Orders of the Day — Finance Bill

Part of the debate – in the House of Commons at 12:00 am on 16 May 1950.

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Photo of Mr Reginald Maudling Mr Reginald Maudling , Barnet 12:00, 16 May 1950

I am particularly glad to have the opportunity of following the hon. Member for Edmonton (Mr. Albu). About two years ago, shortly after he was elected to the House, I was walking through one of the corridors here as a visitor, and to my surprise I was warmly shaken by the hand by one of the Labour Members of Parliament who said, "I am so glad to see you here." I said, "I do not know why," and the Member of Parliament looked at me and said, "Surely you are our new Member for Edmonton?" However, it should now be apparent that there is a certain difference between us, if not in appearance. I followed with a great deal of interest the hon. Gentleman's arguments about the effect of Purchase Tax on the export of high quality articles. I shall be interested to see whether he votes against the reduction of Purchase Tax on high quality motor cars.

I want to take up one or two points made by the Financial Secretary. He dealt with the Black-Lord cases, as they are now known. I agree that those arrangements were wrong, and I support the Government in their action in making those payments taxable, but I do so with considerable misgiving, and my misgivings are increased by some of the arguments employed by the Financial Secretary. I do not like the argument that the issue of a warning by the Chancellor creates a justification. It is not the prerogative of the Chancellor to impose taxation, it is the prerogative of this House. I do not think that a warning from the Chancellor can be taken as a substitute for the ancient right of this House.

The Financial Secretary also argued that, although the Government were imposing taxation retrospectively, they were not making these payments retrospectively illegal. That is true, but is it not also true that they are, in fact, imposing a fine on the combined resources of these two gentlemen and the companies? As I understand it, while the payments are to be taxed, and I think properly taxed, in the hands of the recipients as if they had been remuneration, they are not to be treated as remuneration for the purposes of the accounts of the companies who paid them. If that is so, it is not a position which can be supported.

The Financial Secretary put forward the argument that if hon. Members on this side of the House voted against the new taxes they were also voting against the concessions in taxation. I find that a most extraordinary argument. It seems to be based on a certain over-acceptance of the modern mystic of the economist. It seems to be based on the belief that the Chancellor can estimate to the last million pounds in a Budget of £4,000 million how much he needs to close the investment-savings gap. If the hon. Gentleman believes that I think he would believe anything. I feel that in his approach to the question of relating purchasing power to goods available, the Chancellor is somehow rather like a gentleman called Procrustes, who used to invite visitors to lie on his bed and then adjusted the visitor to the bed rather than the bed to the visitor. It achieved the adjustment but sometimes the person concerned was killed in the process.

In the course of the Debate on the Budget Resolution there were several quotations from major and minor poets, but the lines that ran through my mind as I heard the Chancellor making his Budget statement, were from "Adonais": Woe is me, winter has come and gone, But grief returns with the revolving year. That seemed to be the message. Budgets may come and go, crises may come and go, Chancellors, it appears, may even come and go, but high taxation and high expenditure continue indefinitely under the present dispensation. The policy of the Labour Party since they have been in power has been what my hon. Friend the Member for Oswestry (Mr. Ormsby-Gore) in his excellent maiden speech described as one of controlled inflation, a policy based on the creation of a great deal of purchasing power by extensive Government expenditure and the restraining of that purchasing power by controls and by heavy taxation.

It was a policy introduced first by the right hon. Gentleman who is now the Minister of Town and Country Planning. He called it "lubricating the economy with a sufficiency of purchasing power"—a characteristically modest description of his achievements. Some people I know regarded it as going further than that, and one authority on economic matters whom this House respects described the effect of his policy as overfull employment. I think we should rightly congratulate the Chancellor on the great loyalty with which he has carried out the policy first laid down by his distinguished predecessor. There were one or two temporary aberrations—a slight change of view about rates of interest perhaps, a slight difference of opinion on the question of bonus shares but, by and large, the policy has been the same, one of high taxation and high Government expenditure.

The Financial Secretary asid that this Finance Bill was one of a series and therefore, I suggest, in considering it we should consider the policy which this series of Finance Bills has underpinned. And we must consider this policy not as if we were living in a closed economy but realising that we are living in an economy open at all times to all the influences of world trade and world economic developments. If we were living in a closed economy we could argue, no doubt, the relative merits and demerits of the policy of controlled inflation and high expenditure. Hon. Members on the opposite side would claim that it was the cause of present production levels and present levels of employment. Other hon. Members might argue the dangers that arise from the draining of industrial capital, from rising prices, from the effect on thrift and on incentives. All those arguments would be interesting but they would not be relevant to our position as a country open to the economic tides that sweep the globe.

One of the most important lessons of the last year or so has been the extent to which our present rigid high cost economy is open to the influences generated by any movements, upwards or downwards, in the American economy. I think it was a year ago that the Chancellor was saying that we in this country were making progress. I believe he was so injudicious as to say that we were then on the right road. In October he was warning the House unless we could immediately achieve greater production at lower cost we should be facing widespread unemployment and a catastrophic fall in our standard of living. That was six months after we had been on the right road.

Now, apparently, we are on the right road again. There is a certain periodicity about these things and I want to know what will be happening in another six months' time. There is another reason why a high cost economy must be dangerous in our position as a trading nation. As I see it, it must lead to the maintenance of restrictions upon the transferability or convertibility of sterling. I should have thought that hon. Members on both sides would agree that the greatest possible degree of sterling convertibility should be a prime aim of our policy.

I think it is sometimes said that the reason why the Government are a little reluctant to enter into the European payments agreement is because they are afraid that the system of bilateral trading agreements which has been built up will be undermined and that the position of sterling will be undermined. The Government are very wise to be chary of rushing too soon into a scheme of this kind, because the position of sterling is entirely different from that of any other currency. We have obligations of a nature and on a scale that cannot be compared with the obligations which are carried by the franc or by any other European currency. But it does not follow that we should continue to wrap up sterling in a whole complex or network of bilateral pacts for the purpose of maintaining a high cost economy which could not survive here if it were open to the winds of world competition.

Those winds of world competition are undoubtedly growing. Figures show that in recent months the export price indices of a number of our competitors have been falling. It is clear also that German and Japanese competition is gathering momentum. Hon. Members who are in touch with industrial and commercial matters will have had many examples of German and Japanese firms quoting for contracts for machinery, pottery, textiles and a dozen other things, at prices 30 or 40 per cent. below our present-day prices. We must realise that we shall have to face increasing competition, and increasing price competition, from countries abroad.

Hon. Members opposite may say, "If you look at these countries where prices are falling, you will find that unemployment is rising." That may well be true. It may be unfortunate—indeed, it is—if other countries choose to deflate their prices at the cost of unemployment, but we can do nothing about it. If they choose to adopt that policy we must recognise the fact and base our policies upon it. I do not think that there is any hope of having within a reasonable time any co-ordinated credit policy between the major trading nations of the world. Therefore, we shall be faced with the position where competing nations will have lower price structures, perhaps at the cost of unemployment.

The challenge to this country and to this House is whether we can bring down our price structure to meet that competition without incurring unemployment. In these matters the danger of unemployment lies ahead, and not behind, and the challenge to be met is the challenge of bringing down prices without unemploy- ment rising. It is quite clear that the one major step which the Government can, and should, take to bring that purpose about is to reduce Government expenditure and taxation.

When we have these Debates on financial matters, the Chancellor usually sits there with his two henchmen on either side of him, rather like Horatius guarding the bridge, resisting our suggestions that economies should be made. I remember that in June of last year the Economic Secretary to the Treasury said in the House: … the idea that tens of millions of pounds can be saved by administrative economies without changes in policy is sheer moonshine."—[OFFICIAL REPORT, 23rd June, 1949; Vol. 466, c. 520–1.] That was in June. Then in October, the Prime Minister announced that: … between £40 and £45 million a year can be saved by curtailment of services which are not essential to major Government policy, and by drastic economies in the administration of other services which must be retained."—[OFFICIAL REPORT, 24th October, 1949; Vol. 468, c. 1018.] And we were told by the Chancellor in his Budget statement that in the course of the last financial year savings amounting to £114 million had been achieved without, apparently, changes in major Government policy. When we are faced with rather conflicting statements of that kind from the Government benches when we argue the case for administrative economies, we cannot be blamed if we feel that the suggestions which we put forward are not treated as they should be treated.

Then there is the question of food subsidies. I think that the right hon. and learned Gentleman and his colleagues are rather jealous of their reputation as intellectual acrobats, and perhaps they were a little piqued by the efforts of the Parliamentary Secretary to the Minister of Fuel and Power who succeeded in proving, to his own satisfaction, at any rate, that by putting up the price of petrol the cost of motoring, could be reduced. Certainly the Chancellor was driven to excel himself in replying to the Debate on the Budget Resolution in his exegesis into the subject of food subsidies, when he argued, as far as I could understand him, that 24 out of 25 people in this country cannot afford to pay market prices for their food and therefore need a subsidy.

That does seem to me to be a very peculiar argument. The food subsidies are worth rather less than the cost of a packet of 20 cigarettes per head per week, yet the average expenditure per head per week on alcohol and tobacco in this country is over 11s. But further than that, it is surely absurd to say that 24 out of 25 people need a subsidy, for where in the world will that subsidy come from? From the other one? Really, I do not think that that argument was worthy of the Chancellor, and he would be well advised to look again into the arguments on food subsidies which have been advanced by my hon. and right hon. Friends over the past few months.

The point I wanted to make was this: that a high cost economy in an increasingly competitive world cannot continue to maintain employment and to maintain the standard of living of our people. We must reduce costs, and the first and vital step that must be taken is a reduction of Government expenditure and a reduction of taxation.