Orders of the Day — Finance Bill

– in the House of Commons at 12:00 am on 12th July 1949.

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Order for Third Reading read.—[King's Consent signified.]

3.50 p.m.

Photo of Mr William Hall Mr William Hall , Colne Valley

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

Our Debates on this Bill compared with some that have been held on previous Measures of the same kind have been smooth and peaceful. There will be varying opinions as to why this has been so, but if I might advance my own, I think that it has been due to two causes—the co-operative spirit of my hon. Friends on this side of the House, for which we on the Treasury Bench are grateful; and, secondly, the reasonableness of the proposals it contains which have given the Opposition so little ground for criticism. I have sat through practically all the discussions we have had, and at times have felt both sorrow and admiration for hon. Gentlemen opposite—sorrow that they should have been so hard put to it to find arguments with which to combat the proposals contained in this Measure, and admiration for the fact that, in spite of that, they managed to keep the Debates going through the fairly lengthy sittings we have had.

This is a Third Reading, and that being so, any sustained reference to the economic situation in which we find ourselves would be out of Order. In any event, the opportunity for considering the wider field will present itself within a few days. Nevertheless, in taking our leave of the Bill, which is designed to incorporate our financial policy for the current year, it may not be out of place for me to remind the House of the objectives at which it was aimed. The main basis upon which the proposals of this Bill rest was, in the words of my right hon. and learned Friend the Chancellor of the Exchequer, that the total calls made upon the national income by our different kinds of expenditure should balance against our income without creating any inflationary pressure. For that purpose he aimed at an overall balance with, in fact, a very modest surplus of £14 million, and a probable true Revenue surplus of £492 million, a figure which, while pretty substantial in itself, indicated a less urgent emphasis upon disinflation than the true Revenue surplus of £684 million realised last year.

It was one of the major objects of the Budget to provide the maximum incentive possible for production. This, as the House knows, took the form of an increase in the initial allowance for depreciation purposes. This further measure of relief and encouragement to industry is certainly no less important and urgent now than it was when it was first mentioned by my right hon. and learned Friend. Recent events, in fact, stress the paramount importance of our export trade, particularly in hard currency markets. Any steps, therefore, that we can take to assist and encourage manufacturers must be a contribution to this most difficult and stubborn problem and help to cheapen production.

Given this notable measure of relief for industry, it is not perhaps surprising that the Budget incorporated few other concessions, and that during our Debates on the Bill my right hon. and learned Friend has had to harden his heart against many of the pleas for remission of taxation which have been made. I am glad that we were able to accept the Amendment which will extend to buildings the improved allowances proposed for research expenditure on plant and machinery, together with the Amendment which will ensure that the increased initial allowance of 40 per cent. will apply to the whole purchase price of a ship delivered on or after 6th April, 1949, even though part of the price may have been paid before that date.

Apart from allowances to industry of one kind or another, our discussions have concentrated in the main round the proposed change in the Death Duties. There has been some unreality about those discussions, particularly those that we had on the Report stage last night. Two separate issues are involved in these changes, a fact which has not been fully realised by hon. Members opposite. The first issue is the proposal that the three duties should be amalgamated into one, and that the Legacy and Succession Duties should be dropped. There is no doubt that this simplification is desirable. My mind goes back to the Budget Statement of my right hon. and learned Friend, and my recollection of that occasion is that when he announced that he proposed to make this change it was received with universal approval in every quarter of the House. It will lighten the work of all those whose business it is either to draw up wills, that is, testators, solicitors and so forth; administer the assets, that is, the executors; or levy the duty, that is, the Inland Revenue. This is a desirable thing in itself, providing it does not cause injustice in any other directions.

The proof that the consolidation is desirable is that at the present time between 66 and 75 per cent. of testators disregard Legacy and Succession Duties by leaving their legacies free of duty, the duty coming out of the residue. These changes will assist all those in that category who in the past have undoubtedly desired to avoid these two particular duties, or rather one or other of them. Great play has been made during our discussions with the fact that under the new scale the incidence of Estate Duty will be the same for what are called strangers as for the family. It is obvious that if there is only one scale this must be so. In any event, the family does not lose by the change. It is the scales for strangers which have been brought down and not those of the family increased.

As my right hon. and learned Friend pointed out last night, testators will be quite free to take account of the fact that the Estate Duty rates will in future be the same for all bequests. They can adjust legacies which they leave. They may, for example, leave less to cats' homes—a case quoted last night—knowing they will have less to pay in duty than at the present time. It is inevitable that some estates will pay more, because the Succession Duty involved is an entirely separate one. As my right hon. and learned Friend budgeted for £20 million more in a full year from Death Duties, some estates, will, in fact, have to pay more. It has emerged quite clearly during our discussions that this will be the case in the middle and higher ranges. That is largely due not to consolidation, but to the fact that my right hon. and learned Friend has decided, with the approval of Parliament, to increase the total amount of Death Duties by £20 million in a full year. Even if consolidation had not taken place, these increases in the middle and higher ranges would have taken place because of the changes which my right hon. and learned Friend has made in the overall incidence.

It is unfortunate that the Opposition committed themselves to the assertion that the changes made place a greater burden on the small family estate than hitherto. The fact is that there is no addition at all to the scales for estates up to £17,500. Further, it was the present Government which in an earlier Finance Bill remitted Death Duties entirely on all estates up to £2,000.

Nor is it correct, as some Opposition speakers have said, that the changes placed a new and unfair burden upon agricultural property. Actually, in some instances the reverse is the case. The amount expected to accrue from Death Duties is £185 millions in a full year. Of this sum, agricultural property will find something like £3,300,000; that is to say, of the extra £20 million which my right hon. and learned Friend proposes to raise from this source, that type of estate will find only £300,000, a very modest sum, as all hon. Members will agree when they consider the matter dispassionately. It is impossible to believe that this small addition to what properties of this kind now have to pay will have the effect prophesied by the right hon. Member for Saffron Walden (Mr. R. A. Butler) and others. It certainly will not make all the difference between an estate being continued in its present form or being broken up.

In the field of Customs and Excise the Bill embodies the Budget proposal that the tax on football pools should be increased to 30 per cent., which has excited the pool promoters to indulge in a vast publicity campaign. I am sorry that it has led to an addition to the correspondence of Members of Parliament, but it has not led to the volume which the pool promoters expected. The campaign was short-lived and largely abortive, and I do not think any of us need he unduly alarmed over it. Such figures as we have so far relate only to the tail end of the last football season and to the relatively small turnover of the pools which, during the off-season, are run on Australian football and on jockeys. The House may be interested to know that the receipts from the duty up to the end of June have amounted to approximately £3¼ million, compared with £2 million for the same period last year. Those figures, as far as they go, provide no support for the fears that an increase in the duty would mean a catastrophic fall in turnover. On this point, therefore, as on others, we may with an easy mind let the Bill go forward.

The change in the Beer Duty seems to have come up to expectations. As my right hon. and learned Friend said in opening his Budget, there has been since the autumn a marked falling off in the consumption of beer. It was partly from a desire to arrest that downward tendency that my right hon. and learned Friend proposed a remission of duty which would enable the brewers to reduce the price of beer by 1d. per pint. Since the Budget, the consumption of beer has increased appreciably. The number of standard barrels used in April and May has been higher than for the corresponding months in 1948. So far, it seems that the reduction of 1d., which was criticised so much during our earlier proceedings, has achieved the objective of stopping the decline in consumption.

Photo of Mr John Lewis Mr John Lewis , Bolton

Is my right hon. Friend prepared to say that the fine summer weather has nothing to do with the increase in the volume of beer consumed.

Photo of Mr William Hall Mr William Hall , Colne Valley

I thought I had made it clear that I was referring to April and May. Although the present lovely weather has lasted for some weeks, my recollection is that we were not enjoying it in April and May.

Apart from the considerable assistance given to industry in the depreciation allowance and apart from a number of minor procedural reforms, this has been a standstill Budget. The Finance Bill reflects that fact. It has unfortunately not been possible for my right hon. and learned Friend to make concessions on Income Tax and Purchase Tax. The Bill contains nothing which is inconsis- tent with that flexibility which my right hon. and learned Friend described, in introducing his Budget proposals, as an essential aspect of our planning. I would add that if our finances have, in the coming months, to be adjusted to any new circumstances that may occur, we shall be ready to make that adjustment. In the meantime, I commend this very useful Bill to the House.

4.8 p.m.

Photo of Mr R.A. Butler Mr R.A. Butler , Saffron Walden

The Financial Secretary to the Treasury prided himself on the co-operative spirit of his supporters. It is very easy to be co-operative when you have been gagged and bound. The Financial Secretary knows perfectly well that in order to keep his own supporters quiet the Chancellor deliberately precluded them, in an unprecedented manner, from being able to speak upon the one financial subject, namely, the Purchase Tax, on which they had set their hearts. No doubt, having been cowed, they did not dare to raise their heads again and take any part in the Debate. We pride ourselves that we are a free party and a free section of public opinion. Not being subject to the Draconian methods employed by the right hon. and learned Gentleman, we have attempted to represent the taxpayers in this House, and to apply our minds to the somewhat meagre arguments put forward with such grace and such marked lack of success by the right hon. Gentleman and his Friends.

We have not been able to welcome the Chancellor of the Exchequer very much to our Debates; nor is he here today. I have recently been accused of being ungracious to the Chancellor of the Exchequer, a quality which I cannot recognise in my character—but never mind that. The fact is that we have never mentioned the Chancellor's absence. I say today, quite openly, that we understand the very serious matters which are engaging his attention elsewhere. Nevertheless, it is unfortunate that the powerful interventions which he might have brought to bear upon our Debates have not been possible on these occasions. I do not think that it is right procedure for the Chancellor of the Exchequer to be absent from the Debates upon the Finance Bill. He has left us his fiddlers three, who have struck up a sort of discordant concordat among themselves, and with the aid of each other—one vituperative, another legalistic, and the third with his usual disarming grace—they have attempted to keep the Opposition quiet. They have not been successful and I would advise them now to send a message to their Chancellor and ask him to come over into Macedonia and help them on a future occasion.

We have taken as much opportunity as we could to stress the dangers of our financial position. We were limited by the scope of the Amendments which it has been possible to put down to the Finance Bill. They have been designed to draw attention to the very high level of taxation—the most stunning in the world—and to the increasing Government expenditure. I realise that I cannot on this occasion go into detail on these matters. I can, however, follow the right hon. Gentleman in his reference to the objective which the Chancellor had in mind in drawing up this Bill, which was to create an overall balance.

I would remind the Financial Secretary and through him the Treasury that, taking the first quarter's figures of the Revenue return, there is at present a net over-all deficit, taking above and below the line items, of something like £179 million for the first quarter's return, compared with an over-all surplus, taking above and below the line, of £21 million for the equivalent period last year. If I were in Order, I could support these very damaging figures with many others indicating that above the line the surplus, instead of being as was expected, is only some £3 million, which allows for the general over-all figure of debit which I have just mentioned.

These figures are a very serious background against which to consider the Third Reading of the Finance Bill. When we realise that the House has just been presented with extra Supplementary Estimates amounting to £21 million, when we are told that more Supplementary Estimates are in the offing, and when we remember the Chancellor of the Exchequer's own words, when he said: In particular, I have emphasised that only in special cases, such as, for example, major changes of policy, can any Supplementary Estimates in future be permitted."—[OFFICIAL REPORT, 6th April, 1949; Vol. 463, c. 2084.] —we are astonished that once again the language of the Chancellor has proved to be false and that Supplementary Estimates, apparently with no change in policy, have been introduced and that more are promised.

It is against this sombre background that we come to examine the details of what we have been through in the Bill itself. First of all, the concessions have been quite infinitesimal. We are grateful for what we have received. We are now permitted to take out a dog licence attached to a man or woman owner at a different time of year, and we have been duly grateful for this benefit. The right hon. Gentleman has not been able to meet those of us who took a more imaginative view of the attachment of a dog to the person of a man or woman. We had hoped that by some actuarial calculation, taking into account what the Leader of the Opposition has described as the magic of averages, the Treasury might bring to bear on the dog-owning problem the same genius that other right hon. and hon. Gentleman brought to bear on the construction of our general system of insurance in this country. But we must be grateful for that small mercy.

A slight difference has also been made on cinema seats. There are also two matters to which the right hon. Gentleman referred, research buildings and the question of insurance. We are grateful that the retrospective portion of Clause 22 has been removed. I believe that in the case of these life policies it was wrong that the taxation should have a retrospective effect. We are grateful to the Government for taking up our points on these various matters.

In general, however, the Government have dismissed the arguments of the Opposition as involving either issues and sums which are too small or issues and sums which are too large. Therefore, the right hon. Gentleman, with his long experience of Finance Bills, has been able to balance himself precariously in his place and reject nearly everything which has been put forward. He has been aided by the Economic Secretary and in close alliance with the daily journal attached to the Labour movement, in trying to persuade the public that legitimate arguments put forward on our side are designed to raise the cost of living and increase the burdens on the people. I need only mention that the public fully realise that it is the Chancellor himself who has been obliged by the facts of the situation internally today to be the arch-imposer of cuts of a nature which no Chancellor for some time has been either obliged to or has dared to inflict.

It lies ill in the mouth of speakers on the other side of the House to accuse us of increasing the burdens on the public. If we go into detail in the Debate as to what has passed in the course of the proceedings on the Finance Bill, we note, for example, that while the Government have been trying to accuse us of imposing burdens on the people, they have themselves quite calmly put an extra £10 million in this Bill on the contributors to the occasional benefits, the unemployment, sickness and maternity benefits. The Chancellor of the Exchequer explained it in his Budget speech, and it has been put into force in the Bill.

Although every citizen will be glad to pay this extra sum of money by way of helping our national difficulties, we think it is a peculiar system of obtaining the money. What has happened? In future, relief is not to be allowed to contributors on that part of their contribution relating to these benefits. Why is that? A large number of people are going to pay an indirect tax of which they are not fully aware and about which it is the duty of the Opposition to warn them. The reason is that the Chancellor is unable to do what he ought to have done, and that is to tax the benefits themselves, because, as he said, they are occasional benefits and difficult matters on which to raise taxation.

I want to ask what would have been the sum originally expected from the taxation of the actual occasional benefits. I cannot believe that it would have amounted to £10 million. The fact is that by this devious method, the Government are imposing a burden of £10 million on a vast range of contributors, not only the working class but all classes who come into this range, and they are doing so at the same moment as they are accusing us of trying to impose burdens on the people.

Photo of Mr John Lewis Mr John Lewis , Bolton

The right hon. Gentleman says that in his view the Government may be able to devise some means of collecting tax on occasional benefits. As the Government have not been able to put forward any suggestions, perhaps the right hon. Gentleman can help them by saying in what way tax on these occasional benefits could be collected.

Photo of Mr R.A. Butler Mr R.A. Butler , Saffron Walden

The question I wanted to put to the Government is what the difference in revenue was likely to have been between the idea as originally conceived and this imposition of £10 million on contributors in respect of the part of their contributions devoted to these benefits, which is a very serious burden on a large range of people just because the Government cannot collect the tax from the small number of people who obtain the benefits. That is unfair, and I do not think the Government ought to put a burden on so large a number of people just because they themselves are unable to devise a method for putting the tax on the benefits.

The other objection which the Government have made to the Opposition was that our suggestions were too large or too small. I thought I would try to put forward a small point which related to the remission from taxation of samples brought in for industrial research. That was an absolutely legitimate point to put forward, and it was put forward in all seriousness with a view to helping industrial research. What is the action of the Government? They inform us that they are unable to carry out this minor reform. Therefore, whether we have put forward large reforms or small reforms, we have been presented with a blank face by the Government.

What do the Government themselves do? In Clause 13, when it was a case of the Airways Corporation, they deliberately remitted the tax on materials coming in, for aircraft over a certain span, thereby giving an indirect subsidy to their nationalised industry. We regard this as a most unfair discrimination between legitimate private research as opposed to academic research, which already gets this benefit, and the case of a nationalised concern when it wants remission of taxation no doubt to help it pay its way. I believe that perhaps the most sinister and futile argument used by the Financial Secretary was that in the case of these samples coming in for industrial research the Government were obliged to hesitate because there was an element of the profit motive in private industry.

Is that the way to gain the confidence of industry at the present time when we want to win the battle of exports and encourage the production drive? Why should academic research be treated on a different moral basis from industrial research? Why should the Government remit taxation on materials coming in for Airways Corporation, which is nationalised, and not give this small benefit to industry when it is put forward in a sincere and serious manner?

Photo of Mr R.A. Butler Mr R.A. Butler , Saffron Walden

I see I have stung the right hon. Gentleman to rise, so perhaps he will deal with this point.

Photo of Mr William Hall Mr William Hall , Colne Valley

The only query I would put to the right hon. Gentleman is why, if all this is true, did not the Conservative Government in 1936 do it?

Photo of Mr R.A. Butler Mr R.A. Butler , Saffron Walden

When I brought the matter forward originally I mentioned—there is no secret on that point—that I was hoping, in view of the intense difficulties into which this Government have plunged the country, that the right hon. Gentleman would take some steps to alleviate some of the burdens imposed on industry at the present time.

This issue of business profits could detain me and divert the House for a long time, but I do not know whether it would be in Order on the Third Reading of the Bill, and we have had most of the figures before us. I simply want to say on this question that the Chancellor has partly met some of the anxieties of industry by increasing the depreciation allowance, or wear and tear allowance as it is called. He has also established an inquiry into possible alternative methods of helping industry with the problem of depreciation. It would indeed be churlish were we not again to express our gratitude for these steps. I would ask whoever is to reply to say at what date this inquiry will report and urge him to press those engaged in it to take the widest possible evidence—they will receive a diversity of suggestions on this difficult matter—and to endeavour to present a report as soon as possible which will help further to ease this problem.

It is to be remembered that this concession of the Chancellor is in no way a gift to industry because, in the end, unless the rate of direct taxation comes down, there will be no gift to industry but simply an advance. Of course in some cases the advance will be substantial for the time being and will be of help, but in the end it will all come home to roost, subject, of course, to the rate of tax not falling. If the rate of tax were to fall, then there would be a form of concealed gift to industry. We on this side have not wanted to press for gifts to industry. What we have wanted to do in the various Amendments we have moved unsuccessfully is to attempt to bring before the Government the problem with which industry is faced, namely, the need for the replacement of plant.

The present cost of plant is just under three times what it was in 1938. I have calculated it, and I have been confirmed by the many communications on this subject which I have received. Unless we can get some further help, my fear is that a further burden will fall upon the Exchequer. Take the case of the cotton industry, which on the spinning side at any rate has had to receive a substantial Exchequer grant in order to modernise its machinery. It is undoubtedly the case that a similar possibility may have to be held in mind for the weaving industry, and if industry cannot meet its liability for replacement of plant out of its reserves and undistributed profits, then the Exchequer will have to come to the rescue.

We have, therefore, put forward in the interests of the workers, in the interests of the taxpayer and in the interests of industry a variety of proposals designed to assist industry in this matter We are sorry that the Government have been unable to accept any of our proposals and that the matter stands in the Bill as it was originally, namely, that there is simply an advance for depreciation. I must remind the Financial Secretary that in "The Budget and Your Pocket" this matter of industrial reserves was put very fairly from our point of view. This blue book says on page 15: There are three main ways the nation saves money. Firms do it by not distributing all their profits to the shareholders; last year, leaving aside the cost of keeping up existing machinery and buildings, firms did over a third of the nation's saving. It is because we believe that firms are doing such a large proportion of the nation's saving, which the policy of the Chancellor is making disastrous in the general field of savings, that we ask for serious consideration, if it is possible at this stage, of the needs of industry in respect of depreciation of machinery. While I am on this point of savings, I have given the background of the first three months of the revenue returns which present the serious figure of an overall deficit. I must remind the House that for the first 14 weeks of the savings period there is a deficit, and not a credit, of some £10 million. These surely are different results from the objectives which the right hon. Gentleman stated at the opening of his speech.

The right hon. Gentleman made one short reference to Excise, and I want to draw the attention of the House for a minute or two to the portion of the Bill dealing with Customs and Excise. The figures for Customs show that there is a drop of some £12 million in the anticipated revenue, taking the quarter as representing a quarter of a full year. In the case of Excise, in which a total annual fall of £70 million was envisaged in the Budget, there has been already in one quarter a fall of £27 million which, multiplied, would mean a much greater fall in the Excisce than was anticipated by the Chancellor. These two are serious figures, and I cannot believe that even the hot weather is coming to the rescue of the Chancellor in the matter of the beer returns.

We should like further explanation from the Economic Secretary on the subject of the drop in the returns from Customs and Excise as part of the general picture against which we are considering this Bill. In this connection the right hon. Gentleman mentioned the pools and I would only say that we regard the position as it is left, as most unsatisfactory. We await the report of the Commission on Betting and should be grateful if we could have an indication from the Economic Secretary of when it is likely to present its report.

The last major matter to which the right hon. Gentleman referred was the Death Duties. We debated this at some length yesterday and I shall not go over all the ground again. The right hon. Gentleman observed that the family will not lose by the change. We regard that as an inexact interpretation of the changes made by this Finance Bill. There is no doubt that what he indicated in his opening remarks, namely, that there was a lift in the duties as a whole, must of itself impose a considerable burden on the family. Following up this inaccurate remark of the right hon. Gentleman, the attitude of the Government towards this matter seems to us typical of their whole attitude in drawing up this Bill. They seem to want to be able to stand before the electorate and, with their full propaganda machinery behind them, say, "The poorer people are feeling no burden. We have put it on those who can afford to pay more."

With this in view, they have made a great deal in our Debates, through the Solicitor-General, of the fact that below £17,500 there is no great additional burden and, in fact, in some cases an improvement from the point of view of the family. What they have not made clear to the electorate is that they are perpetrating an injustice in comparison with the old system in regard to the family, at the levels which yield most of the Revenue. They are, therefore, taking the most short-sighted attitude which the Treasury could possibly adopt, and that is to be unjust at higher levels where they will get the money and to try to be popular and cheap in their appeal at the lower levels where they think they will get the votes of the electorate.

I do not believe that this is a wise policy to adopt, because one of the results of this Bill is that, as I said at the beginning, taxation remains at a stunning level, perhaps the highest of any country in the world. At the same time, in the case of Customs and Excise, Income Tax and Death Duty, we are getting to the stage where we are bound to have diminishing returns. Moreover, if Death Duty is maintained at this level and the other ranges of taxation continue, we shall in future have destroyed the reservoir from which the main Revenue returns are likely to come in to the Exchequer—at any rate, the main Revenue returns which can be sought without imposing a burden upon the electorate as a whole.

The result of the Bill, as was stated in an admirable speech yesterday by my hon. Friend the Member for Chippenham (Mr. Eccles), is, in fact, that the whole burden of our social reform and of the welfare State is being set firmly upon the shoulders of the taxpayer. If we can persuade the taxpayer that the objective of the country is one entirely of self-help, there might be some moral basis for the structure of our financial system and policy. But the truth is that right hon. and hon. Gentlemen opposite still use language in this House and in the country designed to prove that benefits can come to people allegedly free or, at any rate, at the expense of the rich. That will no longer be possible in our financial system.

I believe that when we get into the position in which the people really understand who has to pay for their benefits, who has to pay to maintain their standard of living, and that they have to pay for themselves, the public will themselves demand economies, followed by relief in the crushing burden of taxation, whether direct or indirect. The public will realise one day that we cannot take on more than our means will enable us to carry out; and then, if the Government do not work with this tide of public opinion, we are determined to do so, and to save the structure of the social services and of our standard of living, which men of goodwill, of all types and creeds, have already built up.

4.32 p.m.

Photo of Mr Reginald Paget Mr Reginald Paget , Northampton

The right hon. Gentleman the Member for Saffron Walden (Mr. R. A. Butler) concluded his speech with some rather ambiguous words. He said that the people, realising that as taxpayers they have to support the burden of the welfare State—of course, that is true—would rebel against it and demand economies. What economies? Will the right hon. Gentleman tell us that? Does he at this stage say that the benefits of the welfare State should or should not be cut? It is important that hon. Members opposite should make their position on this clear.

We have all been interested in the right hon. Gentleman's speech. We have all been a little intrigued at his selection on this occasion, for he is probably one of the few remaining members of the Conservative Party who still believe in the welfare State, who still believe in full employment. Hon. Members opposite have been ceasing even to pay lip service to full employment in their publications in recent months. They have been going for the 1931 idea; they have been demanding the axe; they have been demanding cuts of food subsidies and of social services, and they have been wishing to get back to a different level of living by the old traditional method of deflation. But that is not the view of the right hon. Gentleman, yet it is he who has spoken for the Conservative Party today.

I wish to deal not with these general things but to confine myself to a comparatively small delusion which is always coming into the arguments put forward from the other side of the House; that is, that a high taxation system puts up the cost of manufacture, and, therefore, puts up the cost of exports. In fact, given a particular standard of living, high taxation has precisely the opposite effect; it lowers the cost of production and the cost of our exports. If we have a given standard of living, then food subsidies mean that our wages are less. It means that because the taxpayers as a whole are paying for part of the workers' food, the manufacturer is getting his labour cheaper.

In exactly the same way National Insurance relieves the manufacturer of a charge he would otherwise have to bear. Efficient businesses are in the habit of running their own welfare departments. They know that they do not get the best results unless there is welfare in their workers' homes. That is a burden which is taken from the employer, which the employer would otherwise have to pay.

Photo of Sir Arthur Baxter Sir Arthur Baxter , Wood Green

May I ask the hon. and learned Member a question on the very interesting line of thought he is now developing? Supposing the party opposite, convinced that he is right, developed more and more social services to the extent of an additional cost of, say, £1,000 million, does he really say that in that case the cost of production would decline correspondingly? That is the argument he is trying to put forward. I think it is absolute moonshine madness.

Photo of Mr Reginald Paget Mr Reginald Paget , Northampton

That is a complete non sequitur, as I am sure the hon. Member will realise from my argument. The argument I am putting is this: that if we have a given standard of living—a given standard of living means, roughly speaking, that people have so much to spend or have so much spent on their behalf—either it has to be paid for by the employer and comes in as a cost of manufacture, or it is paid for by the community as a whole, including the employer, and does not come in as a cost of manufacture; it does not enter into the manufacturer's costings. Whereas, if we had low taxation and the same standard of living, the whole cost of living would have to be borne by wages and we would, of course, have wages demands and wages would have to go up; and that would come into the costings of the manufacturer.

Let me deal with another example, workmen's compensation, which used to be a direct charge on the employer, who had to maintain the insurance. Now, that has been taken off the shoulders of the manufacturer, which means a lower cost of production. Then there is the Health Service. An employer gets better returns if his workmen are healthy I, as a farmer, certainly should not say that my costs or prices were being increased if, for instance, somebody volunteered to pay my veterinary bills. All these items are in fact a concealed subsidy to the manufacturer and exporter. They all mean that the exporters prices are lower than they would be if these social services were not in existence.

Photo of Mr Arthur Molson Mr Arthur Molson , High Peak

Does it follow from this line of argument that the contributions paid for National Insurance and industrial injuries by the employer in respect of each of the men employed by him do not also add to the cost of production?

Photo of Mr Reginald Paget Mr Reginald Paget , Northampton

Oh, certainly they do. But those contributions paid by the employer which come into his costings are only a part of the cost. If the standard of living is to be maintained the expenditure will still be there but it will be borne by the manufacturer who in the form of wages will have to provide the whole of the cost instead of only a part.

My sole argument, and I think it is really incontrovertible, is that a standard of living, a social service and high taxation system mean that manufacturing costs are a lot lower than they would otherwise be. There are exceptions, but taxes come in as to the overwhelming majority after the point of costing. The costings do not include taxation to any considerable extent. Only the replacement of equipment and machinery is normally paid for after taxation, but this Budget and Finance Bill give a great deal of relief in that direction. The proof of the pudding is that our prices in the world overall are competitive today—[HON. MEMBERS: "What?"]—they are competitive.

Photo of Sir Harold Webbe Sir Harold Webbe , Westminster Abbey

The hon. and learned Member should try selling at those prices.

Photo of Mr Reginald Paget Mr Reginald Paget , Northampton

I shall come to that point. The reasons for difficulties in selling are quite other than those of price. The reasons for difficulties in selling are primarily because people will not allow our goods in. It is not the prices but the small amount of imports which, owing to various restrictions, people will accept. When we come to the present position in regard to the dollar gap, it is not manufactured exports that are falling except to a very small degree. In far greater degree it is in raw materials that exports have fallen. Tin in Malaya and cocoa—

Photo of Mr James Milner Mr James Milner , Leeds South East

The hon. and learned Gentleman ought not to indulge in an economic Debate. I think he is in Order in trying to justify taxation set out in the Finance Bill, but he should not go further than that.

Photo of Mr Reginald Paget Mr Reginald Paget , Northampton

Perhaps I was going a little wide. I was trying to justify the high taxation system and I was saying that it was irrelevant to the raw materials which the Americans are not buying today; and, as far as manufactured goods are concerned, that is not where the marked falling off has occurred. In regard to Canada there has been a considerable increase in our sales of manufactured goods. If we take overall averages there is nothing wrong with the price.

Why we cannot get our goods in, is not because our prices are too high, but because there are no free markets in the world today in which our goods can compete. It is a complete illusion to imagine that there is a free economy in America. There is a high tariff subsidy system and the Americans have no intention of allowing our goods in, save, on terms that are not competitive. The moment any of our goods became competitive with American production they would be promptly excluded by their tariff system. That is what their tariff system is for. It is only where our production is not competitive with that of the Americans that they will allow it into their market.

Unfortunately, while our taxation system allows our exports to be cheap and competitive, the American system subsidises through Government purchase and maintains at an uneconomic level the prices of the raw materials we must have. This inflates her export prices. The farm subsidies—the mineral subsidies—the whole American subsidy system is the source of this problem. The U.S. Government pass their internal subsidies on to us. Cutting our prices is not going to solve our difficulties. We have either to stop importing from America, or the Americans have so to arrange prices of their surpluses—and, remember, export is less than 5 per cent. of total American production—that they are exchanging for the non-competitive goods which we alone can send them and which alone they will accept. This world problem has to be solved primarily by an adjustment of American prices, not British prices.

4.48 p.m.

Photo of Mr Arthur Molson Mr Arthur Molson , High Peak

I should be imposing on your patience, Mr. Deputy-Speaker, if I sought to deal with American prices in a Bill which primarily concerns this country, but, in reply to the opening observations of the hon. and learned Member for Northampton (Mr. Paget) I would say it is not a very adequate basis for an argument to take taxation as a whole. There are obviously some taxes which enter into the cost of production and others which do not. I also think it a fallacy to talk about there being a given standard of living in this country. As I said in the Debate on the Finance Bill last year, the standard of living which is being maintained in this country at present is one which is completely unreal and which can only be maintained, unless there is a great increase in production, as long as we are in receipt of eleemosynary help from America.

I wish to confine myself to what I believe to be the main underlying fallacy of this Finance Bill. It is intended to give effect to the Government's economic policy as set out in the Economic Survey, 1949, and is intended to provide the necessary finance in addition to what is provided from the savings of the country. When introducing the Bill, the Chancellor of the Exchequer indicated that he was expecting that the savings of the country would not be adversely affected by this finance Measure. I wish to repeat to this Chancellor of the Exchequer what I said in 1946 to his predecessor, that the programme of capital expenditure on the coal, steel, electricity and gas industries, on housing and education, all involve capital expenditure for which there were not likely to be savings, and that if the programme went beyond the savings of the country the result would be inflation.

How right I was. In the proposals this year the present Chancellor anticipates that it will be possible for there to be approximately the same gross national investment as there was last year—approximately £2,300 million. That can come, in the first place, from company savings; secondly, from personal savings, and thirdly, from governmental savings of which one of the most important items is the Budget surplus. With regard to company savings, the Financial Secretary today spoke with complacency about the assistance which he claims is provided in the Bill to industry for depreciation. But he can hardly deny what I think has come to be generally accepted that at present, owing to the tremendous difference in the cost of replacement of capital equipment since before the war, the depreciation allowance is quite inadequate to enable industry to replace its equipment when it is worn out. All that is provided in the Bill is not that in the long run there shall be actual depreciation allowances which will be enough to replace pre-war equipment with modern equipment at up-to-date prices, but merely that a larger allowance is given in the initial years.

Photo of Mr Arthur Molson Mr Arthur Molson , High Peak

I see the Financial Secretary is shaking his head. If I have fallen into error, no doubt he will correct me.

Photo of Mr William Hall Mr William Hall , Colne Valley

I may be wrong, but I gathered from what the hon. Gentleman was saying that he seems to have assumed that the whole of the capital re-equipment is to come out of the initial allowance. That is not so.

Photo of Mr Arthur Molson Mr Arthur Molson , High Peak

That is the point which I was endeavouring to make—that the total allowance for depreciation is not altered by the present Finance Bill, but that all that happens is that the depreciation allowance in the early years is greater, and that consequently the depreciation allowance under the present law in the later years will be less. The effect of this is, as was said in "The Economist": This system means the overstatement of profits, the understatement of production costs and a consequent erosion of the capital of business. I believe that to be entirely true.

The Chancellor of the Exchequer has apparently been impressed by the representations made to him on this subject, and I welcome the fact that he has set up a committee to go into this matter, but that indicates that for the future what companies put to reserve in undistributed profits will not only be needed for modernisation and extensions, but that some of it will be required for the mere replacement of existing equipment as it is worn out. It is, therefore, disastrous that the rate of tax upon undistributed profits should be 9s. Income Tax plus 2s. Profits Tax. The Chancellor of the Exchequer made an appeal to industry to plough back as much as possible of their profits in order to be able to modernise and extend, and it is poor encouragement to them that what they plough back into the industry should be taxed at the rate of 11s. in the £.

I now come to what can be done by personal savings. This, at one time, was the main source of savings. I find on page 23 of the document entitled "The National Income and Expenditure of the United Kingdom" that whereas the net savings of persons in 1947 was £165 million, by 1948 it had dropped to £6 million. Indeed, that is not surprising as a result of the general financial policy which the Chancellor is following, and on which he prides himself and, indeed, which he elaborated again only last night. The rich who used to do most of the saving now cannot save, and under the new Death Duties they will be less able to do so than before. Unfortunately, those who, in the past, might have been described as the poor are in fact not doing so. I do not know why Lord Mackintosh complained about a letter which I wrote to "The Times" upon this subject, because last year the net total of small savings—that is, what was paid in less what was drawn out—amounted only to £30⅓ million. According to the return I looked up this morning—I notice a slight discrepancy between the figures of my right hon. Friend the Member for Saffron Walden (Mr. R. A. Butler) and my figures—from 1st April, 1949, to 25th June, 1949, there is actually a deficit of £5,500,000 in the case of small savings. Gross personal savings in 1948 were £221 million—just the same figure as in 1938—but the difference is that the percentage of the national income has gone down from 4.9 per cent. to 2.7 per cent.

Photo of Mr Roy Jenkins Mr Roy Jenkins , Southwark Central

I am sure the hon. Gentleman does not wish to present an unfair picture. I think that in referring to the percentage of personal savings compared with the national income, he ought, when dealing with company savings, to say that they have gone up by just enough to balance the decline in personal savings.

Photo of Mr Arthur Molson Mr Arthur Molson , High Peak

It is, of course, true that they have gone up. Since the hon. Gentleman raises that point, I will say how much I regret the appeal to prejudice which the Chancellor of the Exchequer made in his speech on the Bill, when he complained about the profits put to reserve by companies being £1,215 million. In answer to the Chancellor, I would say that that figure is completely meaningless, since he did not state and did not know upon what total capital various profits had been earned; nor did he even know upon what turnover of goods it was earned.

As to what has just been said by the hon. Member for Central Southwark (Mr. Jenkins), I would point out that in this semi-official document to which I have referred it said that the increase in company profits between 1947 and 1948 went either into reserves or into provision for taxation. The point which I am seeking to make is that this Bill imposes such burdens, first of all, upon companies and, secondly upon persons, so that at the end of this financial year the £2,300 million of savings will not have been made by the nation to finance the Government's investment programme without inflation. It might have been expected that wage earners would have been able to have increased their savings, because of the disposable income from property they now take 50 per cent. as compared with 40 per cent. before the war.

My last point relates to the governmental savings whose aggregate are shown in the table in this document as £716 million. But that, be it remembered, is the total saving, constituted by the Budget surplus, all surpluses of local authorities, all depreciation allowances and all transfers, such as war damage payments, compensation to doctors, and so on. This £716 million is the gross saving made in respect of that 40 per cent. of the total income of the country which is being taken by the Government. Therefore, I say that the effect of this very high level of expenditure, which the hon. and learned Member for Northampton thinks is not harmful to industry, is at present to take so large a proportion of the national income of the country that there will be very little left as savings.

I am not one of those who consider that the greater part of Death Duties is a direct drain on capital. I have in the past engaged in newspaper controversy to show that is not the case where ordinary shares, for example, are sold by the executors of a rich man and bought by someone else. That does not reduce the capital of that particular company. I pointed that out at a time when the savings of the country appeared to be reasonably adequate for the purposes for which they were required. The effect of these Death Duties at that time was to draw upon the savings of the country as a whole, because when some shares were sold there had to be a purchaser, and they were purchased out of the gross savings of the country.

Today, when the Government are rightly putting forward a great programme of industrial investment for this country, the effect of the Death Duties, and the increase in those duties, upon which both the Chancellor of the Exchequer and the Economic Secretary preen themselves, will be to make further drains upon the already inadequate savings of the country as a whole. I believe that the financial policy of this Bill will fail because the savings of the country will not be adequate to carry out the Government's economic programme.

5.4 p.m.

Photo of Mr Douglas Houghton Mr Douglas Houghton , Sowerby

I have been very interested in what has been said by the hon. Member for The High Peak (Mr. Molson) about the disappointing results of personal savings. It may be that being a little closer perhaps to working-class folk, I know why there has been this disappointing result in the National Savings Campaign in recent months. I do not think it is because working folk have not the money. If that were so, how should we explain that nine million homes in Britain today appear to have money to invest—such is the term—in football pools in varying amounts from 2s. upwards per week? I constantly remind my friends that they can secure for themselves either increased savings or increased incomes any time they like to discontinue investing their money in football pools. I think that the mass of working folk today do not feel the incentive to save as they used to years ago.

What was the driving force behind this almost religious doctrine of thrift? It was fear of the workhouse and of the relieving officer; it was saving for a rainy day. One of my earliest recollections is having this necessity for thrift dinned into me; I was told that if I did not save up for my old age, I should finish up in the workhouse. Many people were all provided with money boxes almost before they knew what to put into them. Today, working-class folk are contributing to a comprehensive security scheme which is providing for sickness, industrial injuries, for widows and orphans, and for old age. It is only natural that the urge for personal thrift, which was such a feature of the days of social insecurity, has been adjusted to the new conditions of National Health Insurance and the Industrial Injuries Scheme.

I should like to refer to the description the Financial Secretary has given to the Budget whose proposals are embodied in this Bill—that of a "standstill" Budget. I would suggest a somewhat different and more appropriate term—a "standfast" Budget. These proposals represent the determination of the British people to stand firm on the course which they have set and which, they believe, will eventually lead to a solution of our difficulties. I regret, on several grounds, that the Bill does not contain more proposals for shifting the emphasis from indirect to direct taxation. Direct taxation is left, broadly, as it was, and it is perhaps a smaller pro- portion of the national revenue this year than ever before in our history.

On the other hand, there are one or two proposals in the Bill which everyone, I think, will generally welcome. Many people will be glad to see an end, at long last, to the inequitable and obsolete Land Tax. I am sure that the Chancellor of the Exchequer must have been strongly tempted to abolish the thing out of hand, without any fuss or palaver. But our passion for equity has led him to include in the Finance Bill some complicated and no doubt fair provisions for the extinction of Land Tax by compulsory redemptions.

I was a little worried, and I still am, about the manipulations, if I may use that term, of my right hon. and learned Friend in connection with the taxation of National Insurance benefits and the corresponding adjustment of Income Tax on contributions. He no doubt thought that when he could not collect the money on occasional benefits, it was better to drop the idea altogether, and logic probably drove him to make a corresponding adjustment in the Income Tax set-off on that part of the National Health contributions which relate to the benefits he is proposing to relieve from tax.

I have a better idea still, and I make a present of it to my right hon. and learned Friend, and that is to relieve all National Health Insurance benefits from Income Tax and, correspondingly, to make no Income Tax set-off for contributions. I think that that would be the best way of dealing with a difficult situation, for, after all, sickness benefit is not income within the acknowledged definition of income under the Income Tax Acts. It is not income from trade, vocation or employment; still less is unemployment benefit or maternity benefit. However, that is something which my right hon. and learned Friend may wish to consider on another occasion. It would certainly simplify considerably the whole administration of Income Tax.

Another matter in the Bill which troubled all of us in the House was the proposed increase in the tax on football pools. We had a very long Debate on that, but I think, in perspective, we see that the increased tax on football pools is not—as has been alleged by many who have written to us—a tax on the working man's pastime. His pastime is not costing him any more. It costs him no more to go in for football pools than before. His satisfaction, his excitement, his expectation, will not be diminished by the thought that if he wins a big prize it may be a thousand or two less than it would otherwise have been. The truth of the matter is that the tax on football pools is a tax on prizes. It is not even a tax on the promoters, because they will pass it on to the prize-winners. It is a tax on windfalls which has long been acknowledged by Chancellors of the Exchequer as a very desirable tax, and one which has no inflationary or deflationary consequences.

Listening to the speech of the right hon. Member for Saffron Walden (Mr. R. A. Butler) I thought that before he finished I was almost bound to hear what has now become the Tory slogan—"the crushing burden of taxation." If I may say so without undue offence, the Opposition should examine this repeated allegation and assertion about the crushing burden of taxation and the transfer of income to the State. In the words of the hon. Member for The High Peak 40 per cent. of the national income is being taken by the State. Those words need closer examination because they cannot be accepted on their face value.

Let us see whom this burden of taxation is crushing. A very good index to that is our scale of direct taxation. As hon. Members know, but may wish to be reminded, a single person earning £2 10s. a week pays no Income Tax at all. A married person getting £4 10s. a week pays no Income Tax at all. A married couple with one child can earn up to £6 a week before paying tax; with two children they can earn up to £7 a week, and with three children up to £8 a week before they are touched by the crushing burden of Income Tax. Even above that, with the operation of the band of reduced rate of tax at 3s., and with the reduced rate of tax at the 6s. rate, the effective rate of Income Tax on the whole of incomes is remarkably small. A single person earning £4 a week pays Income Tax at the effective rate of 9d. in the £. A married man with no children getting £6 a week pays Income Tax at the effective rate of 8½d. in the £ and a married man with three children getting £10 a week pays tax at the effective rate of 3d. in the £. Even a married man with three children, getting £12 a week, only pays tax at an effective rate of 11½d. in the £; £29 in tax altogether.

In a recent issue of the "Economist" there was a letter from an employer, who wrote: I have from time to time been exceedingly irritated by the excessive grumbling levelled against Income Tax. Owing to persistent publicity, I think that the average employee genuinely believes that he pays Income Tax at the rate of 9s. in the £ on his earnings. I frequently hear of cases of reluctance to work overtime because of, 'Income Tax taking nearly half the extra money.' He goes on, in that letter, to analyse the actual Pay-As-You-Earn deductions for a full financial year on his 168 workers. If the House will bear with me I will quote the experience of a full financial year of deductions on Pay-As-You-Earn from his engineering workers, to whom he said he pays somewhat more than the basic rate of wages: 18 per cent. paid no tax at all; 2 per cent. paid tax up to £1 a year, or 4.3/5d. a week; 4.1/6 per cent. paid tax of over £1 but under £2 a year, or 9¼d. a week; 2 per cent. paid between £2 and £3 a year; 2 per cent. paid between £3 and £4 a year and 1.1/5 per cent. paid over £4 but under £5, which, as he says, brings this result: that 30 per cent. of his workers were paying less than 2s. a week in tax—less than the pay for one hour's work.

All taxation is a diversion of private income to public expenditure. We hear much talk about taxation and the crushing burden of taxation and the 40 per cent. of all incomes which is taken by the State—as if this were a dead loss both to the people themselves and to the community at large; as if all State expenditure were necessarily a bad thing. We know, in fact, that much taxation is a redistribution of purchasing power.

Photo of Mr Arthur Molson Mr Arthur Molson , High Peak

I do not deny anything of that sort, but I say that if the State decides to take the income and redistribute it as it chooses, that is a discouragement to incentive for the person who earns it. If we are to take it from the working man and give it away to other people, because we think they deserve it, it means that that is a disincentive to the worker.

Photo of Mr Douglas Houghton Mr Douglas Houghton , Sowerby

I will show that much of the money taken in taxation, and taken away from the working man, is, in fact, given back to the working man with something added to it. I will give examples of taxation which is redistribution of purchasing power, and the first I will mention is interest on internal debt. That takes £485 million a year. Surely that is one of the chief features of our taxation system which has the effect of redistributing income. Then we have cash payments, like old age pensions and insurance benefits and family allowances; but all these, as a charge on taxation, are costing us less than the interest on internal debt.

Other features of our taxation system surely mean that taxes are devoted to purposes which increase efficiency, prevent waste of man-power and increase the general well-being of the country. This is taxation devoted to purposes which are designed to brace the nation for the tasks which lie ahead, and render it fit and efficient for the tasks which rest upon us. Examples of that come to mind at once; in housing, education and in the Health Service. This taxation, also, is for internal and external security.

Here we come to one of the biggest single items in the whole of our financial system, that of defence. That is more than a charge upon our finances; it is a drain upon our man-power, our labour and materials. A reflection which I think we shall all do well to bear in mind is whether Britain can afford to carry this enormous expenditure, much of it waste from the point of view of economic recovery, much of it a drain upon national resources. We shall have to reflect on whether we can afford it and whether the security which we are buying with this money is, after all, real security. Then we also have taxation to keep down the cost of living, with food subsidies costing, in taxation, £465 million a year.

There we have 70 per cent. of the nation's total expenditure analysed in that way, partly in redistribution of purchasing power, partly in purposes which are designed to strengthen and improve the efficiency of the country, to secure internal and external defence and to keep the cost of essentials steady and so stem the pressure for wage increases. We all know that we cannot reduce taxation without reducing expenditure, and we are constantly asking, and I think we are entitled to an answer, where the cuts are to come and what will be the effect of making them.

I mention here one example of the sort of confusion of thought into which we can get on the question of reductions of taxation—the reduction of taxation by cutting out food subsidies. If we do we reduce taxation and actually increase the cost of living. Are we to reduce taxation by cutting out the Health Service? If so, we reduce taxation but increase the cost of sickness. Are we to reduce taxation by restoring secondary school fees and by withdrawing university grants? If so, we reduce taxation but we increase the cost of higher education. Are we to reduce taxation by cuts in the social services? If so, we reduce taxation at the expense of the aged, the sick, the crippled, the disabled, the blind, the widowed, and the unemployed. If it is in that direction that the eyes of right hon. and hon. Gentlemen opposite are turned in our immediate difficulties all I will say is that the Conservative Party are running true to type, and that their eyes are cast back right to 1931, when all those things were done as the basis of financial recovery.

I challenge hon. Gentlemen opposite by asking the question: are we to reduce taxation by cuts in defence? Another point is, if we are to reduce taxation, what shall we reduce? What would be the consequences on the level of prices and costs if we were to reduce taxation in certain directions? Take, for example, the tax on tobacco. If one of the prime purposes of the high tax on tobacco is—

Photo of Mr James Milner Mr James Milner , Leeds South East

The hon. Member is getting away from the contents of the Bill. He seems to be expounding economics and other matters which have no direct relation to taxation, which is, in the main, the subject matter of the Finance Bill.

Photo of Mr R.A. Butler Mr R.A. Butler , Saffron Walden

The hon. Member has made various observations. I had understood that when the Financial Secretary had moved the Third Reading we were obliged to concentrate upon the contents of the Bill. I accordingly devoted my speech to a large extent to the somewhat arid surface of the contents of the Bill, only following the figures raised by the right hon. Gentleman. Are we at liberty to answer from this side of the House the allegations made by the hon. Member?

Photo of Mr James Milner Mr James Milner , Leeds South East

If I am in the Chair, I shall certainly give the same liberty of action which has been given to the hon. Member for Sowerby (Mr. Houghton). The hon. Gentleman is dealing with the question of taxation, but he also appears to be going into other matters which have no direct relation to it.

Photo of Mr Douglas Houghton Mr Douglas Houghton , Sowerby

I beg your pardon, Sir. I can only plead that, being new to the House, I did, as part of my apprenticeship read through the whole of the speeches made on the Third Reading of the Finance Bill of last year.

Photo of Mr James Milner Mr James Milner , Leeds South East

The hon. Member appeared to me to be going into questions of expenditure, which is not, of course, appropriate at this stage, and also to be referring to alternative methods of taxation, which, again, do not arise.

Photo of Mr Douglas Houghton Mr Douglas Houghton , Sowerby

I thought that questions of taxation, at all events, were very close indeed to the Finance Bill, but if I transgressed the Rules of Order, I apologise, and I hope that you Mr. Deputy-Speaker, will guide me if I stray again in the concluding remarks which I wish to make.

This seems to me to be so vitally important in connection with general statements which were certainly made, if I may say so with respect, by the right hon. Gentleman the Member for Saffron Walden when the "crushing burden of taxation" was referred to, that I thought I might be permitted to analyse the truth of that assertion, at all events in regard to some numerous sections of the community. If I may proceed—

Photo of Mr James Milner Mr James Milner , Leeds South East

That may be so in so far as relevant items are included in the Finance Bill, but not if they are outside the Bill.

Photo of Mr William Hall Mr William Hall , Colne Valley

If I might intervene, Mr. Deputy-Speaker, I would say that have listened carefully to what my hon. Friend has said, and that most of what he has referred to seems to be within the four corners of the Bill.

Photo of Mr James Milner Mr James Milner , Leeds South East

I am obliged to the right hon. Gentleman.

Photo of Mr Douglas Houghton Mr Douglas Houghton , Sowerby

I was trying to examine some of the consequences of reducing taxation. I question very much whether reductions in taxation in certain directions would have the desirable consequences which hon. and right hon. Gentlemen opposite seem to suggest. For instance, are we sure that if we abolished some of our taxes the consequences would not be harmful? Reduced taxation is inflationary in that tax reductions are equivalent to wage and salary increases; they are equivalent to increases in personal incomes, and unless those increases in personal incomes are matched by corresponding increases in goods and services, I submit to the House that the result is inflation.

When we are speaking of incentives, as Members of the Opposition are constantly doing, I would remind the House that in last year's Finance Act concessions were made to 8,750,000 direct taxpayers, and that tax reductions ranging between £2 10s. and £86 5s. a year were made on all earned incomes up to £2,000 a year. I submit that my right hon. and learned Friend is absolutely right when he sets his face against releasing more loose money by reduced taxation at a time when the consequences are almost certain to be inflationary.

Photo of Sir Arthur Baxter Sir Arthur Baxter , Wood Green

At one moment the hon. Member seemed to be commending the Chancellor for having made some tax concessions last year, and then he congratulated him on not having done so this year. Of which year does the hon. Member approve?

Photo of Mr Douglas Houghton Mr Douglas Houghton , Sowerby

I am approving of this year in the light of the facts. I should have approved of last year's Finance Act had I been here to do so, but, in retrospect, I suggest that the tax reductions made last year have increased the cost of living because they have not been matched by corresponding increases in goods and services. To that extent the incentive which my right hon. and learned Friend hoped to give by the Finance Act last year has not proved to be as good as he thought it would be.

I am coming to the end of this analysis of the Conservative slogan of "the crushing burden of taxation," and such phrases as are used about the State taking 40 per cent. of all incomes. The very proposal made earlier for a reduc- tion in the standard rate of tax, which happily is not contained in the Bill now before us—

Photo of Mr Sidney Shephard Mr Sidney Shephard , Newark

I should like to make it perfectly clear that the statement made by hon. Members on this side of the House is that 40 per cent. is the proportion of the national income and not the proportion of all incomes.

Photo of Mr Douglas Houghton Mr Douglas Houghton , Sowerby

For all I know, it might be a higher percentage on personal income in some cases and a very much lower percentage in many others.

I wish to mention the question of incentives. We heard in an earlier discussion on this Bill, I think from the hon. Member for Hornsey (Mr. Gammans), about workers who will not work overtime because of the higher rate of tax. I submit that it is evident that workers who will not do extra time for extra money are not in need of extra money. If by reducing taxation we give them more money for no more work, what will be the consequence on the level of prices then? What is the significance of the nature of some of the expenditure on which many folks are embarking at present and which, surely, can have no bearing on incentives and does not confirm the suggestion that people are looking for more money income in order to enjoy a reasonable standard of life? Is there any sign in all that we see, of the crushing burden of taxation in industry? Is there any sign in their profits? Is there any sign in their dividends or in their bonus share issues which are becoming more numerous now that my right hon. and learned Friend has proposed to abolish the 10 per cent. tax on bonus issues?

I agree entirely that some revision of the basis of taxation on profits is probably overdue. The committee which the Chancellor has appointed to inquire into that subject will, no doubt, present a useful and interesting report in due course. The burden on industry is not taxation. The burden on industry is slackness, waste and outmoded habits of thought on the part of both management and men, together with the excessive cost of raw materials which come from overseas and for which we are being held to ransom by those who have them to sell.

In this Bill I think that, on the whole, we have sound principles of finance in the circumstances in which we find ourselves. What is now needed is the economic education and enlightenment of the people. I think that the country badly needs economic education. The only question is whether they will learn their economics from hon. Gentlemen opposite or from us. Some people say that there is no time for the people to learn their economics from the architects and founders of the welfare State. It is alleged by hon. Gentlemen opposite at times, that the Tory method of reduced taxation, in which the better-off will benefit and possibly the country will have the burden of 1,500,000 unemployed, is really the economic lesson to teach the British people. If that is the sort of lesson which is to flow from the political philosophy and the economic doctrines of hon. Gentlemen opposite, all I can say is that a return to that is terrifying, immoral and unthinkable.

5.35 p.m.

Photo of Sir Godfrey Nicholson Sir Godfrey Nicholson , Farnham

I was very much interested in the speech of the hon. Member for Sowerby (Mr. Houghton) not only because he is a comparatively rare visitor to the House, but for two other reasons. First, he attempted to deal with the Budget in a way in which I think it ought to be dealt with—not by making a piecemeal, meticulous examination of its propositions but by treating it as one in a series, marking a stage in our progression either upwards or downwards. Secondly, I thought I saw in his speech a preview of the sort of election speeches which the Labour Party will make when the General Election comes along.

I should like to warn him and his colleagues that they will undergo severe criticism if they do not cleanse themselves of at least two of the major errors of which the hon. Gentleman was guilty. He must certainly clear his mind of one idea. He seems to think that nobody, except those who pay direct taxes, bears the burden of taxation. He must recognise that in so far as taxation is a charge on production—and I should say that it is at least 95 per cent. that now—it is paid by every citizen. I must say that the hon. Gentleman is not alone in that illusion. He must also get out of the way of saying that high taxation is all right provided that the object on which the money is spent is desirable. The party opposite will have to rid themselves of that idea before they can make intelligent contributions to our economic thought.

I wish to follow the hon. Gentleman's example, because I do not think that the House should say goodbye to this Bill without yet another reminder of its implications for the future. I suggest that the implications are far graver than are generally realised. The gravity of the position lies in something about which we have heard a good deal today and a certain amount during the Budget Debates. I refer to this familiar figure of the 40 per cent. of the national income which is taken from production by the Government and spent on various objects. That is the highest figure in the recorded history of any country in the world. The nearest corresponding figure is that of the United States, which is 25 per cent. After that, Sweden and South Africa come next at 19 per cent.

I do not think that we have yet faced the fact that this unprecedented level of taxation is exerting continuous inflationary pressure upon our economy, and that it gravely threatens the cost of living. Not only does it gravely threaten the cost of living, but it has already affected it, and inevitably it is gravely affecting our costs of production. I do not offer that for the acceptance of the House merely because it is my conclusion. It is the conclusion held by the majority of economists in the country. When economists do agree to any large extent, I think they should be listened to. They have at last agreed on something. There is something far more serious even than that.

This inflationary pressure, far from becoming less or remaining stationary, is certain to increase unless we call a halt to our rake's progress. The danger of looking at the Budget in isolation is that people tend to ignore trends. The trend here is certainly that our commitments are inevitably becoming larger year by year. Another trend is that the yields from existing rates of taxation are becoming less and less. We have already heard from my right hon. Friend the Member for Saffron Walden (Mr. R. A. Butler) that the yields from the present rates of taxation in this Budget are below the estimates. I venture to predict that even this Budget will not balance at the end of the financial year. Unless we recast our fiscal ideas radically, our progress, from being a rake's progress will become Gadarene and we shall run down to the depths of disaster.

I do not propose to keep the House for long, but I want to put four ideas before hon. Members. Firstly, I ask the House to recognise that inflationary pressure exerted on the cost of living is the main cause of wage demands. I have very great sympathy with wage demands, and I cannot see how hon. Gentlemen opposite can support the Government in resisting demands for wage increases from classes of the community who are by no means overpaid, when they support a Bill like this which increases the taxation on certain necessities or quasi-necessities, like tobacco, which affect the high level of direct taxation.

Photo of Mr James Harrison Mr James Harrison , Nottingham East

May I interrupt the hon. Gentleman? In what part of the Bill is an increase of the duty on tobacco indicated?

Photo of Sir Godfrey Nicholson Sir Godfrey Nicholson , Farnham

I should have said maintain the high level of taxation on tobacco. I am grateful to the hon. Gentleman for correcting me. I should have thought that it was perfectly obvious that any form of indirect taxation of quasi-necessities must result in increased wage demands. I should have thought it was perfectly obvious that anything which tends to increase the cost of manufacture of articles and thereby raises the cost of living must mean increased wage demands. I say that there is something like hypocrisy, though perhaps unconscious hypocrisy—

Photo of Mr Gilbert Mitchison Mr Gilbert Mitchison , Kettering

May I ask the hon. Gentleman a question? Would not the removal or the diminution of the food subsidies have exactly that object?

Photo of Sir Godfrey Nicholson Sir Godfrey Nicholson , Farnham

I have not yet come to the food subsidies.

Photo of Mr Francis Bowles Mr Francis Bowles , Nuneaton

Food subsidies are not in the Bill, nor is the tobacco duty.

Photo of Sir Godfrey Nicholson Sir Godfrey Nicholson , Farnham

I was going to say that I see something hypocritical, though perhaps quite unintentionally so, in the policy of wage restriction without any attempt to combat the steady rise in the cost of living which has already taken place and which will become more rapid unless steps are taken to arrest it.

Photo of Sir Arthur Baxter Sir Arthur Baxter , Wood Green

On a point of Order. When you were not in the Chair, Mr. Deputy-Speaker, the Debate roamed very far and extended from the prices of American goods to I do not know what. When he was asked on a point of Order, your predecessor in the Chair implied that we could go very wide in this Debate, provided that we did not labour any one point too long if it was not directly in the Bill. Certainly, a discussion on the maintenance of the taxation on tobacco would have been allowed 20 minutes ago, and we should like your instructions on the point, because practically nobody has mentioned the Finance Bill.

Photo of Mr Francis Bowles Mr Francis Bowles , Nuneaton

That seems a pity, and I cannot comment on that at all. In a general way, the hon. Gentleman can refer to the cost of living, which he says is being affected by taxation in this Bill, but as tobacco is not mentioned I should not have thought that he would be right in referring to it.

Photo of Sir Godfrey Nicholson Sir Godfrey Nicholson , Farnham

I quite agree, Mr. Deputy-Speaker. The purport of my speech is to warn the House and the country that the maintenance of the present level of taxation which is enshrined in this Bill will be disastrous, and I will endeavour to keep to that general line.

I say that the level of taxation being maintained as it is now means that we are at the very best definitely committed, even if taxation goes no higher than the present rates, to reducing the real value of money incomes. I think that any increase in the level of taxation, so long as the present trends of Government expenditure are maintained, will inevitably lead to a reduction in the real income of every individual in the country. There is only one alternative, and that is a measure of inflation, and that in itself implies that it is to be nothing more than a temporary palliative unless Government expenditure and taxation should come down pro rata. The fact is that the Socialist terrestrial paradise is not only not here yet, but the prospects of it are actually receding.

The second point is the one which I have already touched upon in connection with the speech of the hon. Member for Sowerby. We must rid ourselves of the fallacy that the evils of high taxation do not matter provided that the product of that taxation is spent on wise or desirable objects. Economic laws do not work on humanitarian lines. The fact that we are spending the products of our high taxation on objects that are considered desirable does not at all affect the evil consequences of high taxation. If I were to borrow money from the bank to save the life of my wife, to educate my children or to do something else equally desirable, it has no effect on the fact that I have an overdraft at the bank. The political philosophy of hon. Members opposite seems to be that economic laws work in such a way that they can spend the products of an inflationary budget on worthy objects without harmful results. It is as if one said that if one puts ones money on a horse one will be in debt to the bank but not if one saves the life of one's wife with the money that has been borrowed. I beg of them not to attack expenditure from the angle of whether it is desirable or not, but from the angle of whether we have the money to spend, and whether, in fact, we are not spending money which is really not there.

The welfare State is not just a redistribution of wealth. By its very definition, it must mean incurring new items of expenditure, and in so far as these are incurred, they are a charge upon the production of the country. After all, even if it was just a redistribution of wealth, there would be certain losses due to the fact that money passes through the hands of the Government. Unless they incur expenditure for the good of the people which the people would in any case probably incur for themselves, it must be a new charge on the productive capacity of this country. That is the policy which is at the root of the welfare State, and that is the policy which will bring it down in ruins. We cannot incur new expenditure and pretend that the cost is not paid for by every citizen of the country.

The plain truth is that we are living beyond our means, and that the nation is actually spending money that is not there, with the inevitable consequence either that we land in inflation, or else impose a much lower standard of life on every single person in the country. At the moment, inflation has been largely resisted owing to the refusal to grant wage demands, with the result that the standard of living has become gradually depressed, and it will become much more depressed when it becomes evident that our commitments have increased, as they are bound to do, and that the yields have been less.

I am appalled that, on the Third Reading of this most important Bill, our Debate should be so sparsely attended, and that so little attention should be paid to it by the Government. This is the last chance in the great annual financial inquest of the nation before we go to our constituencies during the Recess. I wonder how many hon. Gentlemen opposite when they go to meet their constituents will point out that our salvation stands or falls by our internal economic health, which, in its turn, stands or falls upon whether we can remove the inflationary pressure that is bearing so heavily upon us. Do not let us forget one other thing. If we have a fall in our standard of life, which at the moment seems inevitable, that will bear in its train a steady encroachment on our civil liberties.

My third point is the familiar one of the disincentive effect. I do not see how it can be contended that high taxation, direct or indirect, does not hinder greater output and greater efficiency because that applies equally to wage earners or to directors of companies. How can anybody deny that when companies pay up to 70 per cent. of their profits to the Government? How can anybody deny at the present time that the high Excise Duties tend to make people demand wage increases? How can anybody deny that if a man is already paying a very high rate of Income Tax and Surtax, he is unwilling to take on more work and new commitments in the industrial ventures of this country? How can anybody deny that the salaried class with the present rate of tax is bound to demand higher rates of salaries?

My fourth point is that all of us, on whatever side of the House we sit, and everybody in the country, are guilty of focusing our attention too much on our external difficulties. We do that partly because we are under the impression that those difficulties are largely due to factors outside our control, and that therefore it is useless to worry overmuch about them. Our internal economic health is the prime factor in considering our external difficulties. Whatever solution, or partial solution, there may be of our external difficulties, and whatever help we may get from America or elsewhere, or through greater co-operation in Europe and throughout the Commonwealth, all that will be completely vitiated unless we can remove the effect of inflationary pressure at home.

We in this House cannot control many of the factors affecting our external position, but we can and must reduce taxation. I am afraid that all of us—and particularly hon. Members opposite—will get a rude awakening next year. I wonder how the speech of the hon. Member for Sowerby will read then, and if he will read it himself with satisfaction?

Photo of Sir Godfrey Nicholson Sir Godfrey Nicholson , Farnham

Cheer up! What is the good of whistling to keep up one's spirits when one sees the country being led gaily along the road to disaster by hon. Members opposite? They say that the very existence of high taxation tends to help industry. That is not only juvenile and pathetic; it is disastrous. I would exclude no single item of expenditure from our survey in order to see where economies can be made. I do not see, whether it is for defence purposes, social services, food subsidies, interest on the National Debt, or anything else, how one can honestly do otherwise.

There is no hope of survival for this country unless within the next year or two we can reduce our expenditure by many hundreds of millions of pounds. I cannot give the exact figure, of course, and if I tried to give a specific figure it would be only guesswork. I do not believe that any State that exists in the world today, or which has ever existed, could possibly survive if 40 per cent. of the productive earnings of the average man and woman has to be paid to the State by way of taxation. So much for the purely economic aspects of the question.

I wish to address my few remaining sentences to the Chancellor of the Exchequer. I am sorry he is not here, but I am the last person to charge him with discourtesy because, unlike some right hon. Members opposite, he is always prepared to listen to speeches made even by back benchers on this side of the House. I believe that a great responsibility rests on the right hon. and learned Gentleman's shoulders—a greater responsibility, indeed, than he realises. It is within his power to become a great national leader and to give a national lead to the country which will bring us back to the path of sanity. I can see the difficulty in which he is placed; he wishes to carry his party with him, and, therefore, he has to play up to the Left in party, and, at the same time, try to lead us on to a sound path.

The first thing I wish to ask him is not to delay too long in coming forward as a great national leader, because our life blood is slowly but surely ebbing away. Secondly, that he has established a great reputation for integrity. By integrity, I do not just mean honesty; I mean being consistent, being the same all the way through. It is most important, not only for the right hon. and learned Gentleman, but for the nation as a whole that he should maintain that reputation for integrity if he is to get all sections of the country behind him. He cannot maintain that reputation indefinitely if at one moment he makes great resounding idealistic national speeches and then the next moment plays the lowest sort of party game.

I am particularly anxious not to be offensive and not to appear to be offensive. I do not mean to be, but I would remind the right hon. and learned Gentleman of the great temptation which besets men in prominent positions to exploit their reputation whatever it may be, for integrity, courage, brains or skill, in the interest of personal ambition. I am not accusing him of doing that, but I do ask him to bear that danger in mind. I regard the situation as very grave. A lot of it is outside our own control, but our internal economic condition is within the control of this House. I think that we are all—myself included—committing a crime even in acquiescing in this Budget. Heaven send we do not commit the same crime next year.

5.57 p.m.

Photo of Mr Peter Bennett Mr Peter Bennett , Birmingham, Edgbaston

We are parting with a Finance Bill which puts our expenditure and taxation at a very high level. That is admitted, but what has surprised me this afternoon is the way in which certain hon. Members opposite have tried to suggest that this high taxation is almost a virtue. They cannot be genuine. The hon. and learned Member for Northampton (Mr. Paget) suggested that industry is really fortunate in having this high taxation. He implied that if they did not have it, many things would not be done, that they would have to do certain things themselves, and that the expense of doing those things would fall on them. The suggestion has been made that wage increases would be asked for. It is quite evident that hon. Members opposite who speak in that way have never had anything to do with wage negotiations.

I can assure them that if in such negotiations it were to be suggested that because of the services that were given by statute or that industry was obliged to give, plus any they gave voluntarily when they could afford to do so, the workers should drop all applications for wage increases—if that were suggested by hon. Members, I say they would get no change whatever. The workers say quite rightly, that they take all that and then want to be paid for the labour they render. To say that high taxation is an indirect service to industry is completely to misstate the position. To say that it has no relation to the high costs is also a misstatement, as is the suggestion made by the hon. and learned Member for Northampton that we are having trouble in the world today not because of high costs, but simply because people will not buy our goods.

There is a certain amount of truth in the statement which the hon. and learned Member made about the United States. They have a high tariff policy, and there are the pressure groups. If we got in, we should probably find them working to get us out again. There are, however, a large number of articles which we can supply to the United States and on which pressure groups are not working. We could sell a great many more motor cars in the United States if only our prices were comparable, size for price. It would not be in the quantity in which the Americans make cars, but the American manufacturers themselves have said that as long as it is only a small number, it would not pay them to tool up and they would not make that particular type of car. If we could send 100,000 motor cars to America, it would earn a great many dollars. The reason we cannot do it is that our costs are not right. I believe we could sell a great many more goods if our prices were right.

I have just returned from a visit to America and Canada and, whatever the hon. and learned Member may say about America not wanting our goods, that is not the case in Canada. The Canadians are most anxious to buy our goods and there is no suggestion that they will keep them out. They know that this country is the market to which they send their produce and that their produce has to be paid for. In the old days it was paid for by triangular multilateral trade. Today it is not being paid for and the Canadians are begging us to come and see what they want and to send our goods.

Everywhere I was told, "The trouble is that your prices are too high." It is not the case that tariffs are causing this difficulty, because the Canadians are buying from the United States who have the same tariffs to surmount. The Americans are getting the market and we are not, and the reason is that our costs are too high.

Photo of Mr Francis Bowles Mr Francis Bowles , Nuneaton

I think the hon. Member must relate the high cost of production to taxation, otherwise it is not relevant on Third Reading.

Photo of Mr Peter Bennett Mr Peter Bennett , Birmingham, Edgbaston

You did not hear the arguments put forward earlier. Mr. Deputy-Speaker. I was trying to show that our costs are too high, and in industry we maintain that one of the reasons they are high is the enormous burden of taxation which we carry. The hon. and learned Member for Northampton (Mr. Paget) suggested that this is a benefit to us instead of being a burden and I have tried to show, from personal experience, that he was quite wrong, that we must get our costs down and that one of the ways to do it would be by reducing the burden of taxation which industry has to carry.

Photo of Mr Gilbert Mitchison Mr Gilbert Mitchison , Kettering

On a point of Order. What is the connection between the cost of production of a motor car, as distinct from the profits on it, with anything in this Finance Bill?

Photo of Mr Francis Bowles Mr Francis Bowles , Nuneaton

I was just drawing the hon. Member's attention to the fact that he must keep slightly closer on Third Reading to the contents of the Bill.

Photo of Mr R.A. Butler Mr R.A. Butler , Saffron Walden

I think it is true to say that the hon. and learned Member for Northampton (Mr. Paget), when unfortunately you were not in the Chair, Sir, was able to develop his argument at some length, and my hon. Friend the Member for Edgbaston (Sir P. Bennett), no doubt without fully realising the position, is simply following the argument adduced by the neighbour of the hon. and learned Member for Kettering (Mr. Mitchison).

Photo of Mr Gilbert Mitchison Mr Gilbert Mitchison , Kettering

Is there any reason why, a person having gone down the wrong road and having been warned that he is on it, should then continue on it?

Photo of Mr Francis Bowles Mr Francis Bowles , Nuneaton

I think the hon. Member for Edgbaston understands the position.

Photo of Mr Peter Bennett Mr Peter Bennett , Birmingham, Edgbaston

I have made my point and to my own satisfaction I have completely demolished the arguments of the hon. and learned Member for Northampton. I am sorry that he is not here to admit it. No doubt he will read what I have said and if he does not agree he will tell me so.

Photo of Sir George Benson Sir George Benson , Chesterfield

Before the hon. Member leaves that point perhaps he will explain something to me. He is a great industrialist and we always listen to him with very great care on industrial matters. Would he tell us from his own experience, and in his own industry, how taxation enters into the cost of production?

Photo of Mr Peter Bennett Mr Peter Bennett , Birmingham, Edgbaston

That is not in the Bill and it would take me a long time to deal with that point. I shall certainly have very great pleasure in discussing that matter with the hon. Member at our leisure, but we could not do it in the time at my disposal today, nor is the subject in the Bill.

The point I want to make is one, I think, in which he will follow me, and it is on depreciation. We have heard a lot about the concession which has been made in the Budget by the increase in the initial allowance for depreciation. As we have tried to point out, and as my right hon. Friend the Member for Saffron Walden (Mr. R. A. Butler) certainly pointed out, we are not getting anything at all; we are only having our entitlement a little earlier than we should ordinarily have it. In the long run we shall get exactly the same amount allowed to us under this scheme as under the previous scheme or the old scheme we had before the war, when it was averaged over the whole period.

This concession is not really what industry has been asking for. It is grateful for this little interest-free loan, which is all it amounts to, but the problem remains. Before the war we were depreciating at 10 per cent. per annum. Of course, it was not exactly that, because, as everyone knows, it is on a diminishing figure, but for the sake of clarity I will say we depreciated at 10 per cent. per annum. At the end of 10 years we had sufficient to replace our plant. Now that plant is costing, hon. Members might say, twice as much; as my right hon. Friend the Member for Saffron Walden said, in some cases it may be three times as much. What happens when we come to accumulate the amount of depreciation? We have only half the amount necessary to replace our plant.

Therefore, it is said, we must make provision ourselves, and so we set out, if we can, to make provision. We say we will double the amount of our depreciation and, instead of depreciating at 10 per cent., we will depreciate at 20 per cent. But we are allowed only 10 per cent. in our negotiations with the Revenue, so that the second 10 per cent. has to pay tax, which means at least another 10 per cent.; and so, in order to replace a tool today, if it is to cost us twice as much, we have to depreciate at the rate of 30 per cent. If it is to cost three times as much for the same plant it means that we have to depreciate at 50 per cent. per annum in order to replace it.

When that is explained it will be realised how serious the position has become in industry. We are accused of not keeping our plant up to date and of not competing with the Americans, and we are told that we are not efficient. We shall never be efficient unless we are allowed to depreciate the value of the plant so that we can replace it when the time comes. I asked my accountants to work it out, and they told me that under the present rules and regulations our plant is supposed to last 26 years. If it takes me 26 years to replace my plant, what chance have I of complying with the exhortations from all quarters to be more efficient? It is quite impossible, and for that reason industry is asking the Government if it cannot be done in this Budget, to consider the question and go very carefully into it because industry is running short of money. New issues are coming out. They will come in a flood and the finance will not be there. One of the reasons why we are facing the future with so much concern is that we can see our plant running down, we cannot see the ways and means of replacing it, and we know that the whole nation will suffer as a consequence.

6.8 p.m.

Mr. Scott-Elliot:

I hope the hon. Member for Edgbaston (Sir P. Bennett), to whose views we always listen with the greatest respect, will forgive me if I do not comment on the points he has made. I shall not detain the House long, but I want to say a word on behalf of the Executive Committee of the National Trust—a word of thanks to my right hon. and learned Friend for what he has done for us under Clause 27. Hon. Members may remember that this Clause provides for the exemption from Death Duties of money bequeathed to the National Trust as an endowment in respect of properties which may be made over to us. We consider that that will be very valuable in view of the great difficulties that we are likely to have in maintaining our properties in future.

Arising out of that, I hope the public will understand first, the importance which the Government attach to the work we do and, secondly, the fact that the Trust depends upon public subscriptions and bequests. There are far too many people who seem to think that the National Trust is itself some kind of Government Department. Of course, it is nothing of the kind. It depends entirely on support from the public, and only if that support is forthcoming in sufficient measure will the Trust be able to carry out the great national work which it has done in the past and which it hopes to do in the future.

6.10 p.m.

Photo of Sir Stanley Reed Sir Stanley Reed , Aylesbury

If I go over a certain amount of ground that has been traversed before I hope I may have the forgiveness of the House, because it seems to me that the one major point I want to put before the House has been mentioned more than once already. I think every hon. Member wherever he may sit, has a profound respect for the hard, realistic Budget which the Chancellor presented for our consideration. We value its lucidity; we value its courage; and we value its foresight. Now, however, that that Budget has gone through the House almost without the change of a comma, certainly without the slightest material alteration in the scale of taxation and expenditure, I would ask the House to consider what it really means.

What is the plain, stark fact that we have to put before the country for its consideration now and when the election comes? Does it not narrow itself down to this one straight issue, that taxation is taking 40 per cent. of the national revenue, that expenditure is £3,700 million on our general account, and that there is an overall surplus of only £14 million? With some branches of taxation working out the law of diminishing returns, we have this overall surplus of £14 million; and with all respect to the Financial Secretary, in the one branch in which they have attempted to arrest the fall in returns, that is, in the penny on beer, the law of diminishing returns may operate yet as it has already done. April was a very hot month, and May a cold month, and now we are back in the hot weather again, and the possible slight increase the right hon. Gentleman welcomes will have been due to the hot weather in April.

The overall surplus is £14 million. The House should mark the figures which my right hon. Friend the Member for Saffron Walden (Mr. R. A. Butler) has put before it today. If those figures are borne out by the law of diminishing returns, there will be no surplus and there may be a heavy debt. How are the Government to face the deficit with the present scale of taxation, with the present yield of taxation, and with the possible further yield of taxation, looking to the effects of the beer duty; and what will be the effects if there is a reduction in industrial profits? What provision are the Government making? What margin have they left? I ask the Economic Secretary, who is to reply to the Debate for the Government, to give special consideration to the figures that my right hon. Friend put before us today, because I venture to think they are of profound significance, and they cause us a very great deal of anxiety.

I have listened to most of this Debate, and have heard admirable suggestions made from this side of the House for a reduction in Income Tax, for a reduction in Purchase Tax, and for abatements here and for abatements there, and I have listened to the arguments produced by the Government. With all respect to them, let me say to them that if they were to abandon those fine-drawn non possumus arguments, their task would be easier and this House would be better content. After all is said and done, any realistic and reasoned survey of the Budget statement and of the facts put before us by the Government leads to this point, that the Government dare not reduce taxation at the present time. They dare not reduce taxation because that would upset the whole of the balance of the Budget.

Although they may use those fine arguments, the plain fact is that I do not think any Minister, in my recollection as a Member of this House, was ever put in a more painful position than was the Postmaster-General when he was sent down to justify an increase in the telephone charges. What he had to say, in effect—although he was not allowed to say it—was that the Chancellor must draw in revenue from wherever he can get it, and so he proposed to use what should be a public service as a vehicle for increasing taxation. That is a thoroughly bad thing in any national service and most of all in the Post Office.

Last night we listened to a careful and legalistic argument by the Solicitor-General on the readjustment of the Estate Duty. The right hon. and learned Gentleman is one whom we all greatly respect, and to whom we are indebted for the courtesy with which he invariably treats Members of this House, but why did he not say quite frankly in that fine-drawn argument what really was the revision of the Estate Duty? Simplification of it is necessary, and everybody who administers estates will benefit by simplification and will welcome it, because the complexities of the business take time. But what did the right hon. and learned Gentleman say? It was not just a readjustment and simplification of the Death Duties but a further grabbing in of another £20 million of revenue, and the sweeping in of £20 million of capital into the general account, thereby destroying for the future that amount of taxable capacity.

Whereas we are taking this 40 per cent. of the national income, economists have warned us that 30 per cent. is as much as can be taken with safety without endangering the security of the body economic. The Economic Secretary is a trained and highly competent economist. Perhaps he may say we should never listen to economists. I have asked myself what an economist is. I have come to the conclusion that an economist is a man who takes a result from a set of figures and says that every other economist who produces a different result is wholly wrong. I take what is a considerable consensus of opinion amongst economists, which is that 30 per cent. of the national revenue is as much as can be safely taken for the purposes of taxation. Yet we are taking 40 per cent.

I wonder if the Economic Secretary will justify that in the light of our position? Like other Ministers, he extends to us a generous invitation to go over to that side of the House and do his job for him. That is an invitation I do not propose to accept now. Perhaps, a year hence I shall be called to act upon his advice, with others, and thereby take this work in hand. I must express the earnest hope that the country will understand the unvarying and inexorable facts that we are taxing up to the very limit of our resources, and that in some respects we are taxing up to the law of diminishing returns. We are absorbing the whole of the national taxable income. We may be absorbing more than that in the national expenditure.

How are the Government going to provide for any recession in our economic positon as long as our present scale of expenditure is maintained? There is no escaping the fact—absolutely none—that we are taxing to the maximum. It is of no use for the Government to come here and ask us, "Do you mean to cut defence? Do you mean to cut the social services? Do you mean to cut the food subsidies?" Only the Government are in possession of all the knowledge which is necessary for a decision. Only the Government have the power to apply that knowledge. On the Government rests the responsibility of so applying it that we may meet the future without a resort to inflation, which will be disastrous to all the community, and not least—indeed, most of all—to the wage-earning people in our community.

I do not want to indulge in pessimism. The last thing I would indulge in is "sob stuff" with regard to the social services, which are now so great a part of our national life, and for this very good reason: that my memory of our social and industrial conditions goes back to the late 'eighties and early 'nineties; I know what conditions were like in our great industrial cities in those days; I know what horror there was of unemployment, the Poor Law and the workhouse. Therefore, I for one feel a sense of immense and proud satisfaction at having taken a part, however small, in that great work which is bringing so much happiness, security and great improvement in the national health today.

Nevertheless, I cannot disguise from myself that in the present state of the world all those great social services, with all the immeasurable benefit they have brought, are today so delicately poised upon an unstable economy that unless we can bend ourselves to the restoration of a stable economy and buttress that stable economy, all that for which two and three generations have worked, the success of which now seems almost to be firmly in sight, may be in peril. That is my fear: not on the burden of taxation so much on myself and others, but the reflection of that taxation upon our social system and our social security.

I therefore ask the Government to make it quite clear, and to put the straight issue before the House and the country now and in the future, and above all when the testing time comes, so that we may feel that all that human nature and human power could do has been done to make the work of these years not only supremely beneficial but firmly based on a stable society and a firm and impregnable economy.

6.22 p.m.

Photo of Mr Gilbert Mitchison Mr Gilbert Mitchison , Kettering

I hope I may be able to do something to relieve the histrionic and fallacious gloom that appears prevalent on the benches opposite. There was first of all the hon. Mem- ber for Farnham (Mr. Nicholson). The statement in his speech that surprised me most was his assertion that all economists agreed with him. We can look into that in a minute. Having compared himself, I thought rather unkindly, to the Gadarene swine and complained of the scanty attendance in the House, he immediately absented himself and rushed away somewhere—no doubt downhill, to judge from the tone of his speech. Then there was the hon. Member for the Edgbaston Division of Birmingham (Sir P. Bennett), who told us that industry was going to the dogs. Having delivered this momentous verdict he, too, disappeared to some kennel or another, and we were left with the hon. Member for Aylesbury (Sir S. Reed). All I can say about him is that I am glad to recognise a certain similarity of ducks all over the world, and to know that in Aylesbury as on Ilkley Moor apparently they eat worms.

I am sorry for hon. Members opposite that they should feel like this. I think they might consider a little bit more what happens to the 40 per cent. of which they have so consistently complained. They talk about its being taken. We were told, for instance, by the hon. Member for Edgbaston that taxation had no conceivable effect on wage negotiations or, apparently, on the level of wages. I wonder whether hon. Gentlemen opposite would remember one or two things? If taxation were not levied there would not be a National Health Service. There would then be more illness in the country and more of the inevitable waste that comes from illness, so that expenditure which is now borne out of the funds levied by this Finance Bill would fall on individuals.

Now that money is not taken by some mysterious person who hides it away in a cupboard. It is taken for a use for the benefit of the community, and it is as truly an economic advantage if it is used on a public service as if it were used on a similar private service, with the added advantage that in the case I have given the public service has proved to be both more efficient and more equitable than the private one ever could have been.

As regards wage negotiations and the level of wages, does the hon. Member for Edgbaston really suppose that if the price of food in this country were to be given the sharp rise that must inevitably follow dealing with the food subsidies in the way he and his hon. Friends have from time to time suggested, that would not have an immediate effect on wage demands and would not add further in that respect to the costs of which he is already complaining? I think it shows an entire sense of unreality to divorce in this way what is done publicly from what is done privately.

Those are questions of means. But in view of the end in this case, whether it is the health of the population and therefore the avoidance of waste in that way, whether it is the ensurance of an adequate minimum living standard by food subsidies and the consequent avoidance of the waste that follows from starvation just as much as it does from ill-health, or whether it is the avoidance of the waste that arises from unemployment by the judicious expenditure of public money, in the one case and in the other, the use to which the revenue we are about to grant today is to be Put is highly relevant.

The question how far these desirable objects should be attained by a public service or by private enterprise is indeed one which divides the House acutely. But to say that the objects may be entirely neglected in the one case and only considered in the other is to import an element of unreality into our discussions which only reflects the complete unreality in the criticisms that are made by hon. and right hon. Gentlemen opposite on the policy of this Government. There were several instances in the course of the speeches to which we have listened.

I come back to what, after all, is perhaps the main burden of criticism. We are told that we cannot afford this expenditure; that it must in some way or another be reduced. I find myself entirely unable to attach any real meaning to that, unless the use to which the expenditure is put is also to be considered. When I am told that in some way or another there is some absolute truth known to all the economists and the hon. Member for Farnham, as well as to the hon. Member for Aylesbury, which makes it imperative that the expenditure should be reduced, then I assert that those who say that must at least face up to the consequences of that which they are so strenuously demanding; and without calling upon them to fulfil the rôle of my hon. and right hon. Friends on the Government Front Bench, I can at least say that it is wholly unreal to ask for something, unless the consequences of that which is asked for are also considered. In this particular case if they call for the reduction of taxation so strenuously, the inevitable result will be to leave the Exchequer with less money and somewhere or another a reduction must be made.

We have heard much about uneconomic expenditure. From one point of view, perhaps a narrow one, the obvious uneconomic expenditure in this country is on defence. It is the one expenditure which hon. Gentlemen opposite do not wish to reduce. So far as I can ascertain what their wishes are, they desire to reduce just those expenses, which, in fact, have a beneficial economic result such as education, the Health Services, National Insurance and National Assistance. They vary in their criticisms. No one would accuse the right hon. Gentleman the Member for Saffron Walden of wishing to reduce expenditure on education, but he particularly, as one who is charged with the higher policy of his party, whatever it may be, should be in a position to tell us which of the other services he would like to have reduced.

Photo of Mr R.A. Butler Mr R.A. Butler , Saffron Walden

Had I been permitted by the Chair I might have given a lecture not only on Conservative policy, but on all the aspects to which the hon. and learned Gentleman is referring, and also various forms of aquatic sports and other matters not included in this Bill. Unfortunately, I had to keep within the rules of Order.

Photo of Mr Gilbert Mitchison Mr Gilbert Mitchison , Kettering

I appreciate the right hon. Gentleman's difficulty on this occasion, but I think he will remember that it is not the first time that he and his friends have been asked what it was they meant to save on.

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

The hon. and learned Member cannot deal with what is not in the Bill. He cannot discuss something which is outside the Bill.

Photo of Mr Gilbert Mitchison Mr Gilbert Mitchison , Kettering

I shall leave that subject entirely. I can do no more, and I hope that at some future opportunity we shall hear of it.

Photo of Mr Gilbert Mitchison Mr Gilbert Mitchison , Kettering

For a moment I want to turn to one other thing. As I see it, this is not a Finance Bill of major importance for what it does, but it is of major importance in that it shows courage and good judgment in refraining from what is an attractive invitation to a Chancellor of the Exchequer towards the end of a life of a Parliament—to give a concession here and there. With courage and judgment it has been shown that these concessions could not be made and, therefore, were not made, as indeed has been recognised on both sides of the House. It seems to me that at this juncture of our affairs it is exceedingly important that we should make it clear to the world at large that we are not going to be deterred by what we might call the cheapest of democratic considerations—into any unbalancing, on a long view, of the state of our finances. That tribute ought to be paid and the justice of it has been recognised on both sides of the House.

6.34 p.m.

Photo of Mr Charles Williams Mr Charles Williams , Torquay

The hon. and learned Gentleman the Member for Kettering (Mr. Michison) began his speech by asking the Tory Party to cheer up. There are various ways of cheering up people, but the lugubrious speech of the hon. and learned Gentleman, which was so full of dismal matters, was such that no one could possibly be cheered by it; it was the type of speech which would hardly go down in the driest Scottish circles. I know he will excuse me if I do not follow him in the line that he took, because while his skill is great, mine is very minute and I could not hope to follow him in that respect. I should like, first, to refer to one or two improvements which have been made in the Bill during its passage through the House. I thank the Government for the fact that we have been able to improve the position of amateur dramatic societies and matters of that kind. It was a benefit which was extracted from the Government after some argument.

There were various ideas to start with, but, at the end, most people realised that the suggestion came through the ingenuity of the hon. Member for Torquay, as so much in this House does from time to time. However, I would not like to refer any more to that. At any rate I have managed, in the first minute or two of my speech, to make the hon. and learned Member for Kettering laugh, and I have never seen him laugh before except at his own jokes, which nobody else laughs at in any case. I do not want to be drawn into any argument on this matter of the concession to amateur dramatic societies. I approve it wholeheartedly. I feel really better for it. On the other hand, I cannot see how taxation will be reduced, because, however much one approves of the Budget it is giving very little to industry.

Yesterday, the Chancellor of the Exchequer reproved the Conservative Party because we had made it a point up to the time of this Budget, that if a man left his money to his wife he would pay a lower rate of duty than if he had left it to a naughty lady. If I had said, four years ago, that one of the things the present Chancellor of the Exchequer would do would be to equalise the position of the legitimate wife and someone else as far as Death Duties are concerned, I would have been told that I had let my imagination run away with me. Yet, after hearing the Chancellor of the Exchequer's speech yesterday, we now realise that it can happen.

In dealing with that matter the right hon. and learned Gentleman, in one of his more sanctimonious speeches, began by saying: As I have to go in a few minutes…"—[OFFICIAL REPORT, 11th July, 1949; Vol. 467 c. 107.] In other words, throughout the proceeding on this Bill, he was very often absent. There has never been a Chancellor of the Exchequer who has been in the House so little. I quite realise that he has other duties to perform, but it should be noted because it is not very hopeful for the future. He ended the speech which he made yesterday by pointing out that his object in dealing with inheritances as he did was to allow greater freedom to the testator. The right hon. and learned Gentleman says that the testator can do anything he likes, but if the testator does something foolish the Chancellor can go on to an election platform and ask why should he be allowed to inherit anything. That was a most ingenious plan and, if we had followed the Chancellor's speeches in the past, I have no doubt that we should find that he has made very full use of it.

We say that people should be encouraged, rather than discouraged, to leave their money to their families, and that we should make the rate of duty less in that case than where the money is left to persons outside the family. That may be interfering in a limited way with the freedom of the testator, but we must remember the enormous amount of interference when the Treasury take up to 80 per cent. of his estate. The plea made by the Chancellor was, therefore, very weak and worthy only of the lowest type of electioneering.

We are told that the Chancellor expects £185 million from Death Duties in a full year. Previous to the war, at a lower rate of duty, the Treasury got £80 million a year. We heard from the Government Front Bench yesterday a complicated argument in support of taking all that money, and of putting it into capital expenditure such as houses and buildings. If we compared £185 million today with £80 million before the war, when spent on capital equipment, we should find that we did not begin to get an equivalent result, although the Chancellor is raising double the amount of money. Therefore, the Death Duties are beginning to be a hopeless failure because the Government have depreciated the buying power of money. Although they are taking more nominal pounds, the effect is very small when they try to use it for replacement of capital.

We heard yesterday about the Government taking over a new farm in Wales. What will happen? They will have to put capital into the farm. Suppose they wish to spend £100 upon a drain. That will be new capital expenditure. I can tell them that they will get in direct labour, for their £100 about the same as could have been obtained for £40 before the war. The Government have continued to take from the capital of this country and use it in ways which are not productive, until the £ is incapable of developing industry as it should. I agree with my hon. Friend the Member for Edgbaston (Sir P. Bennett), who said that although the Bill will give a definite lead in a small but short-term way, in respect of depreciation, there is no relief from the enormous taxation which the Government take directly, such as Income Tax, and which should go into the re-building and increasing of our capital.

The Government are taking out of one industry and another something like £100 million a year, which should be conserved in industry. It is wrong for the Chancellor of the Exchequer to tell industry that it is not developing and, at the same time, to do all he can to prevent development. The lectures of the Chancellor are worthless. They are doing very little good in the country. As a lecturer the Chancellor is supreme, as a lawyer he is amazing; his language is wonderful, but his effect upon the electorate is not very great at present, and not such as I would like to see it.

I said just now that there had been amazement in my constituency and anywhere I spoke, when I told people that the Chancellor was endeavouring to reduce the position of a few married women, and was actually succeeding. The number may be only 10, but it is there. What an amazing thing it is that the Chancellor, who is always talking about abstinence and is always being held up to the country as such a good man, should be the person to reduce the price of beer by 1d. Just imagine what would have been said about the Tory Party on such an occasion as this, in our present financial position, if we had reduced the taxation on beer by 1d. I am glad the Chancellor has done it. It was a small act of courage. It would have been better if he had done more in other directions, such as taking 1s. off the Income Tax. Exactly the same thing would have happened. We were told yesterday that the reduction of Beer Duty was already beginning to have an effect. The Chancellor has taken our advice in reducing the tax on beer. I would like to see him introduce a short special Budget to amend some of the early Clauses of the Bill and certain others, but I fear that he will not be sensible enough to do that.

A point raised yesterday concerned a small principle in Clause 13. Although, under the safeguarding duties, the Board of Trade have power, in particular cases, to reduce the duties, it was to be done in the interests of trade as a whole and only if a sufficient amount of the article in question was being produced. Imports could then come in for a certain time. That was quite natural. It was introduced by a very sensible Government, and it was a reasonable proposition.

It is not reasonable but is grossly dishonest for the Board of Trade to use the power to give relief from duties not in the national interest but to give a hidden subsidy to one of the incompetently-managed Government airway corporations. That is done not in the general interest or for greater production but merely in respect of one type of aeroplane of 120 ft. wing span. That sort of thing will bear more heavily on English producers by taking away their protection, and it will be used as a means of giving an underhand subsidy to a Government industry. We shall have to consider the whole question of these duties. For a very long time it has been realised by some people that if the Socialist Party came into a tariff country they would use tariffs in a grossly unfair way to encourage Socialism and hurt and injure other forms of trade and industry.

I do not think I need say very much further about this Bill. [HON. MEMBERS: "Hear, hear."] I am glad to hear those cheers because I was about to say that the Bill does little to encourage industry and in case after case does more to discourage industry than almost any Budget of which I am aware, I deeply regret that the Chancellor did not use his position to come here today, not to scold or to tell people how bad they are, but to do something to rebuild trade and industry, which is so necessary at present.

6.52 p.m.

Photo of Mr Nigel Birch Mr Nigel Birch , Flintshire

We have had a very eloquent speech from my hon. Friend the Member for Torquay (Mr. C. Williams). I was glad that the blinds were raised at the end of his speech so that the sun could shine upon him, as I believe it always does upon his constituents. The only point upon which I disagreed with him was when he praised the power of language of the Chancellor of the Exchequer, but that is a point to which I shall refer later.

When I had the honour to address the House on the Budget I said that it was a climacteric Budget. I should now say that the turning point has passed and that the policy in this Bill is coming to an end. The policy incorporated in the Bill is the policy of deflation, or, if the Chancellor of the Exchequer attaches importance to his figleaf of disinflation, the policy of deflation by high and increasing taxation. We have always warned hon. Gentlemen opposite that if they sought to balance our internal economy not by cutting expenditure but by increasing taxation, the results would be both dangerous and unpleasant.

The hon. Member for Sowerby (Mr. Houghton) said that this was a standfast Budget. Is the economic position of the country a standfast position? When we are losing gold at the rate of about £1 million a day, I should have thought that "standfast" was the very last word which one could have applied to what was going on in the country. Like all other Socialists, the hon. Member made no reference whatever to that aspect of our economy. The truth is that at the very first breath of the buyers' market, of which the Chancellor of the Exchequer has so often warned us, the whole house of cards built by hon. Gentlemen opposite looks like falling down.

Many of the things in this Bill account for the danger of our present position. There are both big things and small things, and I shall start with one or two of the smaller things. My right hon. Friend the Member for Saffron Walden (Mr. R. A. Butler) said a few things about Customs and Excise and pointed out that the revenue was falling. The revenue is falling on commodities consumed in this country on which high indirect taxes are paid. Although the right hon. Gentleman the Financial Secretary denied it, that is why the Beer Tax had to be reduced; the consumption was falling. That is why the tax on wine has had to be reduced. Money was going to purchase other commodities upon which the tax was not so high, thereby, on the whole, damaging our economy. The same thing is happening in regard to spirits, and the same thing is likely to happen in regard to commodities subject to Purchase Tax.

Therefore, as far as indirect taxes are concerned, we are reaching the stage of diminishing returns. This reinforces my statement that the policy is coming to an end. We see it on a bigger scale in regard to the doubling of the initial allowances. This doubling of the initial allowances is, first, an admission of continuing inflation, because initial allowances were originally granted in 1945 in consideration of the inflation which took place during the war, and they are now doubled in consideration of the inflation which has continued since the war. The second admission is of the inequity of taxation placed upon company reserves. If that taxation was not inequitable, this clumsy and wholly inadequate solution would not have been put forward.

Some very wise words were said upon this subject by that distinguished ex-member of the Board of Inland Revenue, Mr. Chambers. This is what he wrote recently: Whatever the true figures, what is quite certain is that the figures for 'net capital formation at home' in the Government White Papers give, no doubt unwittingly, a false picture, and one which in no way reflects the danger that the physical capital in industry, as distinct from its money value, may be declining. The accounts of many, if not most, industrial concerns, also give a false picture because they, too, make their provision for depreciation upon what the assets cost originally, and not what it will cost to replace them. There he was pointing out not only that the prognosis in these White Papers is wrong but that the actual stated facts are misleading. These White Papers are distorting mirrors paid for by the public.

The truth is that for every £1 given in wear and tear allowances, earnings of at least £3 are required to counteract the rise in the price level alone. This taxation of profits which are due to inflation and which are not true economic profits at all is taking a toll of our existing capital assets. That is why high retained profits in industry are absolutely essential, because it is from retained profits in industry that our main savings come, as my right hon. Friend the Member for Saffron Walden pointed out. The Chancellor said that savings might be inadequate but we would save through a Budget surplus. Probably the Chancellor will not get a Budget surplus, but in any case, the high taxation required at the present level of expenditure will simply result in dis-saving by the public. We see that small savings have gone down £10 million already this savings year, and no doubt, if the figures were available, we should find that the big private savings have decreased by a very much larger figure.

This very high taxation of retained profits in industry should be contrasted with what goes on elsewhere. In the case of big corporations in the United States the tax on undistributed profits is equivalent to 7s. 6d. in the £—it is less in the case of small corporations— whereas here it is over 10s. in the £. This process means a loss of competitive power, inflexibility in our economy and social immobility leading to industrial inefficiency. That is why the Chancellor was so reprehensible on Second Reading when, in one of his "mad parson" moods, he talked about "frightfully high profits" without mentioning that the figure he gave was a gross figure and did not represent the true economic profits, and that much higher figures were essential if we were to maintain our place in the world. But with the morning cool repentance came. He more or less unsaid what he had said at Blackpool, and so we will let him off with a warning.

The most important effect of this Bill is the sum total of all the taxes together and what effect they have upon our economy. The effect they have on our economy is rising prices and rising costs and rising wages. It is all very well for the hon. Member for Sowerby to say that it is really only a redistribution and, therefore, we should not worry about the burden of taxation and a man should not worry about the indirect taxes he has to pay on beer, tobacco and so on. The short answer is that it does not work out like that.

We have always pointed out that every time in history when taxation has approached this level there has been the same result—costs and prices go up. That has happened here. It is working out exactly according to the book and exactly at the pace laid down. It is the main thing that is causing the loss of gold and the precarious state into which our economy has now fallen. No good intellectual answer to this proposition has ever been given by a Socialist. The general theme is, "It cannot happen to us, we are the chosen people; for us economic history has stopped." That is what most of the speeches opposite really mean.

And when prices go on rising and gold goes on flowing out, what do we get? We first get exhortation, this flood of stuff from the Chancellor in his wretched, broken, commercial Johnsonese which he thinks will have some effect on us. Exhortation never has much effect on the people of this country; I am devoutly glad to think that they never react to that sort of tripe. When exhortation does not work, the Minister of Health insults people and says that they are enjoying prosperity beyond their moral stature. That does not work either and now, when all these things have failed, the last resort is tears. We have whimpers from the Minister of Fuel and Power and, from the Minister of Health, the shriller cries of arrested political puberty.

It will not do. The present state of our affairs is well summed up, without naming names, in the report of the Bank of International Settlements which came out a short time ago and which should be compulsory reading for the Chancellor once a night for the next 20 nights for a start. I shall quote a short extract from that report because it is extraordinarily apposite to this Bill: If a country is in disequilibrium because its budget expenditure is too high or its investments are too ample or costs are maintained at an uneconomic level or the exchange rates have got out of line with realities (or there is a combination of two or more of these factors) with the result that an untoward deficit has arisen in the balance of payments—if in such a state of affairs the country concerned obstinately refuses to make any alteration either in its budget or credit policy or in its control of prices or exchanges—there is no reason to suppose that lack of equilibrium will not continue and this will mean that the monetary reserves of such a country will be eaten into and the proceeds of foreign loans and grants wasted simply to perpetuate the rigidities which are at the bottom of its difficulties. That is exactly what is happening here. The report ends with something which I wish hon. Gentlemen opposite would take to heart: The receipt of foreign resources is of such great value to a country that they should not be wastefully put to uses which simply postpone necessary adjustments. The cap fits. We have wasted foreign resources which have been lent and given to us, and one of the main reasons why we have wasted them is the policy enshrined in this Bill. I believe that, when we are living on foreign loans and charity, it is profoundly immoral to behave like that. Hon. Gentlemen opposite try to get out of it by blaming everybody else, including the Americans. That is the old excuse of the wastrel—slow horses and fast women—which has never been taken as a valid one.

The right hon. and learned Gentleman the Chancellor of the Exchequer has often been favourably compared to his predecessor, but I doubt whether history will support that view. After all, the Chancellor of the Duchy of Lancaster never really expected to be taken seriously. When he said in mid-1947— the contrast is most remarkable between the great difficulty of the overseas position and the relative ease of the purely domestic position, in which things are very much better and easier than we would have had any reason to expect two years ago"— how could anyone be expected to take seriously someone who made that remark? How could anyone be expected to be taken seriously who said that bonus shares were a distribution of money? I know that the hon. Member for Norwood (Mr. Chamberlain) believes it, but no serious person does.

Photo of Mr Cecil Poole Mr Cecil Poole , Lichfield

On a point of Order, Mr. Speaker, may I ask for your guidance? I fail to see the relation between much of what is being uttered, entertaining though it may be—[HON. MEMBERS: "Taxation."]—and what is contained in the Bill which is before the House and to which I understand we must limit our references on Third Reading.

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

I gather that the Debate has been pretty wide all the way, and that this is on the background to the Bill.

Photo of Mr Nigel Birch Mr Nigel Birch , Flintshire

The result of the financial policy of the right hon. Member for Bishop Auckland (Mr. Dalton) was that we were going the way to perdition but we were following the primrose path, and at any rate he could say that he wanted people to have a bit of fun on the way. The policy enshrined in this Bill means that we are going to perdition by only a slightly longer road—and where are the primroses? I doubt if the right hon. and learned Gentleman would recognise a primrose if he saw one. Indeed it may have been the right hon. and learned Gentleman whom the poet had in mind when he wrote: A primrose by the river's brimA dicotyledon was to himAnd it was nothing more. Where his character compares unfavourably with that of his predecessor is that he is successful in deceiving people. He has made people believe that the destination was not perdition and that so dreary a guide must be leading them up the straight and narrow path. The truth about the position at the moment is that something extremely unpleasant will happen to us soon unless hon. Gentlemen opposite can get more money out of America. Socialists throw stones with one hand and hold out the hat with the other. Both are ignoble gestures.

The main part of the Chancellor's plan is to clamp down still more restrictions on the people of this country. The nearest parallel in history to the Chancellor of the Exchequer is Diocletian. He, at any rate, had the decency to retire to Salona to grow cabbages. The right hon. and learned Gentleman is a large consumer of cabbages; if he would now retire and produce them he would be doing some service to his country.

7.9 p.m.

Photo of Mr Douglas Jay Mr Douglas Jay , Battersea North

We do not seem to have had a formidable attack on the Finance Bill this afternoon. The hon. Member for Flint (Mr. Birch) drew freely on his familiar repertoire of wisecracks, vituperation and personal sneers and, as he always does when he has nothing better to say, dragged in his rather squalid personal vendetta against the Chancellor of the Duchy of Lancaster. The right hon. Member for Saffron Walden (Mr. R. A. Butler), on the other hand, asked me certain specific questions. He first asked how it was that Customs and Excise revenue was apparently falling below the estimate in the first quarter, and whether that presaged the collapse of our Budget expectations. I can assure him that the fall is due merely to seasonal causes. Owing to the fall in Purchase Tax receipts immediately before the Budget, because of Budget expectations, we collected less Purchase Tax in the early months of the financial year. I am advised that the revenue from football pools also tends to fall away in the summer months.

Photo of Sir Godfrey Nicholson Sir Godfrey Nicholson , Farnham

Is it not a fact that in past years the second quarter was usually much more buoyant, as far as Excise receipts are concerned, than the first quarter?

Photo of Mr Douglas Jay Mr Douglas Jay , Battersea North

No. The case now is that Customs and Excise receipts tend to fall off in the second quarter. As a matter of fact, they have been coming in very much according to our estimates. Therefore, the general deductions drawn by the hon. Member for Flint from this supposed deficit are quite unsound.

The right hon. Member for Saffron Walden also asked what revenue we should have raised by Income Tax on the new insurance benefits if we had not made the change which is embodied in the Bill. The answer is that theoretically, if we could have collected them, we should have raised £15 million. In fact, up to date, we have been able to raise only £3 million. We now lose in this respect, and gain a total of £13 million from the change by which contributions are not allowable for deduction purposes. Therefore, on balance, we are, as the right hon. Gentleman knows, £10 million to the good.

I noticed today that critics of this year's Budget seem to have changed their ground since it was introduced three months ago. In April there was quite a noisy attack on the Budget by those who said that our taxation proposals were altogether too severe in limited spending and consumption, and that we ought to have reduced taxes and abandoned our attempt to maintain an overall surplus and so let loose a higher rate of spending power. But in view of what has happened in the last few months, it is now obvious that the caution of my right hon. and learned Friend in the Budget was indisputably right and that those critics were hopelessly wrong.

This year's Budget and the taxation proposals in the Bill were founded mainly on the explicit conviction that what my right hon. and learned Friend himself described in his Budget speech as "the size and gravity of our dollar deficit" was the crucial national problem and that, therefore, any release of extra purchasing power by tax reductions must, by virtue of its inflationary effects on costs and prices, have made our central problem harder, and not easier, to solve. Indeed, the Government stated the central principle on which the Budget was founded in the Economic Survey in March, in which we said—in italics, in fact: The dollar deficit remains the crucial problem.

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

When the hon. Gentleman says that critics attacked the Government for not lowering taxation, is he referring to critics on his own side of the House or on this side?

Photo of Mr Douglas Jay Mr Douglas Jay , Battersea North

I am referring to any critic who made the sort of criticisms I have described.

It was for the reasons I have stated that we resisted the plea to relax our disinflationary Budget policy, and I can hardly believe now that anyone thinks we were wrong. It was also for that reason that we decided, as the right hon. Member for Saffron Walden pointed out in his remarks about industrial re-equipment, that one of the main reliefs in this year's Budget, even though it does not entail any cost to the Exchequer this year, was the increased initial allowance for depreciation. We have debated this a great deal, and it should be of substantial help to industrial re-equipment and modernisation and, therefore, to our progress towards dollar solvency. The right hon. Gentleman said that this was no free gift from the Government to industry. That, of course, is perfectly true; but it was an interest-free loan on a very large scale which, I think the right hon. Gentleman agrees, will be a big contribution to this object.

The main issue in the Debate today has been whether the high level of taxation enshrined in the Bill and the high level of expenditure that goes with it are injurious to our economic life. The right hon. Member for Saffron Walden described it as a "stunning level of taxation," and several other hon. Members, including the hon. Member for Aylesbury (Sir S. Reed), whom we are always glad to hear in these financial as in other Debates, pointed out that the total revenues amount to something like 40 per cent. of the national income. I may perhaps remind them that that includes all the spending of local authorities as well as, of course, of the central Government. That, it has been argued today, is imposing a burden on our industry which impedes recovery.

In the first place, as we have constantly pointed out, a great deal has been done, is being done, and will be done, to economise on all sorts of items of expenditure, in face, however, of constant demands from hon. Members opposite that individual items should be raised. They are almost as loud in asking us to raise the individual items as in asking us to reduce the total. Secondly, of course, a great deal of our expenditure today, as in the case of insurance and health services, is a mere transfer to public account of what was previously carried out on private account, and makes no difference to the strain on our national resources.

I also think, judging by what the hon. Member for Torquay (Mr. C. Williams) said about Death Duties being an expenditure of capital, that hon. Members opposite have still not grasped that a considerable proportion of the sums raised in taxation, although they are current revenue according to our method of Budget accounting, are in fact being used for what is actually capital expenditure. That is true up to a point very much higher than if one considers the revenue from Death Duty alone.

Photo of Mr Charles Williams Mr Charles Williams , Torquay

I pointed out, quite deliberately, cases where some of that money was being used for the purposes I described; but my main argument, which was quite different, was that capital should not at present be taken out of industry, because industry today needs capital.

Photo of Mr Douglas Jay Mr Douglas Jay , Battersea North

I gather that the hon. Member now agrees with me. In raising these sums from current revenue we are, in fact, following a more prudent and more austere financial policy than most private businesses would normally follow. We are building up physical and productive assets from which posterity will enjoy either real or financial revenue. That is true of housing, schools, factory building by the Government, re-equipment of nationalised industries, and so on. The total of the moneys expended on those objects adds up to very nearly £400 million, and if we include war damage payments as a capital item the total would reach £540 million. This ought always to be remembered when we are speaking of this proportion of 40 per cent. of the national income.

The right hon. Member for Saffron Walden, in arguing that our level of taxation is too high, quoted a remark from his hon. Friend the Member for Chippenham (Mr. Eccles) about the burden of the welfare State falling on the shoulders of the taxpayer. As has been pointed out from this side of the House today, however, the truth is that a large part of the taxation imposed by the Bill is designed to achieve a transfer of revenue which is raised by taxation on profits, on property and on very high incomes, and is paid out on social services, food subsidies, and so on. Hon. Members opposite, including the hon. Member for Farnham (Mr. Nicholson), who described these taxation levies as a charge on production, have argued today that this amounts to a great burden on industry, raises our export prices, and so impedes our recovery. This is not merely untrue but is, in fact, the precise reverse of the truth.

The food subsidies and other social services made possible by the taxation proposals in the Bill are, in reality, one of the most potent factors in keeping our costs down and, therefore, assisting our production and export trade. My hon. and learned Friend the Member for Northampton (Mr. Paget) stated this argument very lucidly today and it was called in question by the hon. Member for Edgbaston (Sir P. Bennett). In my opinion my hon. and learned Friend was perfectly correct in his main thesis. Surely, hon Members opposite can see that if, for instance, a motor car worker in Coventry is able to buy his food more cheaply than a motor car worker in some overseas country, the Coventry worker, to achieve the same real standard of living, does not have to throw so heavy a burden of wage costs on the motor industry. Similarly, if his children get family allowances, or free meals in school, or a free health service, it is not necessary for him, in order to secure the same real standard of living, to demand an increase in money wages, which would, of course, tend to force up prices abroad.

Photo of Mr Nigel Birch Mr Nigel Birch , Flintshire

If that argument is valid, how does the hon. Gentleman account for the fact that the costs of prices and wages are going up here and going down elsewhere?

Photo of Mr Douglas Jay Mr Douglas Jay , Battersea North

It must be obvious to the hon. Member that if it were not for the food subsidies they would have gone up very much further. Apart from my hon. and learned Friend the Member for Northampton, I have hardly ever heard this fundamental point mentioned in public controversy, except by one City editor a few months ago, who pointed out that, with the sellers' market at its height, food subsidies were keeping export prices down and thereby turning the terms of trade against us. There was some truth in that argument at that time, but the corollary is that now we are in a buyers' market the same subsidies and services enable us to quote lower export prices and so assist us directly and powerfully in our battle for exports.

Photo of Viscount  Hinchingbrooke Viscount Hinchingbrooke , Dorset Southern

Are we to understand that the Economic Secretary to the Treasury, a responsible spokesman for the Government, accepts fully and now re-states the extraordinary economic doctrine emanating from the hon. and learned Member for Northampton (Mr. Paget)?

Photo of Mr Douglas Jay Mr Douglas Jay , Battersea North

The argument is only extraordinary to the noble Lord because he has not thought enough about it in the past. The simple reason for what I have said is the well-established economic principle, which has been confirmed both in theory and practice, that taxation of profits does not normally induce a manufacturer to raise his prices. I think it would be agreed that it would be a rare case where prices were raised because profits and Income Tax have to be paid before the shareholder got his dividend. It is surely clear enough that if the same amount were raised by adding to money wages the resulting rise in prices would be quite certain and much greater; and it is even more clear that the payment of Death Duties does not tend to raise industrial prices or export prices, which is one main reason why we have raised the level of Death Duties in this Bill this year in order to finance the social services.

All this is only one way of pointing out the obvious fact that if food subsidies, family allowances, or other social services, financed out of taxation on profits or property, were to be cut, money wages would have to go up. The hon. Member for Edgbaston said that wage earners would not agree to social services being quoted in wage negotiations, but I do not think he would deny that if all the food subsidies were swept away today that would be an argument for putting forward a claim for higher wages.

Photo of Mr Peter Bennett Mr Peter Bennett , Birmingham, Edgbaston

At the same time I would tell them that they would not pay 3s. 6d. for a sixpenny packet of cigarettes.

Photo of Mr Douglas Jay Mr Douglas Jay , Battersea North

It is quite clear that if these services and corresponding taxation of profits were cut down we would not have a fall, but a rise in industrial costs. For that reason, the whole argument advanced today and elsewhere, suggesting that the tax methods necessary to finance food subsidies and other services are an impediment to our export trade is a complete fallacy, born largely of ignorance and prejudice. Precisely the reverse is true. It may be that hon. Members opposite are trying to argue that taxation on the one hand and social services on the other could be cut down without any corresponding increase in money wages. That means, of course, engineering a deliberate reduction in real wages to get out of our present difficulties. If that is what hon. Members opposite really mean, I wish they would have the courage to say so frankly. If that is not what they mean, I wish they would have the honesty to admit that the whole of their argument about taxation and subsidies raising our industrial costs is nothing more than an intellectual fraud.

Photo of Sir Godfrey Nicholson Sir Godfrey Nicholson , Farnham

Is not the hon. Gentleman guilty of a slight intellectual fraud in selecting items in the welfare State which act as a subsidy or indirect subsidy to production, while ignoring the fact that many of the items of expenditure in the welfare State are new articles, although, no doubt, desirable?

Photo of Mr Douglas Jay Mr Douglas Jay , Battersea North

My argument is concerned with the general articles which affect the wage earner's household. Are we to solve our present difficulties by thrusting the sacrifices which may have to be made on those who are worse off? It may well be that sacrifices in consumption must be made before we overcome the present dollar shortage which, as I said, is our crucial problem.

The question before us and before the country is how those sacrifices can best be shared. If it is the doctrine and policy of hon. Members opposite that taxation of profits should be reduced at a time when the consumption of the whole community is to be temporarily cut, they are simply proposing that the rich should be given a larger share of a smaller cake. It is because we refuse to accept that solution that we support the Budget and the proposals in this Bill. If the Tory Party really want to proclaim that solution as their remedy for the present ills, before this House and before the country, we shall very confidently await the verdict.

Photo of Mr Arthur Molson Mr Arthur Molson , High Peak

Am I to have any reply at all on the question of savings, on which the industrial recovery of the country depends?

Photo of Mr Douglas Jay Mr Douglas Jay , Battersea North

It is because we did not expect a large rise in private savings that we decided to continue our policy of a Budget surplus this year. There, again. I think events have borne us out.

Photo of Sir William Darling Sir William Darling , Edinburgh South

Does the hon. Gentleman confirm his statement that we are shortly to have temporary cuts for rich and poor alike?

Photo of Mr Douglas Jay Mr Douglas Jay , Battersea North

I said that it may be that before we have overcome our dollar difficulties there may have to be some cuts in consumption.

Photo of Sir William Darling Sir William Darling , Edinburgh South

I do not know if the Debate can be continued, but, having heard the Economic Secretary, I am rather dissatisfied. Here is a country which has gone through two wars, now facing this Finance Bill. We do not appear to recognise that the strength that has enabled us to go through two wars was that we accumulated by savings a considerable and substantial reserve. That does not appear to have emerged from the Debate at all.

The Economic Secretary confirms the opinions which have been expressed elsewhere, that apparently saving is of no great value, nor of much necessity, in this community. My hon. Friend the Member for The High Peak (Mr. Molson) complains that no observations were made about this all-important subject, and it is abundantly clear to me that the foundation of the greatness and strength of our country was in our ability to save. During the 1914–18 war our strength was in our overseas investments and our internal savings. Our strength in the recent war was in those things, too. We have embarked during the last four years on a different principle. Saving is apparently to be done by the State, and the saving that the State has done up to now during the last four years of the initial experiment, has not been very considerable.

I am sorry that circumstances prevent me from developing this view, but I cannot resume my seat without expressing the profound conclusion that this four-year experiment on which we have embarked does not seem to offer us in these difficult and changing circumstances anything like the security which the country enjoyed during the years gone by, and I am gravely dissatisfied with the provisions of this Finance Bill.