upon the most stable of all foundations—one of man's principal vices." If that is true in her humble business, it is certainly true of the finance of this country.

From those points of view these increases might be criticised. But from the point of view from which I am now speaking, they are certainly counter-inflationary. I do not think that the increases contemplated are such as really to increase the danger of a demand for extra wages, and I think we may fairly say, on the credit side of the account, from the point of view from which I am now speaking, that these two increases are counter-inflationary to the full extent of the sum they are intended to produce, namely, just over £60 million. That is their advantage.

I was sorry, however, to hear the Chancellor say, as his predecessor did, that he wanted an increase in the rate of tax on tobacco in order to reduce the consumption. If indeed that were the effect to a substantial extent, I am sure that the country would lose rather than gain. When the previous Chancellor introduced his increased rate, it was estimated to mean a saving of £7,500,000 worth of dollars and a gain to the revenue of ten times that amount, £75 million, and he said he did it for the purpose of saving dollars. I remarked then that it was surely better to save £10 of the inflationary excess by adding that amount to the Revenue than to save £1 directly on the purchase of tobacco. That comment has been amply endorsed by the economists, including Sir Hubert Henderson, who have discussed the question since. It is equally true of the Chancellor's present advocacy of the increase in the Tobacco Duty. That is a minor matter, however; and as a counter-inflationary factor, there is no doubt whatever that this £64,500,000 can be counted on the credit side.

I come now to the Special Contribution, as it is called. It is indeed a real capital levy on all capital, with the exclusion of non-earning capital and, of course, with the exclusion also of small holdings of capital. With those exceptions, it is a full and real capital levy in the triple sense that it is additional to all ordinary taxation, that it is announced as once-for-all and that it will in fact be paid off in the form of capital realisation. That character of the tax is not in any way changed by the fact that, for obvious and indisputable administrative convenience, it will be assessed in relation to investment income and not upon a directly made valuation of capital itself. I do not believe that on balance this tax will be counter-inflationary to any extent whatever. I believe that, as far as counter-inflation is concerned, its effect will be negligible, nil or negative. The Economic Secretary said last night that he believed that on balance it would be counter-inflationary. He spoke with studied and obviously wise restraint in the choice of his words. I believe, on the contrary, speaking with equal restraint, that on balance it will not be in any degree whatever counter-inflationary. I would like to give my reasons for that.

Of course, it is true, as the hon. Member for Chesterfield said, that an item which contributes to a surplus in the Budget is not necessarily anti-inflationary. It depends upon the effect of the particular charge or relief of taxation on the conduct of the citizens in regard to spending, saving and incentive. This tax is obviously a disincentive, not so much to effort as to enterprise, and enterprise of the most productive and remunerative kind. As regards spending, let us look at the people who are actually affected. It falls on 125,000 people. What will be the typical reaction of a member of that category?

At this moment he has an expenditure which is appropriate to his present income, after allowance for taxation and whatever he may be contributing to savings. He is now faced with a sudden and severe demand which he is told by the Chancellor is once-for-all for this year. In those circumstances, is he going to change his establishment, dismiss his servants and alter the scale of his expenditure, or will he say, "Well, this is a once-for-all levy. I will deal with it this year by the obvious method. I must stop my contributions to savings, realise my past savings and sell such capital as I have in order to get over the year"? I do not say that will be the case to the extent of 100 per cent., but that is how the greatest part of the Special Contribution will be met, and to that extent it does nothing whatever to reduce inflation.

Now, instead of looking at the 125,000 actual victims who will pay this tax, let us look at the several millions who are contributing to the savings campaign. What will be the effect upon them? I am afraid that they will have less regard to the present Chancellor's promise that this is a once-for-all contribution than to the former Chancellor's menace as to what will happen later, the menace of a repetition, a continuance, an increase in range and severity. The effect upon the millions whose savings may in future be affected will be serious. I cannot imagine anyone thinking that the total amount of reduction of spending power in this next year on the part of those who are directly affected by this will be as great as the total effect of the discouragement of savings from all other people. If that is so, then the net effect of this tax is inflationary and not counter-inflationary.

It has, of course, particularly if it is repeated and continued, many other serious results. In the first place, it makes a distinction—and in view of the overwhelming administrative arguments it is bound to do so—against income-earning capital and in favour of dead, unproductive capital. It therefore adds one more handicap to enterprise which is prepared to risk itself in a productive venture. It handicaps precisely the pioneering, productive and most valuable element in the whole of our system. That is the most serious further disadvantage of this tax.

What is the reason for it? It adds £50 million to the Budget surplus of this year and, in a full year, £105 million. But what is the purpose of a Budget surplus? There is only one justification, a very sufficient one, for a large Budget surplus; it is that it should act as a counter-inflationary measure. If, however, this contribution of £50 million or ultimately £105 million, does not serve that purpose, as I argued, then it has no justification of that kind, and all the other damage is left as a net result without return or reward. That, I believe, will be the net effect of this proposal. I can only conclude regretfully and, having regard to the character of the present Chancellor, with great surprise, that the purpose of this tax on the whole is not counter-inflationary but political.

So much for the two main items which are designed to be counter-inflationary. Coming to the other items, we have a series of tax remissions—Purchase Tax, Entertainments Duty, concessions to married women in industry and, of course, the Income Tax reliefs. I do not say they are to be condemned for this reason, but they are all in their direct effect inflationary. It may be that they will to some extent serve as an incentive, and the extent to which they increase output is something that reduces inflation from the other side. But looking at the actual character of these reliefs and concessions, does anyone really think that they will this year reduce the direct and immediate inflationary effect, which is of the order of over £100 million, to the point at which the net inflationary effect will be less than the £60 million-odd of counter-inflationary force from the alcohol and tobacco taxes? I should think it is extremely unlikely.

Therefore, I think it is right to say that on balance, as I think the hon. Member for Chesterfield said, this Budget, if anti-inflationary at all, is only so to a very limited extent. I agree with him in believing that the main cure for inflation must come from outside actual Budget measures. But I also think that the Budget must play its part, and that this Budget could have made a substantial contribution to counteracting inflation. I do not think it will do so, and I agree with the hon. Member in anticipating that, so far from a reduction in the present inflationary position, all the measures that the Government have taken so far leave us with the prospect that in this next year inflation will be greater rather than less. That is a terrifying and indeed a serious position. I think the main reason this Budget does not help substantially in that situation is that the Chancellor has relied so largely upon one very big tax, the capital levy, which in net result does not have that effect at all.

Let us put the whole of this problem in the proper perspective by remembering again that the very fact that we are successful, as we must hope we shall be, in reducing our overseas deficit will in itself be increasing our domestic inflationary pressure, and that therefore we want every possible means to counteract that force. We have nothing in sight at present which will, at the best, do more than arrest the inflation somewhere where it is at present. I agree with the hon. Member for Chesterfield that we are not doing even that, and I deeply regret that on the counter-inflationary side of these proposals, the Chancellor should have included as his main item a tax which will not help to secure this result.

6.28 p.m.

Photo of Mrs Barbara Castle Mrs Barbara Castle , Blackburn

The interesting feature of this Debate has been the restrictive scale on which the Opposition attack has developed. After all, we are discussing the whole economic and financial situation of this country. We are taking a comprehensive annual survey, more comprehensive than anything we have yet attempted of a similar kind, and yet we have had nothing but minor criticisms advanced against the Budget which has been introduced. I think we can take it as a remarkable tribute to the astonishing internal stability of this country that on this occasion, giving the opportunity it does to hon. Members opposite, the criticisms we have heard today and yesterday have been criticisms of detail.

Even the right hon. Member for the Scottish Universities (Sir J. Anderson), the giant of the Opposition in today's Debate, had to pay a tribute to the Budget and to concentrate merely on minor details of criticism. Characteristically enough, of course, we heard from him of the disastrous effects of the capital levy and the favourable effects of an abolition of the food subsidies, but that was the main tenor of his attack. Therefore, to cover his nakedness, he concluded his speech with a rather discursive and vague lecture to the Government and to hon. Members on this side on the necessity of looking facts in the face, and shaking his head over the present plight of this country. The only facts which a Conservative is prepared to look in the face are those which are unfavourable to a Labour Government. I suggest this afternoon that at this stage we should ask the country to look at facts which so far have not been brought into the limelight, and to hearten ourselves and take pride in the present remarkable situation of the country and of the advances we have managed to achieve.

We were all very impressed with the sincere and passionate plea made by my hon. Friend the Member for Chesterfield (Mr. Benson) and we all felt a response to his sincerity. I certainly agreed with him when he said that the main problem in dealing with inflation and in securing a greater production drive is psychological. But what is the type of psychology we ought to be adopting in this situation? What is the sort of note we should be striking which is likely to get the best response from our people in order to enable the country to win through? It is perfectly true that we are in great difficulties and facing serious dangers, but I think the psychological note we ought to be striking is that we have made great economic progress.

We should be striking a note of hope and encouragement, because we are dealing with ordinary human beings who are not living, as we are, in a world of White Papers, Blue Books and statistics, but in human hopes and fears. If we go to them and say, "Woe, woe, disaster, things are very grim, the prospects are very black," they are far more likely to say, "To blazes with it, we will go to the dog races." If we go to them and say, "We are making progress, steady and encouraging advances. It is not the whole road by any means, but we are on the right road, and can see the way out. Give a little more, give us that extra effort, and there will be success"—that I believe is the only psychological appeal to produce the sort of response we want to get.

I suggest to the Committee that some very remarkable evidence has quite recently been published, which gives a factual basis on which to make this approach to the people. I have spent a good deal of time studying with care the report of the United Nations Economic Commission for Europe, published a couple of days ago. That Report is a useful complement to our own national Economic Survey and it enables us to put our problems, difficulties and progress in the context of the whole European struggle. If we do that we find proof that not only has this country made a remarkable recovery compared with the other countries of Europe, suffering the same sort of difficulties and facing the same sort of hardships, not only have we made a far greater comparative recovery, but one which offers hope of real and absolute success in the long run. If we go through the tables of that Report we find item after item showing that this country is on the right lines in its economic policy, and in the Report there is a perfect justification for the economic policy this Government have pursued since they came into Office, and of the financial policy of the present Chancellor of the Exchequer and his predecessor.

Photo of Sir Arthur Salter Sir Arthur Salter , Oxford University

I have also read that Report. The hon. Lady does not forget the emphasis placed on inflation and the extent of our overseas deficit, which means the extent to which we have been living on other people's money in the last year?

Photo of Mrs Barbara Castle Mrs Barbara Castle , Blackburn

I was just coming to that, and I am glad that the right hon. Gentleman reminded me, because it is a point I wanted to quote as proving my claim that the financial policy of this country has been on successful lines in combating inflation. Whether we look at comparative figures for industrial or agricultural production in postwar Europe, or the export drive of this country, or our success in checking inflation and in controlling prices in this country, we find that, whereas in Europe a variety of different policies have been adopted for the solution of the common problem, taken by and large our policy has been the most successful.

Photo of Mrs Barbara Castle Mrs Barbara Castle , Blackburn

Yes, even including Belgium. I am glad the right hon. Gentleman mentioned Belgium, because I was going to quote the figures for Belgium given in the Report.

Let us take first the level of industrial production in Europe in 15 countries which were responsible for 77 per cent. of industrial production in 1938. Taking 1938 as 100, the level of industrial production for the whole of those 15 countries reached by the third quarter of 1947 was 99. On the other hand, Great Britain herself reached 109, and Belgium, which has been quoted frequently in this House and in the Conservative Press as a shining light of recovery, reached 102. Sweden, another country which has been quoted as making miraculous recovery, has a figure of 103, and poor unhappy France has a figure of 96. France is a country in which controls have broken down and food subsidies have never been brought to the rescue of the industrial worker. I was in France only a short time ago and I was told by the manager of a very large motor works that his workpeople had to spend 80 per cent. of their wages on the necessary minimum of food. In that country the industrial recovery has been far below that of this country.

If we take agricultural production, in which many other European countries have always been ahead of Great Britain, and in which they have specialised, we find that for 1946–47, 23 countries who between them were responsible for 90 per cent. of prewar European production are listed, the same index figure of 100 for prewar is taken. The United Kingdom has a figure of 106, compared with Belgium 63, Sweden 103, and France 73.

Photo of Hon. Lancelot Joynson-Hicks Hon. Lancelot Joynson-Hicks , Chichester

Has the hon. Lady the comparative figures for agricultural production in this country in 1944–45?

Photo of Mrs Barbara Castle Mrs Barbara Castle , Blackburn

No, it was not given in this particular table. I believe I am correct in saying that it was not in the Report, and that it only gives the latest available figure which, after all, I should have thought was of most interest to us in this situation. We are concerned with what we are eating now and what we are producing now.

If we take those countries as a whole, the total for the 23 countries, excluding Germany, was 76, compared with the index figure of 100 for 1938, and compared with Britain's figure of 106. Britain has found its way to a solution which Europe as a whole must adopt, if it is to survive, and the Report implies that we have found our way ahead of others to a concentration in this difficult period on the building up of our export trade and have shown a most remarkable national discipline, which has not been equalled anywhere else in Europe. If one takes the ratio of imports to exports in the first nine months of 1947 compared with 1938, taking the figure for that year as too, one finds that the rest of Europe, excluding Germany, had built their imports up to above prewar level—to 107, and that their exports were still below the prewar level, standing at 68. Britain's imports, on the other hand, stood at 77 per cent. of her prewar figure and her exports at 106.

That has been done by the Government of a country which has been subject to abuse of the most frivolous and fractious kind, abuse which has tried to tell the people of this country that we frittered away the American Loan, that we lived hand to mouth in reckless gaiety. This has been done in the teeth of Opposition exploitation of every byproduct of unpopularity arising from this policy. It has only been done as a result of remarkable national discipline. There has been deliberate party exploitation at a time when those concerned in that exploitation knew that there was only one remedy. Europe has to follow in our footsteps, has to have the courage we have had and to do what Britain has done. It is significant, too, to note that if one takes the ratio of exports to the commodities available, here again Britain is in the lead. Dealing with the period from July, 1946, to June, 1947, the Report says that the United Kingdom is the only one of the countries listed which had succeeded, during the period covered, in restoring exports to a level commensurate with the pre-war relationship to the total volume of the commodities available. Of course that has not been done without some hardship at home. We have had to say to our people, "put up with short-term hardship in order to get long-term recovery." But even though there has been hardship—and none of us on this side of the Committee would underestimate it—none the less, as a result of the careful husbandry of the finances of this country and the planning of its production, we have managed to protect our people from the most dreadful of the hardships and insecurities which are bedevilling Europe today.

If hon. Members do not believe me, let them turn again to the Report. One of the measures of that hardship is the level of prices. When we talk today in this House of inflation, as we have a right to talk and must talk, do not let us run away with the position. If we look at our performance in maintaining stability and compare it with what is happening in other countries in Europe, we find that the ogre of inflation is not half the nightmare here which it is to many a housewife in many other European countries.

Photo of Sir Alexander Spearman Sir Alexander Spearman , Scarborough and Whitby

In spite of the hon. Lady's jubilation, would she not agree that our difficulties today are due not only to our not producing enough but to the fact that we are producing the wrong things? We are not producing the necessities which our people want and the exports which the hard currency countries require.

Photo of Mrs Barbara Castle Mrs Barbara Castle , Blackburn

As a matter of fact we are an outstanding example of a country which has avoided an undue and wasteful concentration on luxuries. I am not saying that we are perfect; I am not saying that we have not to do more; that is cot my plea. I say that we have every right to take heart from what we have done, and I say that this Report and its evidence is proof that we are now on the right lines, and that we must continue on those lines along which we have started.

I am not going to be sidetracked on the question of prices in which the housewife is so interested. I think that the housewife should know what the Report says. It states: With the exception of a few countries, among which the United Kingdom is conspicuous, prices in all European countries have risen faster than those of the United States. … In fact, throughout the whole of this Report we will find that we are conspicuous for our success. We are envied for our internal stability. When I am asked what is the secret of that success and that internal stability, I say it depends on two things, the Government's courage and the people's self-discipline. We have had both.

I wish very briefly to analyse for a moment what is the basis of this self-discipline which exists in this country to a most remarkable extent. Its most outstanding examples are to be found among the organised workers of this country. The ordinary organised worker in Britain today has a power of protest and a power of resistance which have never been used. There is a remarkable bargaining power among the organised workers which they have voluntarily withheld from bringing into effect. Every time this House dis- cusses economic affairs it should, if it is really "facing up to the facts" of the situation, pay tribute to that remarkable self-discipline among the organised workers. Why have they never exploited this advantage to the extent which they could have done, taking all the factors into acount? Because they are aware that slowly but surely, with some mistakes and setbacks, but none the less inevitably, the Government have been building up Labour's new deal for the ordinary people of this country.

I want to suggest to the Chancellor that that new deal has two important elements which have been so successful in the past that it would be disastrous for us to abandon them now. The first is that—and we on this side of the Committee face this quite openly—when we came into office we believed that one of the purposes of Government financial and economic control should he deliberately to increase the ordinary worker's relative share of the national wealth, because originally it was far too low and reflected far too inadequately the importance of his—and her—contribution to the production of the national wealth. The second factor in our new deal has been the recognition that we must build up for every person in this country a social minimum, a guaranteed standard of security covering their every day and inescapable requirements, whether rent, food, clothing, housing, education, etc. We have pursued that policy through the social services on the one hand, and through our financial policy on the other.

I suggest that hon. Members should turn for a moment to the White Paper on the National Income, which will show the full justification for the three main factors in the Chancellor's financial policy today. Let hon. Members turn to Table 4 on page 8, and work out, as I have tried to do, how we are distributing the private income of this country. After the payment of taxes, which is the relevant fact, they will find that whereas in 1938 the share of wages was 37 per cent., by 1947 it had gone up to 42 per cent. a justifiable increase in the share of the national wealth. On the other hand, salaries had dropped from 24 per cent. to 21 per cent. but—and here certain aspects of the Budget legitimately come into play—profits and interest had also risen from 34 to 40 per cent.

Photo of Mr George Drayson Mr George Drayson , Skipton

What is the proportion of distributed profits?

Photo of Mrs Barbara Castle Mrs Barbara Castle , Blackburn

I am talking only about distributed profits. It is the share of the total private income available in private hands after the payment of taxes. That is, after all the Chancellor's depredations upon profits have been made, there is still 40 per cent. of the national income going to profits and interest as compared with 34 per cent. before the war. I suggest that is the justification for the three main planks of the Chancellor's financial policy today, which are, in the first place, the continued move towards increasing the share of the productive worker in the national income; in the second place, giving some reliefs to the hard pressed lower and middle class salary groups—I think he was correct to do that and the table I have quoted shows it was time that they had those reliefs; and thirdly, making profits contribute more than they have in the past.

When hon. Members opposite say that to put any further burden on profits is taking away incentive from industry I would remind them that there is a remarkably small risk element in profit-making today. A large proportion of the profit-making is cut and dried and handed to the profit maker on a plate. I do not think that that is likely to result in any slackening of our productive effort. At this point I thank the Chancellor most cordially for his reliefs for married women. I would ask the married women of Lancashire to pay attention to them and realise that here is a practical gesture and a demonstration by the Chancellor, who is saying to them, "If you will come back and lend a hand in this productive drive we will see that you reap a fuller reward than you have done in the past."

I regret that the Chancellor considered it necessary to tax the attractiveness of women's ankles in order to enable them to afford to buy a hat—

Photo of Mr Cecil Poole Mr Cecil Poole , Lichfield

It is the upward look.

Photo of Mrs Barbara Castle Mrs Barbara Castle , Blackburn

I can only assume that it is a deliberate attempt to distract the attention of hon. Members to more lofty things.

Photo of Mr Ralph Assheton Mr Ralph Assheton , City of London

I would ask the hon. Lady if she has not made a wrong calculation of these figures? If she looks at the bottom of page 8, Table 5, after taxes on income, the interest, profits and rent were lower in 1947 than in 1938. It was only before the tax on income that they were higher.

Photo of Mrs Barbara Castle Mrs Barbara Castle , Blackburn

I do not think so, but anyway—

Photo of Mr Ralph Assheton Mr Ralph Assheton , City of London

It is so. The figures are there.

Photo of Mrs Barbara Castle Mrs Barbara Castle , Blackburn

If I have made an error I am sorry.

One criticism I do want to make of the Chancellor; I wish to join with others who spoke earlier, in saying that I think he has made an error in offsetting the workers' gains through this Budget by an increased levy on beer and tobacco. I do not say that because I am trying to curry any favour with my constituents, but on the basis of principle. I am sure that hon. Members opposite will fully agree. If the Chancellor is attempting, and I think he is attempting, to get a productive response through this Budget, then these are pinpricks which will cause great reaction and resentment and resistance among the workers, out of all proportion to the amount which may be contributed to the revenue. The second point of principle is that these levies on beer and tobacco penalise the lowest sections of income which have already in the past been relieved of Income Tax, and, therefore, do not stand to benefit from the increases in the earned income allowance.

The Chancellor may say that in this situation we have all to make our contribution. Is he not forgetting that these lower income groups, along with others, have since the last Budget already made an additional contribution through the withdrawal of £33 million worth of subsidies on leather, cotton and wool? Is he not forgetting also, that in the future they will perhaps make increased contributions through the decision to stabilise food subsidies rather than allow them to follow the potential rise in food prices? The increase in utility prices for footwear and clothing have already caused considerable consternation among this class of the community who are feeling the pinch very much at the moment. After all, subsidy is a tax in reverse and if a subsidy is withdrawn then, in effect, a tax is imposed. I maintain that this section of the community, the main proportion of whose income has to be devoted to essentials, are feeling the increased taxation through the withdrawal of the subsidy.

I would suggest that to tax tobacco still further on the grounds that we really ought not to be smoking dollars is failing to face up to the fairest way in which we can share out the dollar shortage. It comes at a time when we are making concessions on all the other items of dollar expenditure, such as films, petrol and foreign travel. I know that the foreign travel concessions are not directly a question of dollars, but the ban on foreign travel was one of the hardships imposed at the time of the foreign exchange crisis. If necessary, let us have a points system for dollar expenditure so that those who have petrol do not have tobacco or do not go to the cinema. But to just keep piling a tax on tobacco, on the ground that people ought not to smoke dollars, is a "hit or miss" and, in my view, an unfair way of meeting the situation.

We are strongly behind the Chancellor on the broad lines of his financial policy, and I ask him to have the courage to go forward with that policy, but I would suggest that the Marshall Plan has now come to relieve us of the worst of the hardships that we feared, and I ask whether we could not use the Marshall Plan to enable the workers to share some of the results of their increased productive effort during the coming months. Cannot we recognise that we should at each stage in our productive drive give what we can in the way of concrete rewards? When the situation was bad, as it was last summer, and it was a question of scraping the bottom of the barrel for every dollar, that was a different matter. But now the Marshall Plan has given us some elbow room and I would say: Let us remember that it is human beings to whom we are appealing and that we should at every stage give them some reward for their magnificent and patriotic response.

6.57 p.m.

Photo of Lieut-Commander Joseph Braithwaite Lieut-Commander Joseph Braithwaite , Holderness

The realism of the observations submitted to the Committee by the hon. Member for Blackburn (Mrs. Castle) is, I think, best measured by the fact that she went to the length of referring to the right hon. and sartorially conscientious Member for the Scottish Universities (Sir J. Anderson) as "naked"—not so naked, however, as the figures which she saw fit to deploy to us. Rarely can an hon. Member taking part in a serious Debate in this House have been shot down in flames so effectively as the hon. Lady who has just addressed the Committee. I do not know what satisfaction her speech will give to her constituents, but there is no doubt about its embarrassment to the Chancellor of the Exchequer

Photo of Mr Frank Beswick Mr Frank Beswick , Uxbridge

Mr. Beswick (Uxbridge) rose

Photo of Lieut-Commander Joseph Braithwaite Lieut-Commander Joseph Braithwaite , Holderness

No, it is too early for an interruption.

Photo of Sir Herbert Butcher Sir Herbert Butcher , Holland with Boston

The hon. and gallant Member does not give way?

Photo of Lieut-Commander Joseph Braithwaite Lieut-Commander Joseph Braithwaite , Holderness

No, I do not give way, Mr. Butcher. The hon. Member will perhaps catch your eye later and may make his observation then—

Photo of Mr Frank Beswick Mr Frank Beswick , Uxbridge

I merely wish to join in the shooting competition.

Photo of Lieut-Commander Joseph Braithwaite Lieut-Commander Joseph Braithwaite , Holderness

In the night watches I was searching round for a word suitable to describe the present Budget, and after much cogitation I came to the conclusion that one cannot improve upon the adjective "crippling." It seems to me to be both descriptive and euphonious. The long eloquent discourse to which we listened on Tuesday deserves, I think, the caption familiar in the cinema world, "For Whom The Bell Tolls." The speeches which have followed from both sides of the Committee have struck a lugubrious note throughout these two days. Indeed, only two rays of light have been shed upon our discussions, first, by the Chancellor himself, and again by the hon. Lady in her concluding remarks a moment ago. From this side of the Committee it is indeed significant to observe the sigh of relief on the benches opposite at the launching of the capitalist lifeboat on the other side of the Atlantic. The Socialist Government after nearly three years of office, have placed themselves frankly and unashamedly in the arms of those whom the hon. Member for Nelson and Colne (Mr. S. Silverman) so gratefully described as "shabby moneylenders."

But the speech of the Chancellor, lengthy and eloquent as it was, by-passed all the main economic problems with which the country is faced. Before passing to the main proposals of the Budget, I offer a few remarks to the Committee on two other matters. First, I refer to the extremely harsh treatment of an honoured war-scarred veteran in the fiscal world—whisky. I am sorry that the Chancellor is not here, but I have no doubt that the Economic Secretary to the Treasury will be fully capable of following a very simple argument not on the merits of this particular libation, because I see upon me the stern eye of the hon. Member for West Ealing (Mr. J. Hudson) who is already taking notes on the subject, but on the mere principle of differential taxation. A Purchase Tax is imposed on other luxuries—whisky is a luxury—such as diamonds, furs and the like, of 100 per cent. The cost of a bottle of whisky is now to be 33s. 4d. of which 8s. 8d. represents all costs of production, the buying of cereals, distillation and everything else. I have been endeavouring to make a calculation and I think it is reasonably accurate to say that in the case of whisky that approximates to a Purchase Tax of 280 per cent. The Minister will be the first to acknowledge that, from the point of view of the consumer, an Excise Duty and a Purchase Tax come to one and the same thing so far as the pocket is concerned.

Here is the only commodity which could be shipped for dollars during the war submitted to this entirely differential, heavy penalty at the cost of the home consumer, because the Economic Secretary will be familiar with the recent arrangement by which there is to be a smaller amount available in the home market and a greater amount earmarked for export. While we agree that luxuries have to be taxed at this time, I want to ask why it is no per cent. sinful for the hon. Lady the Member for Blackburn to appear in the precincts of the Palace of Westminster wearing a fur coat and 280 per cent. sinful for us to refresh ourselves in the Smoking Room by buying whisky.

Photo of Sir Arthur Salter Sir Arthur Salter , Oxford University

And nearer 1,000 per cent. on tobacco.

Photo of Lieut-Commander Joseph Braithwaite Lieut-Commander Joseph Braithwaite , Holderness

I will not develop that. If that is the case, perhaps the Chancellor will give consideration to that point also.

I want to say a few words upon a subject which has received no attention so far in this Debate—and I have heard nearly all the speeches. I refer to Postwar Credits. At the Christmas Adjournment there was a short Debate on this subject, initiated by the hon. Member for Attercliffe (Mr. J. Hynd), in which I participated. The hon. Gentleman submitted that the time had come when Post-war Credits should be obtainable on grounds other than that of age and that there ought to be some test of hardship. I have been looking up the Debate which took place when Post-war Credits were introduced in 1941. I am fortunate in having below me the right hon. and gallant Gentleman the Member for Gainsborough (Captain Crookshank) who was Financial Secretary to the Treasury at that time. I want first to inflict upon the Committee a short repetition of some remarks which I made on that occasion seven years ago tomorrow—and may I add that I quote myself with the heartiest approval? This is what I said: As it is, the taxpayer is offered, what I am bound to regard with some suspicion—I think it is largely fictitious—what is called a nest egg. I read about this in yesterday's Debate, and I noticed the right hon. Gentleman the Member for East Edinburgh"— that is, Lord Pethick-Lawrence, who has now left us for another placewas beginning to take an interest in that nest egg. The scheme will form the foundation of a capital levy. It will be subject to taxation, and in any case the Treasury will probably say to the taxpayer, 'You now have the shell left which we shall set off against your Income Tax liability in the coming year.' Anyone who thinks he is going to collect hard cash for this nest egg after the war is over is, I believe, living in a fool's paradise."—[OFFICIAL REPORT, 9th April, 1941; Vol. 37o, c. 1624.] The gift of prophecy does not often descend upon me, but I think it did then. The late Sir Kingsley Wood, when he replied, said: The credits provided for in the Budget proposals will in effect form a relatively small element in the total situation, but will mean that the power of participating in the postwar expenditure will be more fairly distributed than might otherwise be the case. For instance, Post-war Credits to individuals will go in the main to the small taxpayers, that is to say, to the very people who might be expected to need them most in the post-war conditions."—[OFFICIAL REPORT, 9th April, 1941; Vol. 370, c. 1662.]. That makes it perfectly clear that the National Coalition, in which so many hon. Gentlemen opposite participated, including the present Chancellor of the Exchequer, clearly envisaged these Postwar Credits being released during this period when men were coming out of the Services and when businesses were being rehabilitated. Of course, the situation has altered to a certain extent. We must be frank about that. The Coalition Government could not have foreseen the profligacy of the last two and a half years. They could not have foreseen that this £800 million would be whistled down the wind, that American dollars would be spent on chewing gum and marbles. They could not have foreseen that situation.

I want to make a plea to the Government—while, of course, the whole of these credits cannot now be released—to reconsider the method and the machinery by which they are paid. Should age really be the only criterion? Is it right that the richest in the land, the men with vast incomes—the names of Lord Nuffield and the Prime Minister spring immediately to mind; men of that type—now in the seventh decade of their life should draw their Postwar Credits while those who encounter difficulties and hardship, and who are much further behind on the road of life, have to wait until they reach the age of 65 or 60? At least, cannot this be done? Cannot the beneficiaries of those who die within the qualifying ages—men of 65 and women of 60—draw the money? Is it right that the Government should hold on to this money? It certainly would not be right in law in any other walk of life that trustees should refuse to pay out to beneficiaries. Cannot that be considered, or if that, too, is impossible, will the Government take a leaf out of their own book and pay interest on these sums until such time as they are in a position to pay out?

I pass from that topic to the proposal in this Budget which has aroused the greatest interest and I think the greatest criticism, not only here but outside. I refer to the once-and-for-all Special Contribution. Last night, when replying to the Debate in eloquent language, the Economic Secretary to the Treasury expressed surprise that there should be scepticism in any part of the Committee as to the temporary nature of this particular impost. Had the hon. Gentleman sat in the House as long as some of us, he would be familiar with many of these temporary imposts.

Within the lifetime of those of us here now, the Entertainments Duty in World War No. 1 was a temporary measure, the National Defence Contribution of Mr. Neville Chamberlain, now the Profits Tax, was to be for three years only, the Purchase Tax introduced by Lord Simon was to be a war-time measure, and, although this is not within the memory of those who sit here now, we were reminded yesterday by my noble Friend the Member for South Dorset (Viscount Hinchingbrooke) that Income Tax was a purely temporary expedient to pay for the Napoleonic Wars. All these temporary expedients are still going strong in 1948. So the Committee is perfectly entitled to express some doubt as to the temporary nature of this particular impost.

May I now turn to its merits and demerits, and may I say at once that I have no financial interest in this matter? I am not one of the 125,000 upon whom this blow will fall. I shall escape scot-free. I will confine myself to a discussion of the principles involved. A few weeks ago—I was absent from London at the time—I read in the Press of an undignified incident in this honourable House, when my right hon. Friend the Member for Woodford (Mr. Churchill), in making an intervention on the Representation of the People Bill, said that any Parliament was free to repudiate the legislation of its predecessor, and might even go to the length of repudiating Savings Certificates, whereupon he appears to have been subjected from the benches opposite to the treatment meted out by a small but unsporting minority of those who attend football matches to a successful player on the visiting side. He was, in fact, booed. In making those observations, once again my right hon. Friend was prophetic. What was said during those War Weapons Weeks, Warship Weeks, Wings for Victory Weeks and all the rest has since been repeated by right hon. Gentlemen opposite. I remember the Minister of Defence making a most eloquent speech when I had to march past with a naval party and give him a salute of a more deferential nature than when I defeated him in 1931. This is what he said: Trust the Government. You are investing in British Consolidated Futures. You will get your money back. Now it is going to be taken away. Let there be no mistake about it. Savings Certificates will have to be encashed and disinvested to meet this Special Contribution.

May I give an example from my personal acquaintance? A friend of mine was grievously crippled while fighting in France in the first world war. He was one of three brothers. On his return home, his father, who was well blessed with this world's goods, decided to concentrate his wealth upon this disabled son, leaving the two able-bodied members of the family to fend for themselves. The crippled son had four children, and the father left him almost the whole of a very considerable and comfortable estate. When the second world war came, this man was anxious to help his country again, though unable to fight or be an air raid warden, and even being exempted from firewatching on account of his physical condition. But there was something he could do. He became the secretary of the Savings Campaign in his area, which surpassed every target in those special weeks. He is now being rewarded by a gracious and grateful Socialist Government for his patriotic efforts by having the severest blow in his life struck at him by this particular impost.

I will tell the Financial Secretary why, because I have more faith in a softening of the heart in his case than in that of the Economic Secretary to the Treasury. This man's income comes almost entirely from rents, which are brought into this Special Contribution. What is he to do to meet the Chancellor's demand? Sell part of a house or one of his properties? It might be requisitioned to house a food inspector, or an official dealing with petrol allocation, or something like that. To meet the right hon. Gentleman's demand, he must sell gilt-edged securities and cash Savings Certificates. I know that there is a limit to the number which can be held. Or—which is most probable of all—he can go to the bank and borrow that money, and the moment he does that he is engaging in an inflationary operation. There must be hundreds of cases not unlike that one up and down the land. This Special Contribution shows the same policy as the tax on undistributed profits. The other day, I met the secretary of a very large manufacturing concern with a fine export trade, and he told me that the Chancellor of the Exchequer has taken £100,000 out of undistributed profits. They also have borrowed from the bank to start a new contract.

The Chancellor, in passing, saw fit to pay a tribute to the Co-operative societies for reducing their prices. May I endorse a remark which fell from the hon. Gentleman the Member for North Croydon (Mr. F. Harris), who made such an agreeable and successful maiden speech earlier today? When the Co-operative societies have had a preferential basis in regard to the Profits Tax, they should not be reducing their prices now. Last April when the 1947 Budget was introduced, was the time when they should have reduced their prices. What a contribution to national prosperity. What a parade of virtue after getting away with the swag for 12 months.

More in sorrow than in anger, I return to a topic to which I have referred on every possible occasion. There is a much simpler method of dealing with an inflationary situation than all these irritating taxes and these imposts which throw so Davy a burden upon the only men who can save this country and get us through—the men who are prepared to take risks and show enterprise.

Photo of Lieut-Commander Joseph Braithwaite Lieut-Commander Joseph Braithwaite , Holderness

Coal may be obsolete a decade hence when atomic energy is developed and the hon. Member for King's Norton (Mr. Blackburn) is Prime Minister. The hon. and gallant Member for North Portsmouth (Major Bruce) can give us his experiences at the coalface a little later. I have made this point before and I do so for the fourth time, and I shall continue to make it as long as my constituents do me the honour of sending me here.

Why not grasp the nettle by calling in the Treasury notes? Why not collect these millions of loose money running about the country in black and grey and all different kinds of coloured markets? Why not say that after 1st May—here is an appropriate day; the day of the Labour parades and the date, we are told, of the next General Election—a happy day for us—why not say as from 1st May existing Treasury notes will no longer be legal tender? All those people who have been dodging the column, all those rats who have been letting us carry the burden, will either have to surrender the notes or, what is more likely to be the case—what has happened in France where they have had the courage to try it—will not surrender them at all for fear that their machinations will be discovered. It seems to me that the Government will win either way and, although I have never even had a reply to the suggestion in four Budgets, I am going to try once again tonight.

This Debate has ranged widely around this word "inflation." Inflation has become such a household word that many people no longer grasp its meaning. Even the Chancellor seems to think it has some connection with soda water. He has been harshly treated by the hon. Lady for North-East Leeds (Miss Bacon), who went to the length of accusing the present Chancellor of wanting a pound of flesh. If it is a pound of financial flesh which the Chancellor of the Exchequer seeks, I will tell him how to get rid of the spectre of inflation. We shall not rid ourselves of inflaton until we have rid ourselves of Socialism. Socialism and inflation are inseparable partners. We must, rid ourselves first, then, of the Government: they can give way to another. We on these benches are comforted by seeing the slow-but-sure dawn of realisation in the country that, despite all the promises of 1945, the Government have no economic plan whatever, beyond that of sponging on our capitalist cousins in the United States—that is the be-all and end-all of Socialism's economic planning in the year 1948.

As this Budget will hasten the day of Socialist collapse, we do not view it too lugubriously upon these benches, because the caption "For Whom the Bell Tolls" applies to His Majesty's Government.

7.24 p.m.

Mr. Parģiter:

If I may comment on the speech of the hon. and gallant Gentleman the Member for Holderness (Lieut.-Commander Braithwaite), first on the question of whisky, I rather imagine the Chancellor of the Exchequer would treat fur coats and other things in the same way as whisky, but I am doubtful whether the Purchase Tax on these articles would have the great advantage of that on whisky, which can be taxed at the source and consequently cannot find its way into the black market until the Chancellor of the Exchequer has collected from it the amount he wants. The difficulty about the other things is to establish control, because they are already in the market in the ordinary way.

Turning to the question of the rather harrowing story mentioned by the hon. and gallant Gentleman of one of his friends, and the contribution he will pay in the levy on investment income, I should think from what he said that the capital value of that estate would be somewhere between £60,000 and £80,000, at any rate, and the man would be unlikely to pay a great proportion of that total amount.

Photo of Lieut-Commander Joseph Braithwaite Lieut-Commander Joseph Braithwaite , Holderness

Have we now reached a stage in Socialist administration where the criterion is not justice, but that it does not matter so long as the man is paying only a small amount?

Mr. Parģiter:

Those with the greatest capacity should make the greatest contribution; we should make a contribution in proportion to our ability to make it. In that respect, this levy is fair and just. On the question of Postwar Credits, of course, I have some sympathy with the view expressed by the hon. and gallant Member, but he will be fortified by the knowledge that the Leader of the Opposition may already have drawn his credits but the Prime Minister has not yet been able to get his. I would like to refer to Marshall aid. I did not notice any particular sigh of relief on this side about Marshall aid. Marshall aid will meet but a small proportion of our total need in this country, and we should be quite clear about that. It will be a breathing space, but it will not be of great importance in the long run in the economy of this country.

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

Did not the Chancellor of the Exchequer himself say that the difference between our getting Marshall aid and our not getting Marshall aid was very great unemployment, very great shortage of food and very great shortage of raw materials?

Mr. Parģiter:

He said there was a possibility of a shortage of food and raw materials and also a possibility of some large volume of unemployment I said Marshall aid was not important in the long run; it is very important in the short run of our economic affairs at the present time. Therefore, it must be viewed in that perspective, and I think it will be remembered that on these benches, far from decrying Marshall aid or anything of that kind, we said long ago, in many speeches from the Front Bench and the back benches, that one of the troubles from which we are suffering in Europe as a whole was the rapid and undesirable termination of Lend-Lease. Had Lend-Lease continued for a period to permit Europe to rehabilitate itself, instead of getting into further economic difficulties, we might now even have been in a position not to need Marshall aid for Europe.

Photo of Captain Albert Blackburn Captain Albert Blackburn , Birmingham King's Norton

Does not the hon. Member agree that the hon. Member opposite did not refer to Marshall aid at all, but to the European Recovery Plan, which is its proper designation today?

Mr. Parģiter:

I will not enter into a discussion on that: it is not a bad name, anyway. I think that on broad principle we are all agreed that the important thing about this Budget is its setting and its relationship to the general economic position of the country. It has, for the first time, brought the two things together at the same time and, therefore, the Chancellor's proposals in his Budget must be taken in conjunction with the economic situation as a whole. If we look at the economic situation, we shall appreciate that, while the costs of primary products in other countries remain as high as they are at the present time, we shall always be faced with some inflationary tendency in this country, because there will be insufficient goods to go round, which people will want to purchase, by comparison with the amount of income they have available.

The Chancellor's problem therefore—and the problem of any Chancellor—will be to see that there is not that surplus of income to push up the spiral of inflation. If we look at it in that light, we may then see what kind of speeches have been made from the Opposition in attacking or criticising the proposals of the Chancellor. One has heard general observations about the high and crippling level of taxation and about the heavy burden of Government expenditure; but I would remind the Committee that the Chancellor asked hon. Members opposite instead of giving their observations in general terms, to offer proposals different from the present proposals, and to be specific about it. Up to now I have been able to find no specific proposals; they are conspicuous by their absence. It may be that hon. Members are thinking about it in some other place. If the Chancellor is concerned with giving incentives in certain directions with a view to increasing our productive effort, he must at the same time do his best to take the equivalent amount of money out of circulation at some other point, unless there is likely to be a greater volume of consumable goods in the home market. We know at present that there is unlikely to be a much greater volume of consumable goods in the home market while the balance of payments is so heavily against us.

If we look at the Budget in that light, and if we see the concessions that the Chancellor has made and the additional taxation that he has imposed to counter those concessions, I think we may say that he has reasonably balanced the two sides by giving to some sections and by taking away from others, and leaving the total volume of spendable incomes at about the same level. It does not mean that there will not be a shifting of the demand for goods, because that will obviously happen. There may be a tendency to deflation on some goods and inflation on others, but the general balance will be about the same, except to the extent that the Chancellor has proposed to increase the total volume of the Budget surplus.

In the light of what has been done, I think it will be agreed that the proposals for earned income relief and the other slight Income Tax reliefs will have the advantage of providing that incentive. I think we may reasonably expect an increased volume of production during the next year, provided that raw materials are available. Also, if we can continue to increase the volume of production during the next two years we may well look for an advantage in other directions at the end of that time. It will be generally accepted, I think, that our greatest problem at the moment is that our manufactured goods are purchasing far too little in the way of primary products and raw materials and so on from other countries, in proportion to the volume of primary products which those manufactured goods purchased before the war. I doubt whether the costs of primary products will ever go to so low and completely uneconomic a level as they did during the inter-war years. I do not think it would necessarily be desirable for them to do so. The effect is deflationary, which may be as disadvantageous as inflation.

Against that background and in that framework it seems to me, with some exceptions on which I would like to comment, that the Budget is fair and reasonable. It calls for a reasonable contribution from all sections in the community, and, above all, a contribution which bears some relation to the ability of the individual to pay. That, after all, is the real test of any Budget.

Among the things which I do not like very much is the extra penny on beer. I cannot see that it will have any effect at all so far as the inflationary tendency is concerned. It will have no effect at all on our balance of payments, because none of the materials that we require for the production of beer comes from abroad—not even sugar, because we can produce sufficient sugar for this purpose. Therefore, I do not understand why the Chancellor found it necessary to increase the duty on beer, and I hope that the various remarks which have been passed on this matter will cause him to give early reconsideration to it.

Mr. Parģiter:

I am not so worried about whisky. I cannot afford it, anyway. If the duty on whisky were higher, I should not be unduly worried. The important point is, as was said by the Chancellor, that whisky is a very valuable export. Therefore, anything which will reduce the volume of consumption here and increase the volume of exports is, in the main, a good thing. I do not think we should apply the same rule to whisky as we would to beer. I would say that there is some merit in the tax on tobacco because to purchase it involves dollars.

One other point in the Chancellor's speech with which I was concerned was the amount of taxation on distributed dividends. I think he said that an average of 60 per cent. was taken by the State in taxation. Frankly, that is not a method which appeals to me. We should not tax profits to keep profits down, because it does not have that effect. When manufacturers consider the prices which they shall charge, they bear in mind that they wish to get a certain net return anyway. If the Chancellor increases the volume of taxation the prices are increased, and while the country as a whole may not suffer any more as a result of that increase, it certainly means increased prices to the consumer, while the important consideration at the moment is to keep down prices to the consumer. I hope the Chancellor will look for other means of limiting profits and I am disappointed that he has not introduced some other means. Incidentally, the whole method of the calculation of profits requires a considerable amount of adjustment. To calculate profits in terms of nominal capital may have nothing to do with the volume of production in any industry. Some alteration there might very well provide some incentive based realistically upon production, rather than upon the divdends or nominal capital of an over- or under-capitalised undertaking.

I am glad to note that the Chancellor proposes to maintain food subsidies at their present level. To the ordinary people, this is a most important factor, in view of the value of food subsidies from the point of view of the equalisation of incomes. I would like an assurance from the Chancellor, although we recognise that food prices to the consumer are increasing because of the higher cost of food coming from abroad, that when those prices begin to fall he will not reduce the food subsidies, so that the consumer may get the advantage of the reduction in those prices, until they fall well below the level at which the subsidies were fixed.

I would also like some explanation of what is meant by investment income. Investment income appears to me to be one of many things. I could invest £2,000 in a house and, if I were fortunate, I could sell it a fortnight later for about £3,000. How will that £1,000 be brought into the calculation—or will it not?—[HON. MEMBERS: "No."] All right. In other words, capital appreciation, which is one of the things we must tackle, will not be tackled by this levy on investment income. It is highly important that it should be, because the people who are living not on invested income, but by the manipulation of investments, ought to make the contribution which they will otherwise avoid. If the words "investment income" are not wide enough to include the considerable sums of capital appreciation, the Chancellor ought to do something about it, and I hope he will. This question of the manipulation of shares, with no corresponding increase in the real capital value of the country, is one of the great pointers to inflation. I hope we shall hear more about this matter later in the Debate.

I noticed that the Chancellor welcomed the proposal of the Co-operative societies to reduce food prices over a wide range of every-day consumer goods. I think the Co-operative societies are to be congratulated on what they have done, but a more flexible system will have to be found for the different distribution of points goods to retailers if housewives are to take advantage of the price reductions. One of the problems in connection with points goods, of which the Chancellor may be aware, is that the transfer of people from one retailer to another is not reflected in the change of points goods. If the Co-operative societies' policy is to be pursued with advantage, then those people who wish to benefit from the reduced prices will want to know that they will get their fair share of points goods as well.

On the question of betting, I think there will be some criticism of the Chancellor's proposal, inasmuch as it still leaves the bookmaker who attends horse race meetings free of tax, as against the bookmaker who attends greyhound race meetings. I cannot see any reason why an attempt should not have been made to bring the other bookmakers into the scheme. Those who can afford only the money and time to go to greyhound meetings, as against horse race meetings, will regard the Chancellor's action as a bias against what they regard as a working-class sport.

In view of the report we had today from the Minister of Fuel and Power, about the still urgent need to save petrol, I was sorry to note that nothing has been done in the Budget to provide a major encouragement to the saving of petrol. I refer to the possibility of a very considerable extension of the use of ignition-compression engines, that is, heavy oil engines, in the wider range of goods vehicles. There are no particular technical difficulties about this. The oil engine has been the subject of much experiment, and is accepted as a means of propulsion. Commercial vehicles, with an unladen weight of between two and three tons, are, in nearly all cases, still using petrol engines, and there appears to be no incentive at all for manufacturers and designers to change to oil engines, which would give twice the mileage that is provided by the petrol engine. A change of that kind would produce an enormous saving, and would be gladly accepted by those who will not be enamoured of the small standard petrol ration which has just been announced. I appreciate that the Chancellor will not be able to give a preferential rate of tax for the oil engine, as was done in its early days, but something might be done by way of putting a penal tax on petrol engines in the future. It would have the merit of forcing designers, who do not appear to be in any hurry at the moment, to produce the much more economical oil engine.

Those are my main criticisms, but I hope it will not be thought that I am critical to the extent that I do not approve, overall, of the proposals in the Budget. I think they are good, and will go a long way towards stimulating our economic recovery. I believe that the Chancellor has faced the position realistically, and, on Tuesday, he gave us one of the best expositions I have ever heard on the economic and financial aspect of cur present-day problems. I wish him well, and I hope that by the time the next Budget comes along, the effect of this Budget will have been seen in the increasing volume of production and in a reduction in our adverse balance of payments gap.

7.47 p.m.

Mr. Peter Thorneyeroft:

I have listened with interest to the speech of the hon. Member for Spelthorne (Mr. Pargiter), who started off on debatable ground when he tried to make us believe that the capital levy was not unjust because it fell only on the rich, who, he said, could afford it. That sort of justice, on a means test basis, was not a sound argument, and I was glad to note that as the hon. Gentleman proceeded and began to investigate the matter in his own mind, he found out for himself towards the end of his speech, how unjust was this particular tax. He realised, as I do not think he did at the start, that the very men who ought to be caught—those living on the sale of capital and the use of capital appreciation—will be let off scot free, whereas those who have followed the advice of the Chancellor, and have left their money in investments, or have invested new money in savings, will be caught. I hope that we shall, therefore, have the hon. Gentleman's support in the further criticisms of this capital levy which will be made later in our Debates.

Mr. Parģiter:

I would like to make it quite clear that I am not in favour of reducing any part of the tax. I want to see its field extended.

Mr. Thorneycroft:

At any rate, the hon. Member realises some of the imperfections of the tax in its present form, or at least one of the imperfections. If he will pursue his studies in this matter he will find that injustices of perhaps an even more dramatic character will appear in the later stages of this Debate. The rest of the hon. Gentleman's speech, if I may say so, was somewhat on lines which have become rather familiar in the speeches of Members opposite when dealing with a Budget. They start off by saying, "Of course, we must all deal with the inflationary situation which has arisen." Then they go on to pay a tribute to the Chancellor, then to say how necessary it is to have a surplus, and, finally—and this is the important stage from the electoral point of view—they proceed to attack all the forms of taxation which have been imposed. They say, "It is a shocking thing to put an extra penny on beer, which is the poor man's liquor," and the result is that while they get all the credit for criticising the inflationary situation, they also get all the popularity with their constituents of attacking the various taxes which have been imposed.

My final word on the hon. Gentleman's speech—he really made a most interesting speech—is about this matter of horse-racing. I have listened to nearly all the speeches made on this Budget, not only because of their intrinsic interest but because I happen to be going to describe them in "The Week at Westminster,"—as I hope hon. Members will remember in the replies which they make to my speech. Horse-racing has been constantly referred to as a sport of the rich. I do not know whether the hon. Member has ever been to a horse-race in his life. If he has ever been, or if he ever goes, he will know that it is not the sport of the rich at all. If he wants to know why the horse-racing bookie is not taxed, the answer is simply that it would be impossible to tax the street bookie who is competing with him outside. I am glad at this point to see that the Financial Secretary to the Treasury agrees with me. I should be glad to undertake the task of replying to the Debate on his behalf. So much for the speech of the hon. Member for Spelthorne (Mr. Pargiter).

Now perhaps I may say a few words about the Budget. I start off—it is almost common form to do so—by saying some nice things about the Chancellor of the Exchequer. I want to do so because I shall say a few nasty things about him in the last stage of my remarks. I would compliment him on the very able way he exposed, in precise and unequivocal terms, the almost bombastic optimism of his predecessor in office. That was something which very badly needed to be done. He showed that the surplus of which the right hon. Member for Bishop Auckland (Mr. Dalton) so constantly boasted was in reality a very small and pitiable one and that it was, almost in the words of the present Chancellor, largely the result of the very inflationary situation which his predecessor had allowed to grow up or to continue. It was proper that those criticisms should be made. I felt almost sorry for the right hon. Member for Bishop Auckland when I listened to the Chancellor of the Exchequer, and I went on feeling sorry for him until the moment when he himself intervened in the Debate. Then my attitude somewhat changed.

Secondly, I congratulate the Chancellor upon the fact that he budgeted for a large surplus. I do not think that any- body on any side of this Committee would disagree with him in his decision to do that. I congratulate him upon the fact that, in presenting that surplus of £330 million to the public he calculated it on a basis which was much closer to reality than has ever been the case in any previous Budget. If the sole test of Britain's solvency be a real surplus in the Budget, none of us either in the Committee or in the country would have very much to complain about. Unfortunately, that is not so. What is of equal importance to obtaining a real surplus in the Budget is the method by which that surplus is obtained.

I am not proposing to talk about questions of hardship, injustice, and the rest of it. I am concerned about whether the remedies which are prescribed in the Budget are adequate to the very grave economic problems which confront the country. I wish to refer to two of those problems. The first of them is our over-sea accounts. This country is bankrupt, not virtually but literally, so far as our oversea accounts are concerned. We had much better face that fact. By bankruptcy I mean that we are utterly unable to honour our debts overseas or even to pay for our current needs out of our current resources. At home, we are still suffering from an inflation which, as the Chancellor of the Exchequer said, may well get worse and which is distorting the whole of our economy. It is resulting in a steady rise of wages, prices and profits, which are getting near the point at which we shall be unable to sell goods abroad at a price which other nations are prepared to pay. The test of the Budget therefore is, does it deal with those problems, or does it not?

Let me take the question of the balance of payments and the question of how we are to get exports upon a sufficient scale to buy what we need, which is the first stage of getting out of bankruptcy. I have very little faith in export targets. Most of them are out-of-date as soon as they are published. In any event, as the hon. Member for North Croydon (Mr. F. Harris) said, in his very able maiden speech, they wholly ignore the vital factor of exports, which is the willingness or the unwillingness of the foreign exporter to buy. What is wanted is not exportation but action on the part of the Government. So long as we have infla- tion at home, and customers in this country with more money in their pockets than there are goods to buy, what real incentive is there to industrialists to set out in a big way in the export markets? It is much easier to sell goods at home. In the export trade, as in other matters, people have a habit of doing what comes naturally. If we have a market at our doorsteps—and more than a market—why should we go to seek export markets elsewhere?

Therefore, the kind of action which we require if we are to put our balance of payments right is for the Government to create a situation in which there are real incentives, not only to the workers but to the employers, to make sure that the goods can be produced. The second thing is that the Government should mop up the purchasing power in this country to an extent adequate to deal with the inflation which is admitted to exist. The third thing is that they should do all in their power to promote saving. On all those three counts the Budget is a dismal failure.

Before I deal with the proposals for new taxation put forward in the Budget, I want to say a word about inflation. Everybody has talked about it, so perhaps I might say a word about it myself. I am not an economist, but I am bound to say that some of the ideas and suggestions of what constitutes inflation, as put forward by hon. Members opposite, I find most astonishing. The right hon. Member for Bishop Auckland has quite a simple test. He says that inflation exists in any year in which he does not happen to be Chancellor of the Exchequer. If he is the Chancellor of the Exchequer his tendency is to boast of the amount of purchasing power which he has put into circulation during his tenure of office. We then had wild proposals to spend money on a whole variety of things—new bridges, new hospitals, new town halls, over-allocation of steel by two million tons.

I remember the right hon. Member going on the wireless at the B.B.C. Hon. Members may also remember his phrase, "Profligate expenditure? No, solid investment, the hope and strength of Britain." I must say that even the present Chancellor of the Exchequer appears to be a little vague about what inflation precisely means. He seemed to talk at one stage in his remarks in introducing this Budget as though inflation were merely prices going up. Inflation is not prices going up. Rises of prices are results of inflation. It does seem to me that the Government's utter inability to distinguish between causes and effects in our economic situation is one of the principal reasons for our present difficulties.

What is quite certain is, that unless the Government take some real steps to deal with the inflation—and I do riot think they have yet—they are not going to make very much headway with this policy of appealing to trade union leaders to keep wages down and to industrialists to keep profits down. It will not work. Trade union leaders are elected for the purpose of putting wages up, amongst other things. The job of industrialists is to make profits, not losses. The idea that for a period of years the chairman of a company is to go annually to the shareholders and say, "In the past year we have had a most successful time, and with the assistance of our able management we have actually reduced our profits to half of what they were in the year before," does not seem to me to be very realistic. People are not going to act against their natural instincts for very long. This attempt has been made before in other countries. It was made in France by M. Blum. It was known as l'expérience Blum. We have had l'expérience Dalton, we are now having l'expérience Cripps in this country. But they are likely to be equally unsuccessful.

In order to deal with rising wages and prices it is necessary to deal with the inflation itself. Is this Budget likely to do that? I agree with the right hon. Member for Oxford University (Sir A. Salter) and the hon. Member for Chesterfield (Mr. Benson), who spoke in the same sense, that this is not—at any rate, sufficiently—an anti-inflationary Budget. Quite a large proportion of the Budget surplus is to be drawn, not from taxes on income chasing consumer goods, but from a tax on capital. What then ought to be done? One thing that could be done is to persuade people to save money instead of spending it. Does the Financial Secretary contend that the proposals in this Budget are going to boost his savings campaign? I have always supported the savings campaign. I have supported it on platforms in the country. I have not shared the view which has been expressed, with all sincerity, I know, by my noble Friend the Member for South Dorset (Viscount Hinchingbrooke). However, I am bound to say I am almost swinging a bit in his direction at the present time. After all, what is it that encourages saving? Not only the rate of interest. There is something much more important than that. It is that savings should be safe. That is the real thing that encourages saving.

How safe are the people's savings in future? I want some answers on one or two questions about this. It is said that this capital levy is "once and for all." What is meant by that? Is it once and for all in this form? I do not think it would be necessary to say that. I do not think anybody would ever contemplate putting up such a scheme twice. I should think that after it has been examined in detail in Committee, and after all the gross injustices of it have been shown, no Chancellor of any party would produce it again. But do the words "once and for all" mean that there will not be a capital levy in future? I was reading again what the Chancellor said. My attention was called to it by the right hon. Member for Bishop Auckland. These were his precise words Various attractive suggestions"— attractive suggestions— have been put forward for a capital levy, but from the administrative point of view, a capital levy—in the ordinary sense of those words—is impracticable at the present time."—[OFFICIAL REPORT, 6th April, 1948; Vol. 449, c. 71.] Impracticable at the present time. What does the Chancellor mean? Does he mean we are to have a capital levy this time and never again? Or does he mean that we are only going to have it in this particular form now, and that this very attractive suggestion of a capital levy, as soon as the administrative difficulties can be got over, is going to be a weapon which will be properly used by a Socialist Chancellor? I think we are entitled to an answer on that matter. The people who are invited to speak in the savings campaigns in this country are entitled to an answer upon it. I would say this to the Financial Secretary and to the Government—not that my speaking in campaigns or on platforms is of much assistance, perhaps—but I would say that my attitude, certainly on this matter, will be very much influenced by the answer I receive tonight. I, therefore, now leave the question of savings which, I think, depend very much on the Government's attitude and on whether savings are to be expropriated or not.

I come to the question of indirect taxation. I support the taxes on beer, betting, wines, and spirits. All of them. Even that on whisky—but my hon. Friend the Member for East Aberdeen (Mr. Boothby) has gone. If the Chancellor had not given such an incredibly silly reason for it, I should have supported the tax on tobacco; but I do really find it extraordinarily hard to support a tax when the reason which he gave for it is put forward. To talk about giving "a sharp reminder to the people who smoke" is to talk like an irritated school mistress rather than a responsible statesman. I do hope that the Financial Secretary will have a talk with his right hon. and learned Friend to see whether, between now and a later stage, some more sensible sort of argument cannot be put forward. In point of fact, the tax upon tobacco is a very valuable anti-inflationary tax, but it depends upon people's not smoking less, but smoking as much as they do now. In any event, even supposing that the Chancellor of the Exchequer really meant this idea of preventing people from smoking, what effect is twopence a packet going to have? Most of the contracts are probably already entered into for the purchase of tobacco, and the arrangements made. So what dollar savings will, in fact, be effected? It is a bad argument anyway, and it will be abandoned tonight, I hope, by the Financial Secretary in the service of his chief.

Of the Purchase Tax I want to say that it is an unpleasant, but, in present circumstances, wholly admirable tax. It does two things. First of all, it certainly is an anti-inflationary tax. There is no question about that. It does absorb purchasing power. Secondly, it does in many cases discourage consumption of articles at home, and so helps to make some of them available for export. I do not see why I should say all the unpopular things in support of the Budget. I hope that the Government will say some of them. But I would ask one question in connection with this Purchase Tax. Could the right hon. Gentleman give an assurance that none of the articles from which he is removing, or upon which he is reducing, Purchase Tax is both in short supply and in demand for export? I should like an answer to that tonight. The right hon. Gentleman does not look as though he has got the question. I want an answer to this question. Will the right hon. Gentleman give an undertaking, on the advice of the experts in the Treasury, that none of the articles upon which he is reducing Purchase Tax or from which he is removing Purchase Tax altogether, is both in short supply and in demand for export? Has he got that? If not, I will try to explain it quietly to him outside.

Photo of Mr William Hall Mr William Hall , Colne Valley

If the hon. Gentleman wants to know, I can tell him I got his point the first time; but it is not my job to jump up to interrupt him. I say this: this is a free country, and when he begins to demand answers to this, that, and the other, I should like to remind him that I need not necessarily answer every single question he puts to me.

Mr. Thorneycroft:

What the right hon. Gentleman does not realise is that my right to ask questions and demand answers is just why this country is a free country.

Photo of Dr Mont Follick Dr Mont Follick , Loughborough

Instead of saying, "I want an answer, "why not say, "I should like an answer"?

Mr. Thorneycroft:

I pass from dealing with that interruption of the Financial Secretary to the question of food subsidies. Previously in the Committee I have argued the case for a reduction in food subsidies, and I do not propose to repeat all my arguments now, except to point out that food subsidies represent about 3s. in the £ Income Tax, and there is no doubt whatever that any real tackling of the food subsidy position would allow for a considerable reduction in indirect taxation. What I want to ask the right hon. Gentleman about—because I do not understand it—is the argument against food subsidies. As I understand the argument, it is said that if the subsidy of, say, £300 million is removed the price of food will go up 2s. 3d. per person per week, and it is said that that will be inflationary because there will be a great demand for increased wages all round. That seems to me to be a policy and an argument of despair.

Look at all the other things that might be treated in the same way. Take, for example, Purchase Tax. Nobody could really suppose that the Purchase Tax is restricted to luxuries, because it is not: children's clothing, and all the rest of it, are not luxuries. Perhaps an even better example is the new insurance contribution to be paid in a few months' time. When the wage earner in the family suddenly finds that he has to pull some money out of his pocket in order to pay the increased insurance contribution, is that to be used as an argument for wage increases? It seems to me an utterly untenable argument to suggest that the moment anybody has to pay anything more, at any stage, that must inevitably result in wage increases, which must necessarily be conceded all round.

Then Government expenditure. The moment we on this side of the Committee mention Government expenditure hon. Members opposite look quite happy and say: "Ah! Can you specify what items you would cut?" They seem to think that question is difficult to answer. It is about the easiest question to answer that I have ever been asked. For a start, why not cut our own salaries? That would be a very good one for a start. It is not large in extent; but, after all, why not start at the top? Whose salaries have been increased most during the last two years? The salaries of Members of Parliament have been increased 60 per cent. I suggest that a cut of 10 or 15 per cent. in the salaries of Members of Parliament and Ministers would be a very proper example to set the country. There are plenty of other cuts which could be made. Not so long ago I remember the Financial Secretary defending a capital expenditure of £250 million on the gas industry during the next five years—a quarter of the total sum of the American Loan to be spent on the gas industry.

Mr. Thorneycroft:

It is no good the right hon. Gentleman shaking his head.

Photo of Mr William Hall Mr William Hall , Colne Valley

Perhaps I might interrupt in order to put the hon. Member right on this point, if not on others. I would remind him that all we were doing was underwriting, with a State guarantee, the gas industry if it desired to raise capital in order to improve the industry in the next five years. We were not, in any shape or form, raising taxpayers' money for that purpose, and we do not intend to.

Mr. Thorneyeroft:

I am much obliged to the right hon. Gentleman. How can the Government seriously contend that they are coming forward with determination to cut Government expenditure, and at the same time say, "Well, of course, we did underwrite the gas industry to the extent of £250 million"? That is a preposterous contribution to the case put forward by his right hon. and learned Friend. This £250 million spent upon the gas industry, and justified over the wireless with such lucidity by the right hon. Member for Bishop Auckland, means less goods in the shops, less goods for housewives, fewer exports, and fewer vital imports into this country.

The party opposite says it is difficult to show what other cuts could be made. I know of hundreds; but let me give just one more. The other day I was out walking in Kent with a friend of mine, and on walking over the brow of a hill I saw down below a lovely country house entirely surrounded by motorcars.

Photo of Mr Emrys Hughes Mr Emrys Hughes , South Ayrshire

It must have been a coalowner's house.

Mr. Thorneycroft:

I asked whose house it was, and remarked that they must be having a big party there. "Oh, no," my friend replied, "that is the regional office of the National Fire Service. "There it was, sitting in the midst of the country, a great establishment, with motorcars, petrol and everything else they wanted. Cuts in Government expenditure? Government expenditure could be ripped to pieces if we had a Chancellor who really meant it. What about the losses the Government make? What about the losses of the coal industry? That would not be a bad start. What about civil aviation, or even groundnuts?

There are plenty of opportunities for cutting Government expenditure. There might even be a little economy at home. The most fantastic waste of both men and money occurs in high Government circles. Take the whole question of Income Tax collection, linked with the administration of the National Health insurance schemes. The point was very well made yesterday by my hon. Friend the Member for Devizes (Mr. Hollis), and I do not propose to repeat it at great length; but just look at what is happening at the moment. There is one lot of men in the Ministry of National Insurance counting everybody's children and dependents for the purpose of distributing benefits under the National Health insurance scheme, and another lot of men in the Treasury concerned with taxing the benefits which are being paid out—men who are themselves entering the same field with a great complex system of family allowances and Income Tax. It is an old-fashioned. archaic system—

Mr. Thorneycroft:

The right hon. Gentleman nods his head; but it is a costly system, too, and it is very wasteful of manpower. I am not criticising the right hon. Gentleman; I like him to nod his head when I am talking. But will the right hon. Gentleman do something about it? Will he nod his head to that? Will he at least give a pledge that between now and the next Budget he will have an investigation into this matter to see whether steps cannot be taken to tidy the system up? The largest body of men is administering P.A.Y.E. in industry. About 60,000 or 65,000 are sitting there doing the Government's work for them, administering a tax which itself is the biggest disincentive which can conceivably be devised; a tax which itself immediately imposes a bigger tax the moment the man makes a bigger effort.

I do not want to speak for too long, but this Budget seems to me to be, not the Budget of a nation which intends to stand upon its own feet, but the makeshift device of a Government prepared to go on being the respected pensionary of the United States of America; quite happy to sit there and to let things just tick over. If we are to stand on our own feet as a nation, a Budget on very much more revolutionary lines than this is required. For my own part I should like to see a drastic overhaul of the whole taxation system, with the object of reducing its administrative costs, of placing the burden of taxation on individual men and women rather than on the families, and in order to remove those deterrents which are inherent in the P.A.Y.E. system—those deterrents upon output which can be seen on every side. Secondly, by all means maintain high indirect taxation until the goods become available, when it can be scaled down.

I say again, I would scale down, or make a start in scaling down, food subsidies, making provision for the worst cases of hardship; and I would make drastic cuts in the whole range of Government expenditure, starting, in order to set an example, with the salaries of Members of Parliament themselves. Then, using the vast resources which that policy would give, I would make substantial reductions in direct taxation on earned income right through the income ranges, whether in managerial, employer, or worker ranges. Those things can be done; but they can be done only if there is the courage to take e very unpopular measure.

Some of the things I suggest are unpopular, but I am not in the least concerned about that. There is no way in which this country can get out of its difficulties after two years of Socialist Government without taking quite a number of unpopular measures. But if we take them, we can create a condition of affairs in which the inclination of the individual is working on the same side as the national interest, rather than against it. We can create conditions in which the skilled man can not only earn more but can buy more than the unskilled man, and the hardworking man can get more than the lazy man, and the enterprising man more than the timid man. I am anxious that we should take these steps before it is too late.

8.21 p.m.

Photo of Mr Hugh Hutchinson Mr Hugh Hutchinson , Manchester Rusholme

The speech of the hon. Member for Monmouth (Mr. P. Thorneycroft) was most interesting, but I cannot help feeling that some of his points would have been more effective if he had put them a little more courteously. I am not seeking popularity when I say that there are certain aspects of the Budget which deserve congratulation, even if there are other aspects which deserve criticism. I congratulate the Chancellor of the Exchequer on resisting the pressure to reduce the food subsidies, and for adjusting Income Tax, particularly in relation to those who work overtime. There are certain other matters which it is necessary to criticise, it one is to represent the views of one's constituents.

I want to express my disappointment over the increased taxation on beer and tobacco. The average man in the "pub" is not concerned about the economic mysteries which take off the tax on soda water and put it on beer. To him it will appear that it is teetotal prejudice to take off the tax on soda water and increase the tax on beer, and he will regard this increased taxation as austerity for austerity s sake. I believe that the increase in taxation on beer, even more than in the case of tobacco, is a psychological and political mistake. It appears to a layman that this Budget is more satisfactory for those who find their pleasure in drinking soda water and playing the church organ, and that it is a penal Budget for those who folic w the more red-blooded pleasures.

I should also like to venture a word of criticism on the Betting Duty. This tax merely adds to the complexities of an already complex system. While I do not propose to weep for the "bookie," it is high time that we broke away from these hypocritical and unsatisfactory methods of dealing with betting which have been inherited from our Puritan forefathers. I agree with the hon. Member for Ashford (Mr. E. P. Smith) that we should institute State lotteries. People will always gamble, and all the fulminations of the righteous will not stop them. Therefore. I consider that the State should make a profit out of it. My hon. Friend the Member for Spelthorne (Mr. Pargiter) expressed no enthusiasm for the Special Contribution on invested capital,' and I agree with him. I believe that this is a poor substitute for the limitation on profits which we all expected. It does not catch the speculators who gamble with other people's money and it may interfere with the expansion of our industrial system which is largely based on private capital investment. The Government would have obtained better results if, instead of introducing a limited form of capital levy, they had closed the Stock Exchange.

My real purpose in speaking tonight is to comment shortly on one or two principles which guide our economic policy. I believe that in some respects our policy is inadequate and that the plaster is not big enough to cover the sore. The question is really whether there is a sufficient degree of planning. We find a great dissimilarity between the plans announced in the Survey for the year and the results. To begin with manpower, most Members will agree that there are too many men and women engaged in non-productive activities. Last year, there was a much bigger release from the Forces than was contemplated, but the men released do not seem to have been absorbed into productive industry. In 1947, the target for agriculture was set at 33,000, but we succeeded in recruiting only 9,000. The target for 1948 is 55,000. Are we to be more successful in recruiting 55,00o, when we recruited only 9,000 out of 33,000 last year?

The textile industry is of great importance in the Economic Survey. The 1948 target for the textile industry is to obtain 108,000 more workers than last year, to make a total of 325,000. This is the total deemed necessary to get our textile industry on a prosperous and satisfactory basis. I do not think we shall get that total by our present methods. We shall not get it unless we make the conditions in these industries attractive to the workers. We shall not get it by trying to force workers into these industries by a limited form of direction. The Government should adopt a more realistic wages policy, and should cease talking about freezing wages until wages are married to the actual working conditions in the industries concerned.

The Chancellor of the Exchequer quite rightly places great reliance on the textile industry to bridge the gap, but we are entitled to ask how far the industry is mechanised with modern machines. We produce £41 million of textile machinery, but out of that total we exported £27 million worth. Is it not possible to divert a little more of this machinery to our own mills which are in desperate need of it? Our textile policy is based on a short-term view. We have not yet faced up to what will happen when the Japanese textile industry is put on its feet by American capital and help. We shall have to face cheap competition, not only from Japan, but from India and China. It seems to me that we shall be faced with competition on a much bigger scale than that in 1937 and 1938 and before, which was responsible for closing down many of our mills.

I believe that the deficiency in some of our production targets is due to the lack of steel. Most of our industrial recovery depends on steel production, and I should like the Government to inform us what is the position in regard to the collection of scrap, and what we are doing about collecting scrap from Germany. There is a lot of scrap in Germany which could be collected and used in our steel mills. It was our policy before the war to export scrap from Britain to Germany. In 1940 we got some of it back. I believe that we are entitled to a million tons of scrap which is lying round in Germany.

I would ask the Government how many new blast furnaces and coke ovens have been introduced in the last three years to improve our steel industry. Is it not possible to speed up the construction of new plant? The new plant which is to be erected in South Wales will take 4½ years to construct. Similar plant erected in the U.S.A. took two years. I think that both the steel magnates and the public are entitled to know at an early date from the Government what are their intentions with regard to nationalisation. At present, there is a certain jockeying for new plant among those in the steel industry, as though they had a 99 years' lease of the steel mills. If we intend to nationalise steel in this Parliament, we should make it known clearly, and beyond any possible argument, as soon as possible. If we are not going to nationalise steel, we should also make that quite clear. The present situation can only lead to uncertainty and difficulty.

Increased production and the adaptation of purely orthodox economic policy are not likely to save us economically. I agree in part with the hon. Member for Monmouth on his point about the bankruptcy of the country so far as our overseas investments are concerned. It is not generally realised in the country that we have never paid for our imports by our exports. That gap has always been covered by our investments in what is now known as the dollar area, and these investments are now gone. We also drew our strength from Colonial exploitation, which is very limited today. We have to face a situation very different from that which existed before the war. We must take bold and radical methods to deal with it, and not methods borrowed from the nineteenth century.

I was disturbed in reading the Economic Survey and in listening to the Chancellor of the Exchequer's speech to realise what reliance is put on the American European Recovery Programme. I do not believe that big business ever gives charity unless it gets an adequate return for it. I do not propose to go into the political aspects of the European Recovery Programme. I merely want to put forward a few ideas on how it might affect us economically. I think that those who regard the E.R.P. as a stout staff on which we can lean in our present condition are going to be severely disappointed. It is not a stout staff, but a very slender reed which can break under one of many stresses.

I believe that those who place too much faith in the E.R.P. have forgotten that the United States are our most formidable commercial competitor, and that if a crash should take place in the United States—I am not arguing now whether it will or not, but it is within the realms of possibility—we shall find ourselves driven out of our markets by United States competition. With their large-scale production, they can produce much more cheaply than we can. We shall find that they will drive us out of our markets in order to create employment for themselves, and thus create serious unemployment in Britain. It may strike American big business that it may be cheaper in the long run to put an end to the "cold war" and make a compromise with Russia. If that takes place, we again shall be left out in the cold, and in a most unsatisfactory position. If that does not take place, it really means that the pouring out of money by America into Britain will merely buy our allegiance to programmes for which we have no real sympathy, and may eventually land us in somebody else's war.

Unless we can bridge the gulf by our own efforts and our own production we shall become more and more a dependency of America. If we follow that line on the old economic policy, we shall find that we are unable to maintain our population of 47 million. That population was built up when Britain had a great Colonial Empire, and when most of the countries of the world owed us money on our investments. Today we are not in that position. Unless we adopt a radically new policy to maintain our population, we shall find ourselves reduced to a drastic policy of emigration, which will leave us with an aged and spiritless population, a nation of helots, and a playground for rich foreign tourists.

In my view the remedy is not less Socialism but more Socialism. I believe that the Government and the Labour Party, in spite of the opposition from the benches in front of me, should strive towards a total planned economy and cease to make compromises with capitalism. We should try to get the whole industrial production and distribution of the country in a centralised plan, properly directed. Having done that, we should link our planned economy with the other totally planned economies of Europe, because they need our goods and we need what they are in a position to give us. If we do that, we shall be creating a new economic sphere in which we can develop and prosper. We shall find, if we rely upon charity from America, which does not want our goods, that she has very little to offer us except charity.

Finally, I would suggest that we develop a much closer economic relationship with the Commonwealth. I believe in the schemes going on in Africa and elsewhere and in the Dominions, and I think that if we are less dependent on American economy we can get a great deal more support from the Dominions and Colonies. The hon. Member for Rugby (Mr. W. J. Brown), a few days ago, referred to political horse-sense. I believe that there is still a lot of horse-sense in the world but we must show that the horses have not got it all. We must direct all our skill and efforts and productive genius towards solving our problems economically, without depending on charity from abroad and without allowing our sovereignty to be affected. If we exchange our goods with the countries which require our goods, we shall, in that way, build up prosperity and happiness and the social security of the ordinary people of this country.

8.40 p.m.

Photo of Sir Toby Low Sir Toby Low , Blackpool North

I thought that the hon. Member for Rusholme (Mr. Hutchinson) was extremely gloomy, but in the course of his speech he said one or two things which hon. Gentlemen opposite do not normally say. He said that cotton mills were closed down by Japanese competition and not by the Tories; and he asked his right hon. and learned Friend to make a firm statement about the future of the steel industry. Many of the other things that he said were wrong and were equally regarded as being wrong, to judge from the absence of nods, by the Chancellor of the Exchequer.

Reverting to the Budget, I come to the question of how far it will tackle the great problem of inflation which the Chancellor openly acknowledged that he has to tackle and which, I think, he inferentially acknowledged had not been properly tackled over the past few years. I do not pretend to be an expert or even an inexpert, economist, but as I understand it, what the Chancellor is trying to do is to ensure by one means or another that there is a sufficient total saving over Government and private spheres to prevent any further inflation and to bring about, if possible, some cure of the present inflationary system. In trying to do this he has done two things. First, he has aimed at a surplus and, secondly, he has aimed—or hopes to aim—at encouraging private savings.

Before coming to the question of the surplus, I should like to speak first about private savings. It is clearly set out in Table 26, on page 49 of the Economic Survey, that private savings do, of course, consist of undistributed profits as well as personal savings. I hope that the Chancellor will correct the misunderstanding under which many of his hon. Friends seem to labour, that an undistributed profit is not at present advantageous. I quite understand that there is also a psychological aspect, but it seems to me that if he wants savings he wants profits, and he obviously wants as much of those profits as is reasonable to be undistributed; but part of the total personal savings on which he counts for the success of his attack upon inflation must consist of undistributed profits. What does he do? He taxes them and, by that tax, merely transfers them from the realm of private saving to the realm of what I might term Government saving.

Regarding personal savings, I am glad. to see that the Chancellor realises there is a danger, not only that we shall not get an increase over last year's savings, but that we shall not even get, within perhaps 80 per cent. of last year's total. Another danger arises very largely because of the high taxation. I have listened to speeches from all sides of the Committee and it seems that, at a time like the present, when prices and taxation are high, we cannot expect that there will be a very strong incentive to save. That is the difficulty which faces the Chancellor. He wants to encourage private saving on a large scale. That is abstention from spending. However, when we look around we see—all hon. Members, as individuals, know it well—very often there does not seem much left in our own pockets to put aside for that saving. The right hon. and learned Gentleman therefore has a very big task in encouraging people to save during the next year. He recognises that task in the Economic Survey. He recognises that he has to encourage people to save over 50 per cent, more than they saved in 1938 when taxation was not so high and when prices were very much lower.

I am, therefore, very shocked when I come to look at the effects of the capital levy and the remarks by hon. and right hon. Gentlemen opposite about the possibility of further levies on capital. That, surely, is the great danger to the incentive 'to save. People will think that they are merely throwing away their money immediately they put it away in various savings schemes or invest it. By bowing to the demand from behind him that there should be a smack at the so-called rich classes, the Chancellor has done himself, his aim and the country a great disservice.

We know very few of the details about the capital levy. I see that the hon. and gallant Member for North Portsmouth (Major Bruce) is interested in this matter. He would have liked a real, proper capital levy. We know that he is a disciple of the right hon. Member for Bishop Auckland (Mr. Dalton), and that he is Parliamentary Private Secretary to the Minister of Health. There are a great many details which we shall want to know about how the capital levy will work. I see that it is to be levied on individuals. I understand that those individuals are human individuals and not what I might call legal individuals. They do not include banks and insurance companies. When we take the individual, does the individual mean a man and his wife, or the man less his wife? I understand that it means the man and his wife. An individual. therefore, means a married couple but not a company. Many questions have already been asked which will no doubt be answered in the course of this and many other Debates. When one looks at this capital levy, quite apart from its apparent grounding of political spite, it seems to have absolutely no effect in the battle against inflation. It cannot result in any more than a transfer from private savings into the Government surplus. That was ably explained by the right hon. Gentleman the senior Burgess for Oxford University (Sir A. Salter) and I will not refer to it further.

The other great disincentive to saving, of which sometimes too little is made, is the continued high taxation. It seems that savings are low owing very largely to this high taxation. Therefore, the Chancellor has to aim at a big surplus. This is inclined to increase or to keep the taxes. That, in itself, perhaps reduces the savings, and it therefore becomes necessary for the Chancellor to increase taxes even more, and there is a danger that we get into a vicious circle which results in the duty of saving being taken over by the Chancellor and the private individual losing the chance which he had in the past to contribute to his own security and to the country's good by personal saving.

Photo of Mr Gilbert Mitchison Mr Gilbert Mitchison , Kettering

Would the hon. Member tell us how a large surplus applied in reduction of the National Debt tends to make taxes higher?

Photo of Sir Toby Low Sir Toby Low , Blackpool North

I was trying to explain that this large surplus—perhaps the hon. and learned Gentleman did not understand—is largely due to extra revenue coming from higher taxation.

Photo of Sir Toby Low Sir Toby Low , Blackpool North

Perhaps not entirely, because the Chancellor could say that he has cut expenditure a very little. Now I want to come on to the other side of the balance sheet and to deal with expenditure, because that is really at the root of the higher and higher taxes which keep on facing the individual in this country. That is the reason for the tax on beer and the tax on tobacco which hon. Gentlemen opposite do not seem to like. I do not like these increased taxes on beer and tobacco either, because they are due entirely to wasteful Government expenditure. We are challenged over and over again as to what we would prune. We are in great difficulty when we come to examine the Estimates—and I have particular experience of examining some of the Defence Estimates—because we never get answers to questions. So it is difficult to recommend what should be pruned and what should not be pruned. Particularly in the Defence sphere, we are given very little information. If we were given more, we might perhaps then be more constructive. I suggest to the Chancellor that the time has come when something like a commission should be appointed to see that all Government Departments are properly organised, and prune their staffs. This is no time for luxurious staffs.

If we look at the Government Departments we find increases in clerks, increases in lower grade officers, vastly greater increases than are justified by the increases in the number of men at the top. No expenditure is sacrosanct, not even Defence expenditure. As the right hon. and learned Gentleman knows, I do not want to see the Forces of this country any less strong than they are today, but I believe they could be considerably stronger for a much smaller amount of money. Does the hon. and gallant Member for North Portsmouth (Major Bruce) want to interrupt?

Photo of Major Donald Bruce Major Donald Bruce , Portsmouth North

Would the hon. Member like to have another Geddes Committee?

Photo of Sir Toby Low Sir Toby Low , Blackpool North

I did not say a Geddes Committee; I said I wanted a commission to go into the organisation of Government Departments. The Geddes Committee did certain things of which we are all aware. What is recommended is up to the Commission and what is done, is up to the Government; but, from all we see, there is gross waste in many Government Departments, and it is about time it was properly looked into.

There is one other aspect of the Budget to which I wish to refer—.he spreading of burdens over the community as a whole in the fairest possible way. The capital levy seems to me to be an example of unfair treatment of a part of the community. I will not add to that, but the men and women who are asked to pay this levy have already probably paid enormous taxes on the sums, as they were saved, which now form the capital from which the investment income is earned. As any hon. Member can see, if he looks at the many White Papers we are given, the proportion of tax paid by those people is enormous.

Coming to the other end of the scale, I think it wrong of the right hon. and learned Gentleman once again to inflict on the beer drinker and tobacco smoker the main burden of his extra taxation. It seems utterly wrong that the beer drinker, the wine bibber, the whisky drinker, and tobacco smoker should provide one-third of the total revenue of the country just by their activities as drinkers and smokers, quite apart from the many other ways in which they have to pay taxes. The whole thing has got completely out of gear and out of balance.

I plead with the right hon. and learned Gentleman to look into the whole system of taxation. My hon. Friend the Member for Monmouth (Mr. P. Thorneycroft) spoke about that tonight, and yesterday my hon. Friend the Member for Devizes (Mr. Hollis) made a speech which, I think, appealed to the Financial Secretary, making suggestions for the reform of Income Tax law. The time has come to simplify the whole procedure and to adjust the taxation procedure to that which we employ for social insurance. It is ridiculous to have the sort of duplication whereby the Inland Revenue Department are dealing with family allowances and marriage allowances in one office while, under a completely different system, for social insurance, the same class of people are being dealt with by different people in another office. The time has come to review the whole matter, and to get over many of the complications which not only make the operation of P.A.Y.E. unfair, but create a disincentive, and put a great burden on those who administer it in public and private offices.

I hope that out of the atmosphere of gloom into which one gets, not by listening to the Chancellor, but by reading his Economic Survey, some of us may see a brighter future in the middle distance and the long distance. If we cannot, our efforts today will obviously be so much less vigorous and so much less inspired. I hope the Chancellor will go ahead with all the plans and ideas he has for the employment of the resources not only of Western Europe in a union with us, but the resources of the Commonwealth. One of the great benefits which have come to this country and to Europe came as a result of Mr. Marshall's speech at Harvard. There should be no need for a similar speech, or similar action, to provoke a greater unity over economic affairs between this country and the Dominions of the Commonwealth and the Colonies of the Empire.

I sometimes wonder whether it is realistic in this age that we should set up a Council for Western Europe in Paris for the operation of the E.R.P. to put the Marshall Plan into force, and yet be entirely unwilling to do anything like that for our Empire and Commonwealth. It seems entirely illogical. I know that many say the Dominions would not like it, but I think they would like it. All they need is a lead from this country. I agree with the right hon. and learned Gentleman when he says that the first and most important thing to give us a future is to look to our home affairs. As an effort to give us a start again on a sound basis, as an effort to defeat inflation, I welcome this Budget. Carrying as it does certain blemishes the blemish of a capital levy, and I think certain mistakes with the wrongful distribution of taxation—I welcome it as a definite first measure taken by the Government to try to tackle the danger of inflation in this country.

9.2 p.m.

Photo of Mr Nigel Birch Mr Nigel Birch , Flintshire

With most of what my hon. Friend the Member for North Blackpool (Mr. Low) has said I entirely agree, and I shall refer to one or two of the points with which he has dealt in the course of my remarks.

If we look back over the Budget Debates that we have had in this Parliament up to now, we find that the Opposition has had four main themes throughout. First, we have complained that the national accounting was dishonest, and that no true picture was being presented to the country. Secondly, we have always said that there was a large uncovered inflationary gap. Thirdly, we have said it was most doubtful whether in the long run it would be possible to sustain a level of national expenditure such as we now have and at the same time maintain stable prices. The fourth general theme has been that in this period of inflation the policy of hyper-cheap money, pursued by the right hon. Member for Bishop Auckland (Mr. Dalton), was wrong, and would make all these other errors even more disastrous than they otherwise would have been.

So far as the first two criticisms are concerned, those of dishonest accounting and the uncovered inflationary gap, both are fully admitted by the Economic Survey and by the present Chancellor of the Exchequer. He said yesterday that, instead of having a real surplus in the last Budget, the Government were putting back into circulation all the money which they had withdrawn in taxation. So far as the inflationary gap goes, the extent of the gap, and how it should be met, is the main subject of the Economic Survey, and the main subject of the speech of the present Chancellor the day before yesterday.

I shall deal with the level of expenditure at the end of my remarks, but in view of what the right hon. Member for Bishop Auckland said yesterday, I think I must say something now upon the subject of cheap money. The right hon. Gentleman was good enough to accuse hon. and right hon. Members on this side of the Committee, and in particular myself, of entering into a conspiracy with financial journalists and the holders of gilt-edged securities to depress the prices in the gilt-edged market—"A conspiracy in the broad sense" I think were the words he used.

The last time that cheap money was extensively debated in the House was exactly a year ago, and what I and many of my hon. Friends said then, and always have said, was this. There is nothing new about the cheap money policy. It has been pursued for 17 years and, until the right hon. Gentleman got in, with complete success. Secondly, we cannot, when we have a debt of 24,000 million, let money rates rip. A control of money rate of interest is perhaps the most important control we have in our hands. The Economic Secretary to the Treasury last night put up the old straw bogy about 6 per cent. interest, which no one has ever suggested and which he had, therefore, very little difficulty in knocking down.

What we said, as the right hon. Member for the Scottish Universities (Sir J. Anderson) emphasised today, is this. In a period of great inflationary pressure it is quite wrong and foolish, and will lead to disaster, to attempt to force the longterm rate of interest from 3 to 2½ per cent. There is only one way in which interest can be forced down against the natural reaction of the market, that is, by the unlimited creation of credit, and in the right hon. Gentleman's euphoria period, which I reckon to be the last nine months of 1946, the level of bank deposits increased by 40 per cent of all bank deposits outstanding at the beginning of the war. They increased by over £1,000 million. The reason gilt-edged prices went up was simply because there was Government buying, vast credit expansion, and the banks were forced to buy.

Why have prices gone down? Not because of a bankers' ramp; bankers' investments have slightly increased in that period of decline. It was not that issue of Transport Stock. There has been a considerable further fall in prices since the issue of the Transport Stock. Prices have gone down because when credit was expanded beyond a certain point it was not possible to go on without losing the confidence of the whole world and the confidence of everybody here. To talk of the level of interest rates as if that were the same as national credit is nonsense. National credit is measured by whether people are prepared to hold one's currency. I need not expand upon that.

The policy has been broken simply because the nerve of the Treasury broke, and they were not prepared to go on with it. What has the result of the right hon. Gentleman's policy been? It has been that gilt-edged prices are now lower than when he took over; the credit which he created in order to boost prices is still outstanding; and further, the confidence built up over many years, the last 17 years, among investors in gilt-edged securities, has now very largely gone. The confidence that people had that the Treasury were not likely to turn the gilt-edged market into a casino, and chat there would not be very violent moves in prices, and that on the whole, over a long period, there would be slightly falling interest rates has been broken. After all, 2½ per cent. Treasury bonds issued by the right hon. Gentleman on what he described as a proud day for patriots now stand at 24 discount. If anyone likes to work out how many years it would take, if one saved the whole of one's income less tax, to make up the whole of that loss they would find that it was a large slice of anybody's lifetime. It is not unnatural that confidence has been lost.

The advice we have given all the way through is that one should not try to force the pace. If that advice had been taken, gilt-edged prices would be just about where they were when the right hon. Gentleman took over, which is higher than they are now. There would not have been this great expansion of credit outstanding and the confidence of the country in the Treasury would have been maintained. None of these things has happened. It is for giving this good advice, neglected by the right hon. Gentleman, it is because he is annoyed by that, and by his own failure, that he now accuses us of conspiracy. When that was resented he said that we were thin-skinned. That is not an affliction from which the right hon. Gentleman has ever suffered. That is his first reason, to excuse his own failure. He put forward all this argument in his apologia pro vita sua in the "New Statesman."

The second reason is that it is a cover plan for an attack on his right hon. and learned Friend the Chancellor of the Exchequer— Willing to wound, and yet afraid to strike, Just hint a fault, and hesitate dislike; What did the right hon. Gentleman's speech contain. His patronising tribute was, "Not too bad for a beginner." He then kicked the "once only" stool from under the right hon. and learned Gentleman that he was much relying upon to support him, and then attacked his policy of abandoning the hyper-cheap money course pursued by the right hon. Gentleman himself. The Chancellor has, in fact, led the conspiracy against this policy. He and I are in the conspiracy together. Prices have gone down precisely because he has abandoned the right hon. Gentleman's policy. He has abandoned the policy of forcing down the interest rates at the cost of unlimited creation of credit. That is what has happened. So much for the cheap money policy.

The effects of this long-continued inflationary gap and of the size of the Budget, have been precisely what my hon. Friends have always predicted. The first effect has been a foreign exchange crisis. It is worth remembering that last year on current account alone, quite apart from the question of sterling balances, we had a debit balance of £675 million. That is equivalent to a week for a man and wife and two children. We have got through during the past year and now we are told not only that we shall have complete disaster unless we get further American loans, but that even if we do get them our reserves have now run so low that it is impossible for us to get sufficient raw materials to keep our industry running at full stretch. That is by far the most terrible disclosure in the Economic Survey. It makes total nonsense of "ten per cent. more will turn the tide," because only certain people can possibly do ten per cent. more.

We have, first, this appalling disaster of our balance of payments. Then we have the distortion produced in our economy because we are producing the wrong things and labour is maldistributed. We have this tremendous decline in public morality which is bound to be occasioned by an inflationary policy suppressed by controls. Then we have the tremendous rise in prices and costs which ultimately may make it impossible for us to sell abroad. The rise in prices has a close connection with this expansion of £1,000 million in bankers' deposits. We are now landed in this appalling position, dependent upon foreign charity, with insufficient resources to make our industry run properly, with a decline in public morality, and with our economy distorted. All these things are set out and admitted in the Economic Survey for 1948. The right hon. Gentleman the Member for Bishop Auckland says that he wants a statue. I would say to him si monumentum requiris circumspice.

I turn to a less unsavoury and more serious topic. I will consider for a few moments the Budget proposed by the present Chancellor. It is aways de rigueur to start with a compliment. We can, at any rate, say that he has attempted some reasonably honest accounting. Anyway, it is a great improvement on what we had before. He has also faced up to what is the real budgetary problem. Surely, the real budgetary problem is whether the amount of money withdrawn from private people by taxation and through savings is going to be sufficient to cover Government expenditure and capital expenditure. That is the equation which has, somehow or other, to be balanced. That this is the problem, my hon. and right hon. Friends have been urging all the way through this Parliament, but we never got an answer from the right hon. Member for Bishop Auckland. He ignored it completely, nor did the Financial Secretary reply. The Financial Secretary, when he is replying, sometimes reminds me of an old parrot, who scratches his head with his claws and says, "Pretty Dalton." I very much hope, for his sake, that he has got his new words correctly.

Anyway, we have got better accounting, and the actual problem has been faced. Are we, in fact, in balance? Personally, I rather doubt it. There are two factors to which, perhaps, full weight has not been given. First of all, we have the deflationary effect of Marshall aid, though we do not know yet what it is, and, secondly, we have the considerable deflationary effect produced by the liquidation of our assets in Argentina. That is a "once only"; we know that for certain. Once only is more doubtful when we come to the capital levy.

There are two things I want to say about that. The first is that it is not deflationary at all, and so it amounts to one-third of the expected surplus, I think the surplus is a bit bogus. Secondly, it is absolutely certain to discourage savings, and, if that is so, it would be definitely inflationary. Would anybody believe that it is "once only"? We have had a pledge from the right hon. and learned Gentleman that it is "once only." I ask my hon. and right hon. Friends to consider what is the greatest breach of faith so far committed by this Government in this Parliament? I do not doubt myself what it is. The greatest breach of faith has been the overriding of the Boundary Commission's work in the Representation of the People Bill—a truly dishonourable fraud. Who induced the Government to do that? The right hon. Gentleman the Member for Bishop Auckland. He is now saying that this should only be a small start. If the Government are willing to break faith once, they will break it again, and I do not think myself that anyone will pay very much attention to their pledges.

That brings me to the question which is the deepest question we have to solve. Supposing, theoretically, there was a balance in our economy. Can we really balance our economy by deflation with the present level of expenditure? Is it really possible, with the present level of expenditure? I personally very much doubt if that is possible. The whole of history is against the Government. The whole of history shows that, when you get taxation which amounts to over 30 per cent, of the national income, then prices rise. I cannot help feeling that the right hon. and learned Gentleman himself knows what is going to happen, but he is holding on like a man trying to stop the steam b coming from a boiling kettle by holding one hand over the spout and another on the lid. The result is unsatisfactory; and the level of taxation is not only going to drive up prices, but is also gradually killing the will of the people to thrift and to hard work.

The hon. Member for North Croydon (Mr. F. Harris) was talking in his very able speech on this particular subject, and I do not think any of us can believe in the success of what the Government are doing. The Government are saying, "We have cut the chicken in half, and we will roast one half, while the other half will lay the, eggs." There are anatomical difficulties.

How could we meet our problems, because unless expenditure is reduced I am quite certain prices will rise. There are a number of things I am quite certain we could do. First, as the hon. Member for North Blackpool (Mr. Low) said, I am quite certain we could have just as good or better Armed Forces for a very much smaller price if we had reasonably able Ministers dealing with them. Secondly I am quite certain that if at any time we had had a reasonable policy over Germany, Germany could have kept herself. It is not true, as was said yesterday, that our expenditure on Germany had greatly decreased because we have cut down our expenditure. It has greatly decreased because the Americans are paying, not because we are doing anything about it. If we had realised two and a half years ago that our task was to make Germany keep herself, we would have saved many millions.

Turning to other Ministries, I do not believe that, the Ministry of Supply is really earning its keep. I believe enormous cuts could be made there. I would draw the attention of the Committee to this: following the Economic White Paper, the right hon. and learned Gentleman the Chancellor of the Exchequer in his speech is not budgeting for any decrease in the number of people employed in these various controls. If he really thinks he has closed the inflationary gap, is it not rather odd that he does not budget for a decrease, because these controllers have been made necessary by the fact that we were running a large gap between aggregate demand and aggregate supply? If the gap is closed, and if aggregate demand is equal to aggregate supply, surely most of these people ought to go. But I suspect that the right hon. and learned Gentleman, if he is honest, knows that he has not done that.

The last point I wish to make is on the question of food subsidies, about which the right hon. Member for the Scottish Universities (Sir J. Anderson) and the hon. Member for Monmouth (Mr. P. Thorneycroft) said a word. Of course, we cannot take the whole thing away at one blow. Of course, we have got to keep milk subsidies and compensate to a certain extent, but I find it is very terrible that no start is being made in reducing them. I believe food subsidies are our old man of the sea. They are cloying our whole economy. The latest Transport House pamphlet on the subject of food subsidies, showing the usual honesty, says that food subsidies are paid by the Government. Of course, everybody knows in fact they are paid by a simple conjuring trick by which money is taken out of one pocket and put into the other. That is a sort of two-card trick by which the quickness of the hand does not deceive the eye. The trouble about the whole thing is that this process has a very strong disincentive effect and I do not believe in the long run it can be maintained.

I have only one moment left and I would like to end by saying this: Hon. Gentlemen opposite so often pose the question of the level of expenditure as if it were a question of "whether you would rather have the thing to spend the money on or whether you would rather not have it," but surely that is not really the choice at all. The choice is, "Are you prepared to live within your means, or are you prepared to become an American pensioner, to have great unemployment, to have a long-term lowering of your standard of living, to lose your place in the world, and to see the death of a free society". That really is the choice before us. I cannot believe that any patriot can take any other choice than to say, "Whatever it may cause me in suffering, I will see my country lives within its means".

The White Paper says this is a year of transition, which is what the right hon. Gentleman, the Member for Bishop Auckland, said in his first Budget speech—this is a year of transition—but I believe, Major Milner, this is a year of destiny.

9.25 p.m.

Photo of Mr William Hall Mr William Hall , Colne Valley

The hon. Member for Flint (Mr. Birch) devoted his speech almost entirely to an attack on my right hon. Friend the Member for Bishop Auckland (Mr. Dalton).

Photo of Mr William Hall Mr William Hall , Colne Valley

I think that the Committee will agree with me when I say that my right hon. Friend is very well able to look after himself.

Photo of Mr William Hall Mr William Hall , Colne Valley

It is not for me to attempt to defend him. Were that my business tonight, and had I not a number of questions to which hon. Members are expecting an answer, I could very well spend my time doing so.

Photo of Mr Nigel Birch Mr Nigel Birch , Flintshire

Full employment for one.

Photo of Mr William Hall Mr William Hall , Colne Valley

The hon. Gentleman, as all of us with experience of political life have done on occasion, spent his time being aggressively critical. The only point which I think I should mention before I pass on to other matters is this. I should like to ask hon. and right hon. Gentlemen opposite—why they leave to a Debate of this kind speeches such as we have just listened to, in which the hon. Member for Flint offered criticisms with regard to the expenditure of the Ministry of Supply and of various other Ministries, and of the overseas expenditure on the Armed Forces.

Photo of Mr Nigel Birch Mr Nigel Birch , Flintshire

I have mentioned Germany hundreds of times.

Photo of Mr Anthony Head Mr Anthony Head , Carshalton

What about defence Debates?

Photo of Mr William Hall Mr William Hall , Colne Valley

We have defence Debates and Supply days, and much of the criticism in which the hon. Gentleman indulged during his speech would have been more properly uttered on those occasions.

This is the fifth Budget which has been presented during the lifetime of this Parliament, and it is interesting—to me, at any rate—to look back, and to remember the points of criticism which hon. Members opposite formerly felt keen about. So far as I can gather, all the things about which they had a great deal to say in the past, have now been entirely forgotten. We got an echo of them from the hon. and gallant Member for Holderness (Lieut.-Commander Braithwaite) when he put a question about Postwar Credits. I can remember occasions similar to this, when practically the whole of the Debate was spent on Postwar Credits, and why they had not been paid. The hon. and gallant Gentleman asked my right hon. and learned Friend to reconsider the machinery and methods of payment. So far as it is possible, I am sure that he will try to simplify this when the time comes that more of the credits can be paid.

The hon. and gallant Member asked if it were not possible for the beneficiaries of those who died within the qualifying ages to get some benefit. I am sorry to say that I can hold out no hope whatever. As my right hon. Friend the previous Chancellor said, it is essential that these payments, in so far as they are being made, should be made to those who have reached what we call the two age limits. If they die before having drawn their Postwar Credits and the credits then pass to young people, it is unfair that these young people should be able to draw them before other people. Therefore, I can hold out no hope that my right hon. and learned Friend can alter the machinery to deal with that suggestion.

During the two days' Debate so far, several hon. Members have referred to the possibility of a State lottery. I must confess that I, for one, had thought the idea to be so fantastic that it would not be raised on an occasion such as this. However, it has apparently received a certain amount of Press publicity, and I gather from the hon. Member for Ashford (Mr. E. P. Smith) that at least one newspaper has indicated that the majority of the people would like to see a State lottery.

Photo of Mr William Hall Mr William Hall , Colne Valley

Two polls have indicated that the majority of the people of this country would favour the introduction of a State lottery as suggested. As the hon. Member knows, I and my right hon. and learned Friend went into this matter very carefully, but, for a variety of reasons—not all of which I shall have time to give—it was felt impossible for the Government seriously to consider any such suggestion. To begin with, the whole scheme as put to us depended upon an international lottery being instituted. This, in turn, would raise all sorts of difficulties at a time when exchange control exists.

For those reasons alone, if for no others, it was felt impossible to consider that suggestion. I imagine, for example, that the tickets would have to be "to bearer," and the question would arise, under our exchange control regulations, whether they should or should not circulate in and out of the country. Again, because of exchange control and currency difficulties, it would be essential to make arrangements with other Governments. If we asked other Governments for facilities, they would very likely ask for the same facilities in return. Looking down the years, one can hardly imagiw that the people of this country would favourably consider a series of these lotteries, with one Government competing against another in appealing to the gambling spirit of their nationals. Then, too—and I think this should appeal to all hon. Members—it occurred to us that it would be rather undignified—to put it no higher—for the British Government to be touting round the world for money in this way.

Photo of Mr Edward Smith Mr Edward Smith , Ashford

Before leaving this rather important subject, would the right hon. Gentleman tell us the alternative?

Photo of Mr William Hall Mr William Hall , Colne Valley

The alternative has been given on more than one occasion during this Debate, and certainly to the House on numerous occasions. White Papers have been issued; there have been Debates; and the Budget which my right hon. and learned Friend presented on Tuesday is one way by which we intend, with the help of the great mass of the people, to surmount the difficulties which confront us at the moment, purely as a result of the conflict through which the world has just passed.

A certain amount of criticism from both sides of the Committee has been directed at the extra 2d. which the Chancellor of the Exchequer has put on tobacco. My hon. Friend the Member for Blackburn (Mrs. Castle), who made a very useful contribution to the Debate, raised this, and so did my hon. Friend the Member for North-East Leeds (Miss Bacon); others mentioned it in passing.

It is not true that the Government have found more money for films and for petrol. The change announced today by the Minister of Fuel and Power does not mean that we are to import more petrol. What we are doing is to find the petrol for private car users from the black market. He made it quite clear that this scheme will come into operation on 1st June if the House agrees to certain changes; it will mean that no extra dollars are spent on petrol.

The President of the Board of Trade has made it quite clear, in answer to Questions on more than one occasion, that the agreement recently made with Hollywood does not mean we are to spend more money on films. Actually, the amount of dollars to go out of the country under this agreement will be almost half as many as would have gone out if the agreement had not been made.

We have to watch the dollar expenditure on tobacco. It is perfectly right and proper that my right hon. and learned Friend should take steps to call the attention of the smokers of this country to the fact that smoking costs dollars, and that they should not smoke as much as they might in normal times. The hon. Member for Monmouth led us to suppose that my right hon. and learned Friend was thinking entirely of teaching the British public a lesson about tobacco. My right hon. and learned Friend is doing nothing of the kind. It is true that he mentioned it, but that is not the whole of the story. By this extra 2d., he is raising needed revenue to assist in building up a really substantial surplus for which no one has shouted more than hon. Members oppo- site. The only point at issue is whether it is fair, in all the circumstances, to put this extra 2d. on tobacco. Although this extra 2d. is substantial, and it is certainly substantial to heavy smokers, it is our view that all classes will be willing to bear it as they realise in increasing numbers that we must save dollars and raise revenue for a substantial surplus.

I should like to congratulate the hon. Member for North Croydon (Mr. F. Harris) on his maiden speech. It is an ordeal to make a speech in the House at any time, and it is certainly an ordeal to make one's first. Although I do not agree with a great deal of what he said, I was envious of his assurance and of the way he spoke. It is quite obvious that he will, as the months go on, speak with even greater assurance. He said that he was a product of private enterprise, and I understand, from what I hear, that he has certainly done extremely well under the old capitalist system. He told us that he believed in competition, and then almost in the next breath went on to complain that socialised concerns were competing with private industry. If he believes in competition, he must not squeal if he finds that certain socialised concerns are standing up to the industries in which he may be interested. He also talked, of bulk buying. I am afraid that his knowledge of the facts are not very extensive. He said that bulk buying is inefficient, wasteful and costly because civil servants do the buying. The Committee know very well that nothing of the kind actually takes place. Bulk buying is done by the very men whom he said should do the buying—that is the men in the various industries concerned, who have great knowledge of them.

I was asked by the hon. Member for South Dorset (Viscount Hinchingbrooke) if I would answer a query which he put to the Economic Secretary during the Debate yesterday. The noble Lord said in his speech that he noted that there was a Budget surplus last year of £658 million of which only £413 million had been used to decrease the floating debt. He asked for an assurance that the surplus mentioned by my right hon. and learned Friend would this time be used to decrease the floating debt. I can assure him that it will be used to decrease debt. Whether all of it will go towards decreasing the floating debt is another matter. As he and the Committee know, in Section 70 of the Finance Bill last year, power was taken to use the money, as and when it accrued, to repay funded debt or other obligations falling due. Some of it was used to pay off a portion of the floating debt. We intend to ask the House in the Finance Bill this year to pass a similar provision. It is my right hon. and learned Friend's decision, which I think he mentioned during his Budget speech, to follow the same course as was taken last year to see that the surplus, as it accrues, is used for the reduction of debt, which included the paying off of matured obligations like Defence Bonds, for example.

I was also asked if I would answer a query put by the hon. Member for Devizes (Mr. Hollis), who made a most interesting speech yesterday. The same point was taken up by the right hon. Member for the Scottish Universities (Sir J. Anderson), by the hon. Member for Monmouth (Mr. P. Thorneycroft), and by other speakers today. It was whether my right hon. and learned Friend would consider the possibility of simplifying and improving the P.A.Y.E. system of collecting taxes. In particular, the hon. Member for Devizes called attention to an article by Mr. Chambers on this subject in "Lloyds Bank Review," which I take it most Members of the Committee have read. I think that there was a good deal in what Mr. Chambers had to say. I am positive that my right hon. and learned Friend will in the course of the year, as always, be most willing to study suggestions of this sort to see whether it is possible to simplify the present method of P.A.Y.E. If we can save the Inland Revenue trouble and avoid their taking on staff, no one will be more willing and eager to do that than my right hon. and learned Friend.

This afternoon the right hon. Member for the Scottish Universities called attention to Rule 9 of Schedule E. As he proceeded with his speech, I made absolutely sure that it was Rule 9 and 10 to which he referred. He seemed to imagine—perhaps I misunderstood him—that the wording was different in Rule 10 from Rule 9. The wording is the same in both rules and the spirit of the operation of both rules by the authorities is the same. It would appear, however, from what he said that either the wording was different in some way or the rules were operated in a different way. This is not so.

Another question which has been put to me concerns the Entertainments Duty. I am sorry that more hon. Members have not dealt with the proposals made by my right hon. and learned Friend in this direction. I think that we all agree that the change in the rates for the living theatre can be applauded and supported. I think, too, that we all acclaim the proposals of my right hon. and learned Friend so far as rural parishes are concerned. In the course of the Debate an hon. Member asked how a parish would be defined. The definition, as far as England and Wales are concerned, is laid down in the Local Government Act, 1933,, and, so far as Scotland is concerned, in the Local Government (Scotland) Act of 1947. Therefore, we see no reason why the proposal should not work smoothly and without any ambiguity.

The hon. Member for Monmouth made an extremely aggressive speech. I do not complain of that. He increased the temperature considerably but none of us took him too seriously. I am not much perturbed by the apparent heat that he gave forth, but he had some curious things to say about savings. I understood from his speech that his whole attitude to savings would be changed, like that of Paul on the road to Damascus, by the kind of reply I might give him tonight. That is a terrible responsibility to place upon me and I would like to say that I am rather borne down by it. But that would not be strictly true. I know that his bark is worse than his bite and I feel that, whatever I may say tonight, his interest in national savings and his innate patriotism will make him go on supporting the national savings movement. In spite of the special contribution, I can assure him that people's savings will be safe—[An HON. MEMBER:"Safe within limits "]—and that there is absolutely no intention on the part of this Government to go back on obligations which have been entered into so far as savings are concerned.

Photo of Sir Arthur Salter Sir Arthur Salter , Oxford University

If the right hon. Gentleman will allow me, I would like to ask him a question concerning what is, I think, a real difficulty. The Chancellor contemplates, regarding the capital levy, that ii will naturally and rightly be paid to a large extent by disposing of capital. Any man who does meet the demand in that way must necessarily during the year be doing the opposite of saving. Can he then go on to a platform and ask other people, poorer than himself, to do precisely the opposite of what he is rightly and necessarily going to do?

Photo of Mr William Hall Mr William Hall , Colne Valley

I am afraid that the right hon. Gentleman is assuming too much. The argument he is using is an argument which can be used against anybody paying any bills whatever.

Photo of Sir Arthur Salter Sir Arthur Salter , Oxford University

The man would have to pay this bill, as the Chancellor recognises, by reducing his capital. He would have to meet current expenses out of capital resource. If he does that and goes on a savings platform, he is compelled to advocate that other people should live within their incomes with a margin, whereas he is doing the opposite.

Photo of Mr William Hall Mr William Hall , Colne Valley

What I said still holds true. I would add that the argument put forward by the right hon. Gentleman is not only in favour of paying no bills at all but is also in favour of not paying any taxes. Obviously we must not let our dislike for a certain form of taxation, run away with our common sense or cloud reality. If one has obligations, either to the Inland Revenue, or to one's butcher or baker, one must pay one's bills and by that amount, one ceases to save—

Photo of Mr William Hall Mr William Hall , Colne Valley

We are in an inflationary situation, and the whole tenor of my right hon. and learned Friend's speech was directed in this Budget to two ends. The first was to build up a substantial surplus, including both above and below the line expenditure, in order to relieve the country from the risk of inflation; the second, to give incentives to the producers by a rearrangement of taxation. We cannot give incentives to producers by reducing certain forms of taxation without compensating for these reducfions by raising extra taxation elsewhere. For that reason and for no other the Special Contribution is being levied, and it is begging the question to say that all the strictures which the hon. Member for Monmouth made are true because some people may have to find a portion or even all of it out of savings.

Photo of Mr Peter Thorneycroft Mr Peter Thorneycroft , Monmouth

The Chancellor said that a capital levy was a very attractive suggestion and that he rejected it on administrative grounds only and for the present only. I ask the right hon. Gentleman to reconcile that statement with the "once-for-all" cry. Will he do that?

Photo of Mr William Hall Mr William Hall , Colne Valley

I was coming to that. I have against the hon. Gentleman's name a note "once-for-all." This was a reminder to me that he had made that point and that it would be my duty to try to answer it, if I could in the time allotted to me. I do not pretend that I shall satisfy him, but I will try. He and the Committee can take it that when my right hon. and learned Friend used that phrase, he meant it. Therefore, in so far as the Special Contribution is concerned, it is a once-for-all levy—

Photo of Major Donald Bruce Major Donald Bruce , Portsmouth North

That is what hon. Gentlemen opposite call it.

Photo of Mr William Hall Mr William Hall , Colne Valley

That is what the Opposition call it. It is a capital levy to some people who come into the upper ranges of Surtax payers who, with Surtax and Income Tax added may not have enough income in any given year to pay this impost as well as their other Inland Revenue taxes. It will mean that they will have to eat into their capital to some extent. But they will not have to eat into it to the enormous extent which some hon. Members opposite would lead us to believe.

Hon. and right hon. Members on this side are amazed at the leniency of my right hon. and learned Friend. Those who have read their "Financial Times" today will see that a scale is given showing what the contribution actually means as a percentage of capital. For a man with an income of £50,000 a year the percentage on his capital is only 1.93 per cent., and I do not think that that will either prevent anybody going on to a savings platform or—[Interrup,tion.] If what the hon. Member for Monmouth and others want is an assurance from my right hon. and learned Friend that he did not mean once for all, and if they want a special contribution year after year, I have not the slightest doubt that my right hon. and learned Friend will consider that suggestion and possibly, act upon it if he thinks it wise so to do—

Hon. Members:

Oh.

Photo of Mr Quintin Hogg Mr Quintin Hogg , Oxford

It is the case of the housemaid's baby all over again.

Photo of Mr William Hall Mr William Hall , Colne Valley

I think that hon. Members opposite can take it that if the Chancellor says "once for all" about this particular type of contribution, he means what he says.

Photo of Lieut-Commander Joseph Braithwaite Lieut-Commander Joseph Braithwaite , Holderness

Circulate the friendly societies.

Photo of Mr William Hall Mr William Hall , Colne Valley

Certain other questions were asked about the Special Contribution and its effect on agriculture. Some of the points raised were obviously Committee points and will be better dealt with when we come to consider the Clauses of the Finance Bill in detail. However, I should make it plain that the agricultural owner-occupier will be under no liability in respect of the land that he farms. And, as I think my hon. Friend said last night, the ordinary farmer need have no fear. He is farming, and the Contribution will not touch him at all. This Contribution is levied on individuals as such, although husband and wife for this purpose are taken as one.

Quite a number of hon. Members suggested that a greater incentive should be given by increasing the earned income allowance. I would remind the Committee that my right hon. and learned Friend has raised it to £400 and one-fifth. It has never been raised so high at any time before, in peace-time, and therefore I can claim that my right hon. and learned Friend has gone a considerable way towards helping a section of the community that needs and well deserves help, that is, the middle class professional and technical classes.

Photo of Mr William Hall Mr William Hall , Colne Valley

What is wrong with North Croydon? Is the suggestion that hon. Members on this side should sink to the depths of hon. Members on that, and bring forward proposals according to whether they suit this or that section of the community? Whether the middle-classes vote Labour or Conservative is quite immaterial so far as this matter is concerned. The point is that we want at this stage of our national history to assist those who produce, and this is one of the methods by which we think that can be done. For that reason, and for that reason alone, we think the Committee will approve our proposals.

It being Ten o'Clock, The CHAIRMAN left the Chair to make his Report to the House.

Committee report Progress: to sit again Tomorrow.