Orders of the Day — Budget Proposals and Economic Situation

– in the House of Commons at 12:00 am on 8th April 1959.

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3.41 p.m.

Photo of Mr Harold Wilson Mr Harold Wilson , Huyton

Two years ago I described the Budget of the right hon. Member for Monmouth (Mr. P. Thorneycroft) as an assignment with inflation, a warning which, I think, was justified by the events of that summer. Last year I called the present Chancellor's first Budget an assignment with deflation, and there can be no question that that was right. I suppose that this year's Budget will obviously be called an assignment with the General Election.

This is not to say that the Chancellor is wrong to increase purchasing power by tax concessions and otherwise to stimulate industrial production. Of course, that is right. Our charge is that the Government deliberately and of set purpose held back industrial recovery last year to set the stage for this year's tax concessions. The Committee will recall that a year ago I said that this was clearly the strategy, and I named the master strategist behind the plan. It certainly was not the Chancellor, who, I said, would not be capable of such a thing. It was the Prime Minister.

Today, I challenge the Chancellor, when he replies to the debate next week, to tell us this. If it is right today to encourage expansion, why was it wrong to do that and why was it wrong to stimulate production a year ago? I ask him, in view of his review of the situation, to name one feature of our economic situation which is stronger today than it was then. Had he acted then, when I submit that it was already safe to do so, not only could we have expanded with a greater emphasis on the investment which is so vital to us, but we could have avoided the depression and unemployment which have developed.

In our excitement about tax concessions I hope that we shall not forget that those concessions have been made possible at the expense of a quarter of a million additional unemployed and their families.

The Chancellor was right, in the dismal circumstances he had allowed to develop, to give the economy a shot in the arm. What he has done is to give the wrong shot in the wrong arm.

Perhaps it will be convenient to the Committee if, at this stage, I indicate briefly our main criticisms of the budgetary changes before discussing them later in detail. First, as my right hon. Friend the Leader of the Opposition said yesterday, the Chancellor should have concentrated his first reliefs on improving the position of the old-age pensioners, widows and others, and those living on National Assistance. If the country, for whatever reason, is more prosperous, it is the Government's duty and the duty of the House of Commons to make provision first for the under-privileged, not for those who are better off.

Secondly, before handing out tax concessions the Chancellor ought to have repealed those provisions, mainly to his discredit, associated with the name of the Prime Minister, which were introduced when things were tough. Prime among them was that mean little imposition of the Prime Minister, when he was Chancellor, when he introduced the individual Health Service prescriptions charge on the old-age pensioner and the chronic sick. If we are now so prosperous, that should have been one of the first impositions to have been removed. If the Prime Minister were here I should ask him this. How does he defend now the maintenance of the individual prescriptions charge?

Thirdly, since the professed aim of the Budget is to solve unemployment, and not merely to win votes, the Chancellor should, as an immediate measure, have greatly stepped up the rate of social expenditure on highly desirable projects which were held up during the war and in the post-war recovery period and during the hard times of the Tory inflation. With slack in the economy, this was the year to build more hospitals, including mental hospitals. more up-to-date prison accommodation, teachers' training colleges, to carry out the clearing of derelict and blighted sites and to make more progress on water and sewerage schemes, as well as on roads.

I suggest that it is also a year in which the Government should have restored the cuts in the local authority housing programme and to have provided financial help to do it. Aid from the Budget for 100,000 additional local authority houses at £ 22 10s. subsidy per house would have cost less than the beer concession.

Fourthly, turning to Income Tax, what the Chancellor has done over his two Budgets is this. Last year, he increased direct taxation by increasing National Insurance contributions to the tune of £ 200 million a year by a poll tax, bearing most heavily on those with least incomes. This year the Chancellor hands out almost exactly that amount, £ 200 million. but on a very different basis. The basis he has proceeded upon is that the richer you are, the less your family responsibilities, the more you get, as I will show in greater detail in a moment.

Fifthly, while the Chancellor was right to cut Purchase Tax, I suggest that he has done it in the least equitable way. The least essential items in the Purchase Tax schedules are cut, while essentials—clothing, furniture and all the kitchen items the Lord Privy Seal taxed in his 1955 autumn Budget—get virtually no relief. Moreover, I do not know if the Chancellor has thought about this in a Budget designed to help employment. Industrially, his Purchase Tax cuts help the most prosperous industries— motor cars, consumer durables, which are booming today—and do nothing for the clothing, textile, hollow-ware, furniture and other industries which are having a harder time.

Therefore, the best commentary on the Chancellor's Budget has been provided by today's news, not only the lunchtime editions of the newspapers showing a 5s. increase in brewery shares, but also on the front page of The Times, which contains two column-long advertisements, for motor cars, paid for by the Chancellor himself, both saying what a wonderful Budget, what a wonderful Government, what a wonderful time we are having, and advocating that the firms' customers should now take advantage of this increased prosperity to buy themselves a new Rolls-Royce. Both of those advertisements are for Rolls-Royce and Bentley vehicles.

I will return to these fiscal matters later, but I should like now to turn to the present economic situation, and the Government's sudden and dramatic conversion to the need for industrial expansion. Time and time again we have warned right hon. Gentlemen opposite that their policies would lead to unemployment and industrial stagnation. As we told them eighteen months ago, in the speculators' crisis of September, 1957, they failed then to see that the world economic situation had changed from one of inflation to one of deflation, but they went on fighting inflation when that was no longer the problem.

We are glad that the Chancellor, at long last, has agreed to restore the investment allowances which the Prime Minister scrapped in February, 1957, but it is now two years since we pressed the then Chancellor, the right hon. Gentleman the Member for Monmouth to announce then that he would restore the investment allowances a year later to give industrialists a chance to plan ahead, and to take up the slack that it was then clear would develop in investment. The right hon. Gentleman refused.

Last Budget, we pressed the present Chancellor on the same question, but lie was too cautious. As recently as last June, on the Finance Bill, we pressed the restoration of investment allowances to a Division, but the Chancellor told us that the country's economic position was not strong enough to afford investment allowances— and this at the end of a six-month period with a record balance-of-payments surplus. We were voted down by all the expansionists opposite, yet, within a few weeks, the right hon. Gentleman ended the credit squeeze, and, before long, after refusing to stimulate investment, he was trying to boost consumption with a hire-purchase spree.

However, the Chancellor and the Government now announce themselves as converts to the idea we have urged for four years—the need for industrial expansion. Indeed, the whole Treasury Bench have suddenly seen the light—expansionists, all of them. For mass conversions, there has been nothing like it since the Emperor of China baptised his whole army with a hosepipe. I was not there myself to see that occurrence, Sir Charles, but right hon. Gentlemen opposite remind me, as they sit there, so pious and virtuous about their belief in expansion, of the Damon Runyon scene in " Guys and Dolls ", with all the Broadway characters— Harry the Horse, Big Louis, Nicely-nicely Johnson, City Max and all the rest sitting at the Salvation Army meeting confessing their sins and promising to be good in future.

Even that arch-restrictionist, the Prime Minister, who, in 1956, reversed the Lord Privy Seal's expansionist policies—I am sorry that we have not the pleasure of the attendance of either of them here this afternoon, although the Lord Privy Seal explained to me that he was going to another place, though not, I think, permanently—and who, in his next Budget, said that we could not afford to go full out and himself started this miserable record of stagnation, is converted to expansion. I see that, according to last week's Sunday Times, he is to fight the election on the twin pillars—peace abroad and expansion at home.

I do not underestimate the power or virtue of repentance— even a death-bed repentance. As we all know, there are cases recorded of chronic alcoholics who, after years of over indulgence, suddenly decide to "go on the wagon," but it is a bit much when they then decide to fight a General Election on the virtues of total abstinence. Still, for what it is worth, and for as long as it lasts—and we all remember 1955, and the Lord Privy Seal—we have a Government at long last committed to expansion. And about time, too.

Table 18 of the Economic Survey gives the Government's industrial production record in all its glory. Taking 1954 as 100, we have had these figures: 1955, 105; 1956, 106; 1957, 107; and 1958, 106, Two faltering steps forward, and one back. Indeed, had the Government not changed the basis of the figures in the middle of last year the results would have been still worse.

I shall not weary the Committee today with international league tables. That is not necessary, because hon. Members on both sides know that these would only repeat the same dismal tale. Hon. Members themselves know the facts. In the convertibility debate on 28th January, I challenged 200 of them, sitting on the benches opposite, to tell me of a single country in the world other than Britain that had failed to increase its production since 1955. Not one of them could tell me the name of a single country that has done as badly as we have under this Government over these four years. To cheer them up, let me say that I have looked up the figures for Laos and Cambodia, and I think that in the latest abstract of Ethiopian statistics they may find the figure for which they are all looking. There is some little doubt about the accuracy of the figures.

So we have had no increase in production since the last General Election. That is not, of course, what the Government promised the country in 1955. They fought that election on "United for Peace and Progress ". Had they been prophetic they would have called it, "United in Suez and Stagnation ". Of course, they were united. The Prime Minister told us they were united over Suez. I am only sorry that the Lord Privy Seal is not here to confirm it for us.

This is what they said in that 1955 document: …we must devote more of our resources to increasing productivity …First thought must go to investment in productive forms of capital—factory and farm buildings, plant and machinery, communications and power. They had a section called "An Expanding Economy ", which reads: … continued full employment must mean not only everyone in a job, but everyone doing their job to the full. Only with a high output —high earnings economy can we maintain and improve our trading position. We recall the Government's 1955 promise on employment. The document had a section on Scotland which stated: Each year since the Unionists— and that, as you know, Sir Charles, is their alias north of the Border— took office, the number of people at work in Scotland has grown and now stands at a record level. Referring to Wales, it said: Unemployment under the Conservative Government has touched the lowest levels ever recorded in Wales in time of peace. That was in 1955. Of course, they cannot ever have meant that stuff to be taken seriously. We can see that by looking at the section dealing with foreign affairs in which, referring to the Middle East, we read: Our prestige throughout this area has been restored. It goes on: Thus we have a better chance to continue helping the countries of the Middle East in their plans both for defence and for economic development, and also to work for reconciliation between the Arab States and Israel. It is all very funny, I know, but this was the fraudulent prospectus on which hon. Gentlemen opposite got back to power. They all individually told the same tale. I am sorry that the Prime Minister is not here, because I have his own election address before me— and they used to complain about "Keep Death off the Roads ". Apart from some most unfortunate references to foreign affairs in that address — the right hon. Gentleman was Foreign Secretary then, in those days a position which meant that he was in charge of the Foreign Office—he goes on, under the heading " The Future ": As production rises, wages and earnings can rise, also. We have the means—the machines, the brains and the men. Let us use them, in a united effort for still higher standards of life. Of course, he was right. We did have the machines, the brains and the men. What we have lacked has been the Government.

Since the Prime Minister faced the future in Bromley we have had four Chancellors— all dedicated, as he was, to expansion. Let us look at their records in industrial production as shown in the Economic Survey. In 1955, we had the Lord Privy Seal. I think that he genuinely believes in expansion, but, of course, his trouble was that under Tory freedom, without controls, expansion means inflation and a balance-of-payments crisis. However, under the Lord Privy Seal, the quarterly figures for 1955 went like this: first quarter, 103; second quarter, 104: third quarter, 106; and fourth quarter, 108.

Then the right hon. Gentleman went, and to adopt the eloquent words of the independent Conservative candidate for Norfolk, South-West, we exchanged a tame rabbit for a performing seal. Those are not my words. We got as Chancellor of the Exchequer the present Prime Minister, from the Foreign Office. Nineteen fifty-six should have been the year of great expansion, annus mirabilis, the year of the fiscal " supermac ". We remember all the many parts that he played in this House, Mac the Knife, Gladstone— I am sorry that the right hon. Gentleman is not here—and we remember the great captain-general beginning the year by marching the engineering employers to the top of the hill and marching them down again, ending it by inscribing on his battle honours the " Retreat from Trinidad " and the " Retreat from Suez ".

With so colourful a Chancellor we could have expected action and certainly expansion. But what is his epitaph in the Survey of 1956? In the first quarter the figure was 106—two points below the parting shot of the previous Chancellor, the second quarter 106, the third quarter 105 and the fourth quarter 106—that was, of course, the plateau he had promised us.

After that there was nothing for it but to make the right hon. Gentleman Prime Minister. Our other anxiety was that he would follow the precedent of the previous year and bring the Foreign Secretary to the Treasury. Fortunately, he did not do that. We got the right hon. Gentleman the Member for Monmouth. His record was: 1957, first quarter, 107, then a brave little spurt to 108 in the second and third quarters, falling back to 107 in the fourth quarter.

I come to the present Chancellor. His record last year was: first quarter, 107; second quarter, 106; third quarter, 105; and fourth quarter, 107. Now, despite his repeated claims yesterday that the rate of production was increasing, it has fallen back in February of this year and is now two points below that for the same month of last year. So much for production.

I now turn, as the Chancellor did, to the record of last year. I referred in the debate on the Gracious Speech to this new Tory legend, that having inherited, in January, 1957, from some person or persons unknown a formidable economic problem, their stern, tough, firm, resolute and unpopular policies had brought us through to the promised land in 1958, with stable prices, a record balance of payments surplus, rising gold reserves and all the rest of it.

Now let us turn to the actual record for 1958 with the lessons which it presents for this year. Gold reserves rose over the year by £ 284 million. For once this was not helped by any external aid whether from the United States, the International Monetary Fund or Dr. Adenaur. Indeed, the Chancellor has this year had to start to repay the money borrowed as the result of his predecessor's improvidence. The picture is a little spoilt, of course, by the admission in the Survey that during the last year there was a capital in-flow into the sterling area, mainly from the United States and the International Bank, of over £350 million, a fact which has most surprisingly escaped the eagle eyes of the Central Office statisticians.

I must draw attention to one serious fact. In the eight months from September, 1957, to May, 1958, the reserves rose by £ 424 million. In the ten months since then they have risen by only £ 36 million. In that period, the Government have had the help, as we were reminded last week, of about 100 million dollars of United States capital flowing in for the purpose of financing take-over bids of British firms. This may be, as we all recognise, in the Trinidad tradition, but it shocked us when the Economic Secretary vehemently rejected the suggestion a few weeks ago that American take-overs of established British firms were undesirable. I think that the Committee will have noticed, too, that the sterling balances have been rising again.

The balance of payments reached a record surplus on the current year's account of £455 million, although the figures show that of this £327 million was achieved in the first half of last year and only £128 million in the second half of last year. We have been warned, I think quite fairly, that we cannot expect the same favourable balance this year. How did this surplus come about?

We know, according to hon. Gentlemen opposite, from reading some of their constituency speeches, that it is all due to the wonderful work of the Government in fighting inflation, " Mr. 7 per cent." and all that, although they do not mention him so much. In fact, the improvement in our visible trade last year was £189 million, but the saving in imports due to the windfall reduction in import prices was £336 million, so in real terms there was not an improvement but a worsening of £127 million compared with the previous year.

In January and February of this year, it is, perhaps, rather serious that exports were 3 per cent. down on last year. Although exports to the dollar area are very well maintained indeed and are increasing, we all know the anxiety of the Paymaster-General about exports to Western Europe, which we share. Exports to the sterling area in the first two months of this year were 15 per cent. down on the same period of last year.

It was, of course, the fall in import prices also which reduced the increase in the cost of living to a bare 2 per cent., another subject which looms large in the constituency speeches of hon. Members opposite. I am sure that they will have noticed what the Economic Survey itself says about this, because it says, quite frankly and honestly, this: Final prices did not on average rise much because of the fall in import prices during 1957, which was still working its way through the economy. We said last year that with that windfall assistance—this 10 per cent. or 11per cent. fall in import prices—the Government would have to be more than usually incompetent if they failed to bring prices down last year and, of course, they did fail. Indeed, the economic editor of the Observer has recently produced figures —I have not seen them challenged anywhere—showing that if we discount the effect of import prices, costs in this country last year rose just as much as in the years of inflation due to the paralysing effect on productivity of industrial stagnation. I do not need to tell the Committee that over last year rents rose by 18 per cent. So much for the Government's claim that they have got inflation out of the system and can now afford to be generous. The truth is that the Budget hand-out is a bonus issue following a windfall gain.

In any review of last year, the most serious fact in the 1958 economic record was the growth of unemployment. This has been fully debated and I would not add to what has been said, except for the need, perhaps, to convince the Minister of Labour that whereas on that side of the Committee a debating triumph may be enough to cover over a very serious unemployment position, the same is not true in the country and especially in the areas of high unemployment.

What, of course, we had in March was a more than seasonal recovery from a more than seasonal increase two months earlier. Unemployment was, in fact, very much more than the Minister of Labour forecast last year. The Lord Privy Seal, in his recent helpful television appearance, told is that the Minister of Labour has been pretty correct in forecasting what the unemployment figures would be ". But in preparing the estimates for the financial year 1958-59 the Minister of Labour forecast an average figure for unemployment t of 350,000. In the event, it averaged almost exactly 500,000; in other words, he underestimated the figure by about 150,000. It is very revealing that the Minister has estimated the average unemployment figure for the financial year up to March, 1960, as 500,000 over the year. When he made this estimate there was no improvement expected over the year ahead.

As the Committee knows, the registered figures do not tell us anything like the whole story. They exclude unemployed dockers and those on a guaranteed week. They exclude school-leavers who fail to find work and return to school. They grossly fail to measure the excessive degree of under-employment. Above all, they exclude the very large number of older workers, disabled workers, and married women who have lost their jobs and who, as the Economic Survey so delicately puts it, decided not to seek further employment. The figures in the Economic Survey suggest that those who have, as it is put, decided not to seek further employment —they so decided because they could not get it— account for at least another 150,000.

Again, all the Minister of Labour's artistry does not conceal the great growth in long-term unemployment, that is to say, the number of those unemployed for eight weeks or longer. This is where the greatest hardship is felt. I am surprised that the Chancellor did nothing for them yesterday. After all, he bases so much of his concessions on what the unemployed are doing for him; he might have done a little for them. In March—the figures were published this week—there were 286,000 people unemployed for more than eight weeks, some for much longer than that. This is over 100,000 more than the figure for March last year and approaching three-and-a-half times the figure of 81,000 recorded in October, 1951.

Although the Government have a heavy responsibility for the growth of unemployment, I do not, quite frankly, believe, at any rate so near an election, that they want to see the present high figure of over 500,000 continue. The trouble is that they will the end but their ideology prevents them from willing the means. Some right hon. Gentlemen opposite seem to think that it is enough to tell us how grim unemployment was under Tory Governments before the war. We have always the Prime Minister to tell us about the troubles of Stockton when he was its Member of Parliament, as though that provided a guarantee for the future. It has not done so at all, of course.

The latest figures for unemployment in Stockton show a total of 2,000, against over 800 in 1951. The Lord Privy Seal—I am sorry he is not here—is the latest to use this argument. Recently, on television, he said that he remembered being Parliamentary Secretary to the Ministry of Labour in the 'thirties and going round the employment exchanges—on the right side of the counter, of course—and, he said, "I do not wish to repeat that experience."

As the right hon. Gentleman said, he was at the Ministry of Labour for a few months, from May, 1937, until February, 1938. During those nine months, the unemployment figures rose from 1½ million to nearly 1,900,000, an increase of 400,000. Frankly, I do not follow the argument advanced by both the Prime Minister and the Home Secretary, that the worse one's previous criminal record is, the more likely is one to be trusted to go straight in the future.

I understand that the Minister of Labour will be intervening in the debate during the next day or two, and I wish to put this argument to him. This year, with 200,000 more registered unemployed and at least an equal number of additional unregistered unemployed, ought to have enabled us to test the Tory theory which we have heard so often, that a little unemployment helps us to redeploy the labour force more effectively. We had the unemployed last year. Accordingly, we would expect to see, according to the Tory argument, more people in the right kind of jobs.

Let us look at the figures in the Survey. Our redeployment went like this. There were 200,000 more added to the dole queues. I have mentioned that already. There were 22,000 fewer in coal. There were 242,000 fewer in the manufacturing industries, and of these there were 122,000 fewer in the vital engineering and metals sector. There were 9,000 fewer in national government. I suppose the Government are pleased about that. There were 12,000 more in local government. There were 43,000 more in that group known as professional, financial and miscellaneous services—mainly, of course, miscellaneous.

When hon. Members opposite were on these benches, they used to say, "Cut the Civil Service, and there will be more workers for productive industry ". Since 1955, the Government have cut the Civil Service by 33,000, but the numbers in manufacturing industry have not risen. They have fallen by 271.000 since 1955, while the numbers in distribution have risen by 96,000, and those in professional, financial and miscellaneous services have risen by 119,000. Do hon. Gentlemen opposite really think that they are solving our industrial problem by taking people out of productive work and employing them in advertising, trade associations, dividend stripping and all the other ancillary trades which flourish under Tory freedom?

I could summarise the main results of the past year in financial terms, taking all the figures from Government publications. Wage rates last year rose by 3½ per cent. Wage earnings rose by 2½ per cent. Profits fell by 5 per cent. Dividends rose by 6½ per cent., dividends after tax rising still more. Rents rose by 18 per cent. Equity share values rose by 33 per cent., and that was the figure before this morning's Stock Exchange activity. In other words, earnings are up by 6d. in the £, dividends are up by 1s. 4d. in the £, rents are up by 3s. 7d. in the £, and equity shares are up by 6s. 6d. in the £. No wonder the Chancellor called it a golden year.

I would summarise the year, on the Government's own record, rather differently. Nineteen fifty-eight, I suggest, was a bad year for old-age pensioners and others living on small fixed incomes. It was a bad year for industrial workers, especially for those vulnerable to unemployment and short-time working. In many areas, it was a bad year for new school-leavers. It was a bad year for tenants of privately-owned property and, to a less extent, for tenants of council houses. It was a bad year for those engaged in the production of steel, coal, basic materials and machine tools as well as textiles. [Interruption.] It was a good year for some. It was a good year for commercial television, for the advertising profession, not to mention the market surveyors, genuine and bogus. It was a good year for hire-purchase companies, for landlords and property companies. It was a good year for the joint stock banks and for the discount market. It was a good year for dealers in options and other speculative transactions on the Stock Exchange. It was a good year for owners of equity shares and, as we have now heard, it was a good year for the dividend strippers and for the bond washers. For this group of contributors to our national wealth and welfare, the Prime Minister's claim was right. They have never had it so good.

I come now to the Chancellor's fiscal proposals. First, there are two things which he has not done. He ought to have taken the opportunity this year, with the surplus he disposed of yesterday, to abolish once and for all the Entertainments Duty on cinemas. It yields a sharply falling revenue, and it is now quite clear that the profit is not in the cinemas; the profit is gained now by the operators of commercial television. Secondly, if he had this money to give away, it would have been right sharply to reduce the tax on diesel oils for road passenger transport. I think that the effect on fares and the cost of living generally would have been far more striking than the effect of some of the things which he did do.

Turning to the Chancellor's detailed tax proposals, I will begin, as he did, with further action to deal with dividend stripping and bond washing. It seems a long time since 1955 when the then Financial Secretary, now the Minister of Housing and Local Government, promised us, during the debate on the Finance Bill in that year, to exterminate the small but ingenious tribe of dividend strippers."— [OFFICIAL REPORT, 8th November, 1955; Vol. 545. c. 1664.] We warned him then, and we warned the Chancellor last year, that the Government's proposals were not adequate, and we told him how to deal with this problem. But. year by year, these antisocial gentry have been finding a way of making rings round the Government.

In our view, the time is long overdue for effective general powers to be taken to deal with these tax avoidance devices. As regards bond washing also, when I referred, in 1956, to the new practices which had developed, the then Chancellor, who is now the Prime Minister, told us that the matter would be dealt with. We are wondering how many more millions have escaped through the tax net as the result of the failure of the Government to deal with these tax avoidance devices.

As for the Chancellor's proposals for vehicle licence duties, hydrocarbon oils, Estate Duty on life policies, marine insurance, and so forth, I think that the various questions can be safetly left until we see the actual proposals in the Finance Bill. I should warn the Chancellor that we shall wish to scrutinise very carefully, when we see the Bill, his proposal about the remuneration of directors of director-controlled companies, because he told us yesterday that this relatively small group of people would find its situation improve to the tune of, I think he said, £3 million of revenue a year. We shall certainly wish to scrutinise exactly what he proposes to do.

I come now to Purchase Tax. I have explained why we think that the Chancellor has tackled this tax in the wrong way. He should not have set out to compress the rates more closely together. Obviously, somewhere in the Board of Customs and Excise, the old sales tax notion still smoulders. if the Chancellor wanted to bring down the cost of living, as he said he did, above all if he wanted to do something for less well-off families — after all, he is doing something for the " Top People " in his Income Tax proposals— he ought to have concentrated, I suggest, on reducing or removing the tax on essentials, especially clothing, furniture, footwear, bedding, wallpaper. cutlery, pots and pans, and kitchenware.

There are still many items in the Schedule bearing tax which were tax-free at the time of the last General Election but which were brought under the heading of taxation by the Lord Privy Seal in the autumn Budget he introduced to pay for his election Budget of that year. The Chancellor should have cut the 5 per cent. rate to 2½ per cent. if he had not abolished it altogether. Perhaps he can tell us what that would have cost. He should have removed from the 15 and 30 per cent. rate those items which must genuinely be regarded as essential.

As I shall show in a moment, the Income Tax changes are highly regressive. That provides all the more reason for applying Purchase Tax in a way that would give the most relief to people who do not pay Income Tax and, therefore, gain nothing from Income Tax relief. The Purchase Tax changes favour the heavy spender against the man with less to spend. And as I said earlier, I hope that the Chancellor will look at this question, also. He has relieved the industries which are suffering least from unemployment and provided less help for those industries where unemployment is greatest.

I want to ask the Chancellor another question. Will all these Purchase Tax concessions be passed on to the public? Last year many of them were not. Many of them were swallowed by manufacturers and we can produce evidence about that. The Economic Secretary can shake his head, but we can produce letters by manufacturers to retailers showing they had taken over the whole of the tax concession. A smaller number were absorbed by retailers. I doubt whether that will happen to a large extent. The Chancellor has seen to it that the brewers do not absorb the tax and I hope, therefore, that he will take stiff measures to see that that happens in a rather wider range of industry.

I now come to beer and black beer. This will be popular, and no doubt we can see the Churchillian inspiration "an open hand at the Treasury, an open door at the public house ", as he said in 1908. Does the Chancellor not think that even the most confirmed imbiber would have been glad to forgo the remission if he could feel that more was being done for old-age pensioners? There would have been just as many toasts drunk to his health in public houses last night if he had. The Chancellor should not jump to the conclusion that his revenue will be fortified — the fall in beer consumption is due much more to changes in social habits, chiefly television. Whether the revenue is fortified or not, how will this beer remission help unemployment? Is unemployment heavy in the brewing trade? We had not heard that that was so. I suppose the idea is that if a man drinks a couple of pints of beer regularly he will save 4d. and spend that on something else which the Chancellor hopes will not be beer. How will the revenue be fortified if he does not increase his beer consumption? Does the Chancellor feel that more will be spent on4other things? This is really Boyle's law in reverse. Perhaps the Lord Privy Seal will explain that later.

I cannot help feeling the Chancellor did not work it out in this way at all. I think that he first decided how much he could give away and then decided on this for reasons which were not exclusively economic. In fact, I do not think that this was the Chancellor's idea at all. I feel that the inspiration came from the Prime Minister. It is all part of his rather condescending "masters and men " approach to life. The masters are getting some hundreds a year off Income Tax concessions— let us give the men 2d. off a pint.

I have seen a calculation this morning which suggests that if the men, by their beer consumption, are to get as much out of this Budget as the masters are to get out of Income Tax, they will have to raise their consumption of beer to 11 gallons, that is, 88 pints a day, figures which will cause even Mr. " Andy Capp " to quail and will involve liquidity ratios which will be in excess of what the Chancellor has in mind. Three years ago the Prime Minister, in his thirst for economy, put up the price of school milk. He cut the supply of welfare milk. This is a fine record for the Government— milk up and beer down.

I turn now to Income Tax. One of the big Tory myths—and it is surprising how many people believe this one—is that over the past six years they have greatly reduced the burden of direct taxation on lower and middle income groups. What they have done has been whittled away by inflation except for the richer taxpayer. Higher prices have meant higher wages and salaries and this has brought the individual taxpayer into a higher band of tax.

It was interesting to see some rather revealing figures in the Sunday Times. Take a man earning £750 in 1952. He was then paying 5.8 per cent. of his earnings in tax. To have the equivalent income today he would have to earn £ 922, and at today's rates of tax he would be paying not 5.8 per cent. but 7.1 per cent. of his income in tax. He is, therefore, paying a higher rate of tax than in 1952. Similarly, a man earning £ 1,000 in 1952 needs £ 1,230 today and whereas he would have been paying 112 per cent. of his income he will now pay 12.7 per cent. But the £ 5,000 a year man, now getting £ 6,150, pays 41.5 per cent. against 48.3 per cent. in 1952, and he is more likely to get income ex-tax in the way of "perks " of various kinds.

Those figures were taken from the Sunday Times and not from the Daily Herald. While the intention was to reduce the burden of taxation on the smaller and middle income groups, it is quite obvious that those in the higher income groups have gained considerably.

The Chancellor's new proposals do not wipe out this inequity. The lower-paid taxpayer gets very little out of it. Let us take an average family— a man, wife, and, let us say, two children under 11. The man earning less than £ 700 a year gains nothing from this Budget. The man earning £ 700 a year, nearly £ 14 a week, saves in tax 2s. 3d. a year, or ½d. a week. The man earning £ 800 a year, or £ 16 a week, saves £ 2 11s. a year, that is, about 10d. a week. The man earning £ 1,000 a year— and, as the Chancellor knows, there are very many families whose incomes are a very long way below that —or £20 a week, saves £5 19s. a year, that is, about 2s. a week, and perhaps that is the young technician we want to dissuade from emigrating. When one gets to £ 1,500 a year, or £ 30 a week, he saves 4s. 4d. a week. The man earning £ 5,000 a year saves £ 125 per annum or nearly £ 2 10s. a week. A man earning £ 10,000 saves £ 292 a year, or over £ 5 10s. a week. Finally, a single man earning £ 10,000 a year, and living on investment income, gets £ 362 a year, or over a week.

If the Chancellor wanted to reduce Income Tax by £ 200 million a year, he should have done much more by way of personal and child allowances and by increasing the earned income allowance. Any reduction in the standard rate should have been compensated to ensure that those on unearned income and the richest Surtax payers did not, as under the Chancellor's proposals, scoop the pool.

I have referred to investment allowances. We welcome the Chancellor's belated reversal of the Prime Minister's action of three years ago, but he would he well, if he cannot introduce discrimination in the investment allowances— the proposal, I am sure, he considered— in favour of more essential as against less essential industries, to have reserve powers of building licensing to see that inessential investment does not once again get out of hand, as it did in 1955, forcing restrictions all round.

Before leaving taxation, I would once again say this. The Chancellor has missed a great opportunity to increase both the fairness and the yield of our tax system by making a determined drive on all the manifold forms of tax avoidance—" perks ", untaxed capital gains, tax-free compensation for loss of office, of which there have been one or two striking instances recently, the tax loss racket, and the rest.

A year ago, in the Budget debate, I said: a socially just Budget means widening the tax base by bringing all, or nearly all, forms of spendable income within the revenue net. That sentence, twisted and out of context, has been a staple of Tory propaganda ever since. I invite the noble Lord, Lord Hailsham, to bring a meed of unaccustomed honesty into his party's propaganda by quoting the next sentence: The wider the base, the less high the tax rates need to be. This means dealing with capital gains, as we propose. It means a determined legislative drive against all the manifold forms of legal tax avoidance." — [OFFICIAL REPORT, 16th April, 1958; Vol. 586, c. 185-6.] On post-war credits, I will just say that we welcome what the Chancellor has done. My right hon. Friend, four years ago, pledged this party, had we become the Government, to reduce the age of repayment by one year every year. Had that been done we should now be down to the 60-year-olds by this time. However, we very much welcome the Chancellor's acceptance of what we have long urged on him, that he should do something about the hardship cases. [Laughter.] Hon. Gentlemen opposite can look in the columns of HANSARD and see that week by week —almost day by day— I have put this point. I have written to the Chancellor about this. We have, all of us on this side, pressed him on this question, but we were told that the Treasury said that it was utterly impossible to do it. We will not argue about whether the Treasury said that or not, and we are very glad that the Chancellor has found it possible to do this. We recognise the possibility of anomalies, but, nevertheless, we are glad he has taken the chance.

This Budget does relatively little, apart from the beer tax and a little bit about Purchase Tax, for the majority of families in this country. I have referred to the old-age pensioners. What about families with children? Of the 1,900,000 families with two children over half pay more in National Insurance than in laconic Tax. As I have said, it was the Chancellor who raised their taxation last year by increasing National Insurance contributions and he has done nothing for them this year. Of the 500,000 families with four children 90 per cent. pay more in National Insurance than in Income Tax. About 5¼ million children, or about 44 per cent. of all the children, are in families who pay no Income Tax at all, and they have not been helped by the Chancellor's Budget, except in so far as father is able to get his beer a bit cheaper.

We welcome, as I have said, the Chancellor's decision to support expansion, but looking further ahead, can the Government be confident of continued expansion without a new balance of payments crisis? Because the more they concentrate that expansion on consumption rather than investment the greater the threat, sooner or later, to our balance of payments, because of the pull of the home market, which both holds back our exports and increases our imports.

The National Institute for Economic and Social Research, in its most valuable survey of economic prospects, has drawn attention to the way that imports are rising more than proportionately to our national income. The additional imports we are getting year by year are not the industrial raw materials we need to expand output. They are, of course, partly food, partly petrol, but they are also finished manufactures which are replacing our home manufactures. If we look at the figures since 1954 we see that our imports have risen from £ 40 million to £ 50 million a year more than would be justified by changes in industrial production. Looking at these excess imports since 1954 we see we are now importing 80 million less of industrial materials but £ 87 million more of finished goods, most of which we ought to be making in this country. In that fact lies a critical threat to our future, and the Government, so far from taking measures to deal with it, are talking irresponsibly of liberalising more dollar imports.

That is why we must, in all honesty, question the sincerity of the Government's new-found faith in expansion. Is it genuine expansion, or just a process of taking up excessive slack'? The 1954 to 1955 boom and the years of crisis which followed are sufficient justification for saying that under Tory freedom expansion is followed as night follows day by inflation internally and by external crisis. [Laughter.] If hon. Gentlemen opposite can still find satisfaction about the problems that this country was facing in the couple of years after the war, and cannot defend their record, when world prices were falling and their own policies led to inflation, it really is time that they started to think again.

We welcome the decision at long last to aim at expanding industrial production, but we warn the Government that they will fail, as they failed before, unless there are built-in controls to prevent excesses of production of inessential goods and of inessential investment and directed to meeting the over-advertised demands of the home market. Expansion without inflation is possible only on two conditions, first, that excesses can be curbed, and, secondly, that a policy of social justice is reintroduced to make possible the appeal for reasonable restraint in personal incomes that all parties know to be necessary. These gains, the concessions offered by the Chancellor yesterday, can be guaranteed, they can be made permanent— I hope they will be redirected— only if we have a Government determined to pursue the policies which are necessary for expansion without inflation.

In conclusion, this Budget is almost certainly the last Budget of this Parlia- ment. Soon the electorate will be called upon to judge the record of this Government, re-elected in 1955 with such high-sounding promises— as events have proved, fraudulent ones. [HON. MEMBERS: "0h."] We have had four major foreign exchange crises. Year by year we have been forced to record the miserable achievements of four successive Chancellors. Let me end by summarising the record of four years of Tory Government, in uniquely favourable world economic conditions; not the conditions as they were when we formed the Government in four or five years after the war, but at a time from ten to fourteen years after the end of the war.

In trade and industry in four years we have seen industrial production showing no rise; exports up 3 per cent., less than 1 per cent. per annum, and now falling; unemployment doubled. The gold reserves in the four years, it is true, have increased by £ 160 million, but the emergency borrowing in the Suez crisis and in 1957, the sale of national assets such as Trinidad oil, the extraordinary aid from Germany and elsewhere, have been almost £ 600 million, to say nothing of the £ 350 million of United States and International Bank lending to the sterling area last year. Even so, our reserves today, even making no allowance for the emergency aid, are still a long way below the 1951 level. And the record in terms of incomes? Wages have risen by 20 per cent. though eroded by increased National Insurance payments, while dividends have risen by 26 per cent., dividends after tax much more. Rents have risen by 39 per cent.

Most serious of all, year by year we have been falling behind in the remorseless world economic struggle. In production, we have for four years lagged behind almost every other major industrial country. Our prices have risen faster, our exports year by year have failed to expand. In exports of manufactured goods we fell last year to third place, behind the United States and Germany. We have seen Japan and Germany, both without a shipyard to their name eight years ago, surpass our stagnant shipbuilding output. In both the pace and the direction of our industrial advance we have been tragically left standing by the Soviet Union. [Laughter] These figures give no cause for laughter.

We are losing ground year by year to other nations. Before long we shall, on present trends, be outstripped by China. I ask hon. Members who find this very amusing what it will mean when those countries, especially Russia and China, begin to compete in our traditional markets for manufactured goods. The truth is that while Germany and Japan have been concentrating on the hard core industries, engineering and the instruments of production—

Photo of Mr Harold Wilson Mr Harold Wilson , Huyton

I meant West Germany: West Germany and Japan have concentrated on the hard core industries, engineering and the instruments of production, while we have been producing soft centre economy based on advertising and domestic consumer standards and on a consumption boom at the expense of investment.

I say to the Chancellor and his pathetic trio of predecessors, only one of whom is here this afternoon, that if we had devoted only one-half of the windfall we received after 1952 from improved terms of trade to strengthening investment, if we had devoted the same proportion of our increased production to investment as we devoted in the vastly more difficult years after the war, we should today be competing proudly and on equal terms with both Germany and Russia in our productive investment and by this time we should have been able to afford an annual increase of real wages of 4 to 5 per cent. without danger of inflation.

Two years ago the Prime Minister, on assuming his present high office, promised to make Great Britain great once more. After all these years he is now venturing on to the world stage. He has our good wishes. We all sympathise with him in his uncomfortable postures of flexible rigidity and in his efforts to escape from the veto which for years it has been Tory policy to give to Dr. Adenauer.

If the Prime Minister were here I should say to him that in a wider sense greatness will not come from diplomacy alone. Economic strength is the basis of greatness in the modern world. We have abdicated our position under his Government through losing our sense of economic purpose. I agree with what the Prime Minister said in his election address. We have in this country the brains, the machines and the men; properly mobilised, they are without equal in the world, as we have shown in our finest hours in war and in post-war economic recovery.

The one hopeful feature of this year is that at last we have the long-delayed chance of giving the country once again a leadership and a sense of purpose worthy of our people.

4.45 p.m.

The Paymaster-General (Mr. Reginald Maudlng):

I think we all realise that the right hon. Member for Huyton (Mr. H. Wilson) had a very difficult task today. He had to deal with a Budget which has been generally recognised as being entirely sound in economic terms and which is also widely popular. I therefore understand why he devoted the minimum possible proportion of his speech to the Budget proposals. That was perhaps a little unusual in the circumstances, but I think that it was certainly wise.

Throughout his speech I thought that he was. for him, unusually cautious. I detected one or two notes of acidity, no doubt arising from mixing cheap bitter and sour grapes. Apart from that he was a little piano. Those of us who have listened to many of his speeches have noticed two fairly persistent features in them. In the first place, he is always very amusing. In the second place, he almost always contradicts himself between the beginning and the end. I think he so enjoys his own performance that he does not notice that the two horses he is riding are gradually getting further and further apart. This was no exception.

Photo of Mr Simon Mahon Mr Simon Mahon , Bootle

Get on to the Budget.

Mr. Mandling:

If I am not yet dealing with the Budget it is because I am following the right hon. Member for Huyton. On this occasion, as so often before, the right hon. Gentleman started by endeavouring to show that the balance of payments position is far weaker than it looks and continued by arguing for steps which would be justified only if it were several times stronger than it is. If that is not inconsistency, I do not know what is.

The right hon. Gentleman made several references to 1958, but I cannot accept his interpretation of what happened in that year. In 1958 we had a record surplus on our balance of payments, we had a great improvement in the reserves, and, what is more, we had a very substantial improvement in the monetary situation and a very great strengthening in the £ sterling. At home we had record levels of consumption, we continued a record level of fixed investment, far higher than was ever achieved under his Government, we maintained a high level of savings, particularly of national savings, and there was virtual stability of prices. I do not think the right hon. Gentleman referred to any of those things very much.

The right hon. Gentleman referred a great deal, of course, to production and unemployment. It is true that during the year unemployment increased. Now, as he is glad to see, just as we are, it is decreasing. In his league tables the right hon. Gentleman omitted to refer to one international league table which is very important. He should compare the level of unemployment in the United Kingdom with that in Norway, the Netherlands, Sweden, the United States, Belgium and Denmark. for example.

Photo of Mr Harold Wilson Mr Harold Wilson , Huyton

We have had that before.

Photo of Mr Reginald Maudling Mr Reginald Maudling , Barnet

I know that we have had it before from the Minister of Labour, but the right hon. Member for Huyton has obviously forgotten the facts. When he is quoting these league tables he might take account of some which are significantly in support of the Government's policy, although that is perhaps asking too much of him. He referred once again to his famous league table about production, and I was only quoting that about unemployment, which is equally significant.

The right hon. Gentleman repeated one point which the Leader of the Opposition made yesterday about the balance of payments surplus. He said that we could account for the whole balance of payments surplus, or most of it, by the fall in import prices, and he argued that the Government's policy therefore had no effect on the matter. That is a simple fallacy. It is one thing to have an opportunity and it is another thing to make use of it. Had it not been for the measures introduced by my right hon. Friend the Member for Monmouth (Mr. P. Thorney- croft), and had we followed the policy advocated by the Labour Party, we should have had a year of reduced import prices without any strengthening in our balance of payments or our reserve position.

Turning to the Budget, with the right hon. Gentleman's permission. I think there are two main ways in which the Budget proposals can be criticised. The first is in the total of the tax reliefs. I use the word " reliefs " because neither the word " concession's " nor the phrase used by the Leader of the Opposition yesterday of " giving away money " is, I think, appropriate to the reduction of taxation. The first question is whether the total of the tax reliefs or reductions is too much or too little. The second possible ground for criticism is whether the distribution of these reliefs is right. Finally, it may be argued, at it was argued this afternoon by the right hon. Gentleman, that what we have done may be right but that we should have done it a long time ago. I will deal with all those points in the course of my remarks.

Clearly, my right hon. Friend's duty was to reduce taxation as far as he possibly could without creating a renewed threat to the stability of prices or to the balance of payments. The question therefore to be asked is whether my right hon. Friend went as far as a bold policy would dictate, or, on the other hand, whether he went further than prudence would advise. Did he do too much or did he do too little? I was speculating as to which of these alternatives the right hon. Member for Huyton would choose, and, as I rather thought, he compromised as usual by choosing both of them.

To deal first with the criticism that my right hon. Friend the Chancellor may not have gone far enough, it is important to look at the sum of all that my right hon. Friend is doing. The total tax reliefs and repayments of post-war credits amount to over £ 360 million. The effect of this on the economy will probably be somewhat greater than the actual figure because of the effect of the multiplier. When we add to that the psychological effect on business confidence, the continuing effects of the removal of restraints on credit and the substantial increase in public investment expenditure, all these things together obviously will be a very powerful stimulus indeed to the economy. I do not think anyone could seriously argue that the measures proposed by my right hon. Friend are inadequate for their purpose.

What of the second alternative? Can it be argued that my right hon. Friend has gone too far? The answer to this, too, is clearly No ". There is a great deal of spare capacity in the economy, as is often argued on both sides of the Committee. It cannot be used 100 per cent., as is sometimes suggested, without running back into problems of inflation. There is, however, a great deal of spare capacity available.

The balance of payments is strong and the direct effect of these measures on the import bill should not be more than in the neighbourhood of £60 to £70 million. Moreover, it is clearly our duty to try to promote expansion of trade on a worldwide basis. It is not only our duty in the immediate present, but it is also in our long-term interest in the future. This was well put by the National Institute in the survey which it recently published, when it said that only if Britain and other industrial countries pursue expansion and face the risk of some deterioration in their foreign payments can world trade he expected to revive. My right hon. Friend is fully justified in going as far as he has done in the interest not only of this country's economy but of the general re-expansion in world trade, and no one could seriously argue that he should have gone further. In other words, in the words of the advertisement, Not too little, not too much, but just right I gather from the right hon. Member for Huyton that that is his view, too.

From that conclusion certain interesting facts follow. If the right hon. Gentleman thinks that my right hon. Friend has made enough in the way of total tax reductions, he can hardly suggest great further tax reductions unless he is opposing some of the proposals that were made yesterday. So far I have seen little tendency on the part of the Opposition to wish to oppose, either by voice or by vote, the proposals that my right hon. Friend has made.

Looking at the composition of the Budget reliefs, have they held the right balance between investment and consumption? In the past, the right hon. Member for Huyton has talked often about a consumers' spree. I do not quite know what is meant by that expression. It seems to me to be a particularly silly phrase in these circumstances. It seems to me to be a description of leaving more money in the pockets of the public to spend as they wish, which surely is a right object for any Chancellor of the Exchequer.

Photo of Mr Harold Wilson Mr Harold Wilson , Huyton

I have used the phrase throughout over the past year as referring to the Government's hire-purchase de-restriction at a time when they refused to help investment. It was an extremely dangerous thing to expand consumption before we could expand investment. It is certainly not the way to fight inflation, which the Government were claiming to do, to buy this year's goods from next year's income.

Photo of Mr Reginald Maudling Mr Reginald Maudling , Barnet

I gather from that that the right hon. Gentleman fully approves of what is being done in the Budget, because alongside expansion of consumption there is considerable stimulus to investment. In fact, the balance has been very well held.

First, my right hon. Friend has expanded general demand. Without an expansion of general consumer demand there will be no expansion in investment. Investment will only take place if it is profitable and if the products will be sold. In addition, by reducing Income Tax my right hon. Friend has both increased the reserves available to companies and increased the net profitability of any new investment. Also, by the investment allowance he has made a direct contribution to the stimulation of investment in the economy in the coming year. Thus the balance between consumption and investment has been fairly held.

What of the criticisms which have been made, rather briefly, by the right hon. Gentleman of the individual tax proposals? First, Income Tax. The right hon. Gentleman seems to me to be following the precedent of the Leader of the Opposition in 1955 when he argued, rather strangely, that the reduction in the standard rate was designed entirely for political popularity and yet affected only a very small number of people. This always seems to me a rather contradictory argument. It is perfectly true that a reduction in the standard rate brings a greater direct benefit to the person who pays more taxation— that is inevitable and mathematical, and it will apply to any reduction in the standard rate in future. If, however, the Labour Party does not consider it appropriate this year, in these circumstances, to reduce the standard rate of tax, when will they regard it as appropriate to do so? In fact, we can take it quite clearly from the attitude adopted by the party opposite and from the enormous additional expenditure to which it is committed by its party policies that prospects of any future reduction in the standard rate of Income Tax, should hon. Members opposite unfortunately return to power, are very dim indeed.

I turn next to Purchase Tax. The effects of the Purchase Tax changes have tended to be minimised because people have overlooked the fact that they will cost this year £59 million and in a full year £81½ million. All this additional purchasing power will be available in the pockets of the public as a result of these cuts.

Photo of Mr George Lindgren Mr George Lindgren , Wellingborough

Not everyone buys a motor car or a television set.

Photo of Mr Reginald Maudling Mr Reginald Maudling , Barnet

Not everyone, but a large number of people are buying them. In fact, under this Government the increase in the number of television sets has been quite astronomical.

The point I was making was that the reduction in Purchase Tax, although in terms of the rates it may appear moderate, in terms of the total amount remitted to the consumer is very large indeed. There is, of course, a great difference of view on both sides of the Committee on the basic form that the Purchase Tax should take. I can only say that we on this side hold the view that as an indirect tax of this character is bound to be with us for a long while and as it is bound to be looked upon as a revenue raiser, we should aim to make it a tax at moderate rates spread over a wide field. This was the purpose which my right hon. Friend had last year and one which is continued in this year's Budget proposals.

Photo of Sir Gerald Nabarro Sir Gerald Nabarro , Kidderminster

It is a little difficult to put into correct perspective what my right hon. Friend has said about Purchase Tax without the key figure. What sum does my right hon. Friend the Chancellor of the Exchequer propose to raise this year in Purchase Tax compared with the figure the year before last, when he budgeted for £494 million, and last year, when he budgeted for £491 million but raised a good deal more? What is the figure budgeted for in the forthcoming year, having regard to the changes announced by the Chancellor yesterday?

Photo of Mr Reginald Maudling Mr Reginald Maudling , Barnet

The figure is £ 59 million less than it would have been on the basis of existing rates of taxation. The figure is, I think, given in the Treasury White Paper, but I am not sure whether generally or individually.

Photo of Mr Douglas Jay Mr Douglas Jay , Battersea North

I can tell the right hon. Gentleman the figure. It is £471 million.

Mr. Maudlin:

The right hon. Gentleman is always accurate if not invariably penetrating in his remarks.

I come to the question of beer and the 2d. reduction which my right hon. Friend has brought into effect. My right hon. Friend is quite confident that the effect of the 2d. reduction will be passed on in this case to the consumer. Reference was made yesterday by one or two hon. Members to recent increases of 1d. a pint by some brewers. I understand that the Brewer's Society is passing a strong recommendation to its members that the reduction to be made now should take into account not only the 2d. but also any increase made since 1st January this year. So where some beers went up by 1d. recently it is likely that they will now fall by 3d.

What are the main reasons why my right hon. Friend chose to reduce the Beer Duty? It is sometimes suggested by hon. Members opposite that this was an electoral idea. I think that reveals a very old-fashioned view of the considerations on which the modern electorate makes its decisions. [Interruption.] If that is the right hon. Gentleman's idea of political tactics, I am not surprised that Mr. Morgan Phillips is trying to escape to the House of Commons.

The reasons for choosing the Beer Duty are both technical and general. There are two good technical reasons. First, the need to preserve the revenue, where the revenue from the product was falling, and secondly, the import content of beer, unlike petrol or tobacco, is very small. The general reasons are that more than one-half of the adult population consumes beer and the benefits will, therefore, he widely spread. The tax, until yesterday, on this product on a basis comparable to Purchase Tax works out at about 150 per cent. on the wholesale value. Considering that beer can hardly be described as a luxury, a rate of Purchase Tax equivalent to 150 per cent. of the wholesale value on a product widely consumed by more than one-half of the adult population is a reasonable candidate for reduction in a year when reductions are possible.

I now come to post-war credits. I think that my right hon. Friend's proposals have been well accepted. I noticed the Leader of the Opposition proposed that we should add another £ 50 million to the bill by repaying not two years but five years of post-war credits. I can see the reason for that. I know that the party opposite, who cherish the illusion that they may he in power next year, would like to see non-recurring reliefs taken a good deal further. I am sure that they would rather start their term with Income Tax at 8s. 6d. than 7s. 9d. On the subject of post-war credits, my right hon. Friend has asked me to say that the Bill making these payments effective will be presented tomorrow. That will inhibit discussion in the Budget debate on the proposals, but I understand that the Second Reading will be taken next week immediately after the conclusion of this debate, so there will be plenty of scope on that occasion for discussion of postwar credit releases.

I have dealt with the criticisms advanced by the right hon. Gentleman—

Photo of Mr Douglas Jay Mr Douglas Jay , Battersea North

As the right hon. Gentleman says that we cannot discuss the proposals tomorrow, where post-war credits are allowed to people who have been receiving National Assistance for twelve weeks can we be assured that they will not be regarded by the National Assistance Board as a ground for reducing National Assistance? I assume that that is so, but the Chancellor did not say so.

Photo of Mr Reginald Maudling Mr Reginald Maudling , Barnet

My right hon. Friend assures me that that is so.

Photo of Mr Patrick Gordon Walker Mr Patrick Gordon Walker , Smethwick

Is it wise to take out from discussion in the middle of the main Budget debate an item which fits into the whole picture? We shall be very inhibited in the debate if we cannot refer to a big relief of taxation which fits into the whole social pattern and which we may want to attack and hon. Members opposite to defend.

Photo of Mr Reginald Maudling Mr Reginald Maudling , Barnet

Subject to correction, I understand that references to post-war credit proposals will still be permissible but that detailed discussion will not. I think it is convenient that detailed discussion should be postponed until next week. It is most important for people who want to receive post-war credits rapidly that the work should be authorised and set in hand as soon as possible.

We shall no doubt hear about many alternative suggestions for reliefs, but I would come back to the point which I made earlier. Having accepted that the total of reliefs in this Budget is the right total, if the right hon. Gentleman and his colleagues propose other alternative forms either of Government expenditure or tax relief they should indicate from where the money is to come. Many references have been made to the desirability of increasing social service expenditure, and particular reference has been made to old-age pensions. The right hon. Gentleman did not refer to this point much, but 1 must take him up on the point he made that 1958 was a bad year for old-age pensioners. At the beginning of 1958 the retirement pension was increased to the figure at which it now stands, which is substantially greater in real terms than anything the pensioners received during the years of office of the party opposite. I think that that is a fact which needs to be placed on record.

In addition, the proposals which the party opposite put forward would cost, with their consequential amendments and alterations, a full £ 200 million, which is a very large sum indeed even in a year such as this. In framing his Budget, my right hon. Friend thought that he should concentrate on the urgent economic needs, which are to expand production and investment and to keep the price level stable. That was the purpose of his Budget proposals, and in that purpose I think it is clear that he will be successful. I think it is true to say that in general the old-age pensioners have at least as much as anyone to gain from stability of prices, and as the proportion of pensioners in the population increases a rise in the level of investment and production is essential to maintain rising standards for the pensioners.

Photo of Mr Walter Monslow Mr Walter Monslow , Barrow-in-Furness

Is the right hon. Gentleman suggesting that the old-age pensioners are at present above or below subsistence level?

Photo of Mr Reginald Maudling Mr Reginald Maudling , Barnet

Subsistence level is not the point which I was making. I said that the situation since the beginning of 1958, referred to by the right hon. Gentleman as a bad year, is very much better than it was during 1946 to 1951.

The other argument is that we should have acted earlier and that it was only in this Budget that we took action to expand production. That is quite untrue. As early as the beginning of last year my right hon. Friend started the move to re-expand production, concentrating first on the field of export finance, which was obviously right, then moving to the field of investment, first by increasing allowances in the Finance Act, 1958, and then by the progressive removal of restrictions on the raising of credit and by the reduction of interest rates— a steady logical progress which culminated in this Budget. It is nonsense for the right hon. Gentleman to pretend that it is only now that a move has been made to expand production and investment.

The right hon. Gentleman asked why it is possible to do more now than it was a year ago. There are several clear answers to that question. Reserves are very much stronger, and there was a £ 219 million improvement in the monetary position during 1958. Even the right hon. Gentleman cannot sneeze that away.

Photo of Mr Harold Wilson Mr Harold Wilson , Huyton

I know that the Economic Survey referred to £350 million special help, but compared with May last year the reserves are up by only £36 million. The increase was before May.

Photo of Mr Reginald Maudling Mr Reginald Maudling , Barnet

I do not see how the right hon. Gentleman can confuse the aid received by the rest of the sterling area with the capital account of the United Kingdom. He is confusing these matters. The point is that the gold reserves increased by over £ 280 million and the capital position of the United Kingdom improved by about £ 219 million in 1958. The second answer is that prospects for world trade are improving. The United States has made a rapid recovery which the right hon. Gentleman did not foresee last year. Europe is showing signs of expanding again, and the fall in commodity prices appears to have been checked and in some instances reversed. Internal prices have remained virtually stable for ten months, and we hope that wage rates will remain stable.

It is important to emphasise once again, as my right hon. Friend did yesterday, that if a return to expansion means a return to conditions in which wages expand faster than productivity the inevitable result must be an increase in prices. It is clearly desirable before encouraging re-expansion to have confidence that that process will not again take place. My right hon. Friend the Chancellor has moved cautiously forward, testing the ground as he has gone. How right he surely was. Is it not far better to move cautiously and confidently rather than to dash ahead, as the party opposite did so often between 1946 and 1951, ending either with the dissipation of the dollar loan, devaluation of the £, or with throwing in their hand and having a General Election?

The party opposite and the right hon. Member for Huyton talked a good deal about an impending General Election. and they obviously regard themselves as the alternative Government. I think that in those circumstances they should begin to live up to their responsibilities and stop advocating the sort of bogus policies which appear in their party documents. A common myth, to which the right hon. Gentleman himself gives so much publicity, is that by some change of policy the Labour Government could increase national output by £1,700 million and, as a result, produce another £450 million of tax revenue without an increase in the rates of taxes. But even £450 million would not be sufficient to cover the expenditure which they envisage and the overall Budget surplus to which the right hon. Gentleman committed himself last year.

The argument itself is fallacious. They say that if they were in power they would go back to the rates of expansion achieved between 1946 and 1951, but in the years after war, when industries were regrouping and recovering, obviously rates of expansion would be high. I agree that a return to Labour Party policy could lead to some expansion. But clearly it would also lead to a return of inflation, a balance of payments crisis and a run on the reserves. The party opposite says that it can now prevent that happening It claims that it can now pursue a policy of expansion without inflation. Right hon. Gentlemen opposisite did not do it in the past. What reason have we to suppose that they can do it now?

I have studied the speeches of right hon. Gentlemen and the party documents and have tried to find the answer to the question of how they can achieve this great expansion and pump into the economy all the purchasing power that they talk about without a return to inflation, rising prices and a crisis of balance of payments. Let us turn to their official document and see how. Not, apparently, by a wide system of price control. All that they are going to do about prices is "watch "them. That seems to me a rather unprofitable procedure. How are we to have expansion without inflation? Their first proposal is to end Tory restrictions on production. What Tory restrictions on production are there at present? I cannot think of any. I should be most grateful if right hon. Gentlemen opposite would tell me. Possibly rates of interest may be what they have in mind. If so, that confirms what one suspects; that they will return to a Daltonian era of artificially cheap money—" lubricating the economy with a sufficiency of purchasing power ", with the consequence that inevitably follows.

Their second step is to … launch a plan for capital investment which will put more horse-power at the elbow of workers in industry and in agriculture. What is meant by a plan for capital investment? In the public sector we have one already, and it is, of course, based on estimates of future demand. Would the right hon. Member for Huyton plan capital investment greatly in excess of likely future demand? Right hon. Gentlemen opposite probably would, and a very wasteful process it would be. Then how would they plan the private sector? Surely, the private sector determines the level of capital investment in the light of probable demand, but if the gentlemen in Whitehall are to determine the capital investment programme we shall finish up with an excess capacity in some sectors and an inadequate capacity in others.

Photo of Mr Harold Wilson Mr Harold Wilson , Huyton

If all this is true, why was it that in 1957 right hon. Gentlemen opposite—that is, the gentlemen in Whitehall—set out to cut down both the private sector and the nationalised industry investment programmes a long way below what industry needed to do?

Photo of Mr Reginald Maudling Mr Reginald Maudling , Barnet

We wanted then to reduce the total level of investment and we are now extending it in line with demand, but to try to expand it beyond the level of demand is to try to waste the resources of the nation.

The final sentence about how the party opposite will achieve expansion without inflation is the best of all. They say that the alternative to the Tory way is to encourage expansion while using controls to keep check on it. This is the Socialist way. I can well believe it. To use a metaphor much beloved by the right hon. Member for Huyton, it is rather like having one foot jammed on the accelerator, one foot on the brake and no care for the steering. which always results in a nasty smell of burning rubber and a loud crash in the middle distance. The policy of controls set out by the Labour Party, both in documents and in speeches, cannot possibly prevent inflation and cannot possibly prevent a balance of payments crisis if a Government is determined to pursue inflationary policies.

I would seriously remind the right hon. Member for Huyton that in his speeches last year he said that the strength of sterling should be given priority over everything else, whatever Government was in power. We agree with that, and we believe that he means it, but the policies which he and his party advocate are totally inconsistent with any such regard for the strength of sterling. That may be recognised by people in this country and discounted, but it may he recognised and not discounted by people outside. If the right hon. Gentleman intends to support in every way the strength of sterling, he can best do that by abandoning bogus prospectuses for expansion without inflation, which everyone can clearly see cannot possibly be brought into effect.

I think that I have covered in rather shorter time than did the right hon. Member for Huyton as many references to the Budget proposals as he made. We can conclude from his main speech on behalf of the Opposition that the Opposition has no criticism of the scale of Budget reliefs, no really effective criticisms of the distribution of reliefs, and no alternative policy of any significance whatsoever to offer.

5.16 p.m.

Photo of Mr Hugh Dalton Mr Hugh Dalton , Bishop Auckland

The Paymaster-General, as we always expect, showed great intellectual ingenuity in defending proposals which had been subject to severe criticism by my right hon. Friend the Member for Huyton (Mr. H. Wilson), to some points of which the right hon. Gentleman turned a blind eye. It was amusing, and I enjoyed the deviation towards the end of the right hon. Gentleman's speech in discussing not the Budget which he is partly concerned to defend, but a hypothetical Budget which we on this side of the Committee might produce after the next election. It was amusing and it cannot be said to have been out of order, but it was evasive action in the sense in which we knew it not so long ago.

To take a simple illustration, the right hon. Gentleman completely omitted to reply to that portion of my right hon. Friend's speech in which he raised objections to the plan of the Budget on the ground that it involved the misuse of resources, and that instead of so large a degree of tax reduction there should have been a reinstatement of some lately curtailed social expenditure. The right hon. Gentleman did not in any way seriously deal with that argument or, to take a small but important point, with the argument that the repeal of the prescription charge imposed by the present Prime Minister should have had a very high place in any plan for tax reduction. All that was missed out and the result was amusing but not conclusive or final.

The right hon. Gentleman said that this was "generally" admitted to be and I ask the Committee to observe the adverbs—an "entirely" sound Budget and also very popular. But we must wait until events and debate develop a little further. I am not prepared myself to accept that description of it so soon after its introduction and when the examination of it has only just begun.

From many points of view it must be a very disappointing Budget to many people who had been led to believe by the Press that all sorts of additional or alternative reliefs were to be forthcoming. The cinema proprietors are exceedingly displeased with it. They do not regard it as entirely sound. A number of people who had been advocating in the Press all sorts of alternative arrangements which have not been included in the additional reliefs, large though that total is, do not so regard it. Large numbers of people were anxious for a readjustment of Schedule A for the benefit of owner-occupiers. They have got nothing. Certain people on the Stock Exchange were passionately eager for a reduction in the Stamp Duty on Stock Exchange transactions. They have been sent empty away. Many others might be cited. It would be tedious to prolong this list, but anybody who read the Press in the build-up period before the Budget will know that instead of the Budget being very popular and generally accepted as being entirely sound— I repeat this extravagant description— many people are much offended because the special projects to which they had committed themselves have been put entirely on one side.

I turn now to the central feature of the Budget relief— 9d. off the standard rate. Very disappointing, is it not? When the Chancellor announced this 9d. I thought of what the right hon. Gentleman the Member for Woodford (Sir W. Churchill) said in another context. "Neither one thing nor the other " "A very funny figure ", I thought. Now I would have expected that the Chancellor in this context would have managed a reduction of 1s. I was not sure, I did not put money on it. If I had betted on it, I think I would have betted on 1s; other reliefs could have been toned down a little. The right hon. Gentleman would have got a much better reception from his own side if he had made it 1s. But who am I to complain that he did not, because he leaves me still holding my record as the only Chancellor of the Exchequer for the last thirty-seven years— since Sir Robert Horne did it in 1922— who actually in a single gesture took ls. off the standard rate? I am very happy to have that record still standing, though I had been prepared for it to be knocked over.

I seem to hear mumbling from the back of the Committee. It is true, of course, that in the Budget of 1945 I not only knocked 1s. off the standard rate but I also made substantial increases in the personal allowances for Income Tax. I also increased the Surtax in order to promote justice, and in that same Session I took the financial responsibility for a very substantial increase in old-age pensions. Indeed, we increased old-age pensions in 1946 by more than 100 per cent. Therefore, I would have been very happy to see the present Chancellor not only taking Is. off, but also doing the same kind of things that were done in the Budget in which I took is. off. That would have produced a much more just and acceptable general pattern of financial adjustments.

So much for the 1s. which was not taken off. I have one other comment to make on Income Tax. This has already been made briefly by my right hon. Friend. I am very sorry indeed that nothing more ha3 been done about the earned income relief. I think that is even more important than a reduction in the standard rate. Here we talk much about incentives, and l hope this argument may have some repercussion in the minds of hon. Members on both sides of the Committee. Is it not much more valuable, if we are seeking to stimulate incentive and reward hard work, to give a differential advantage to people who work for their money rather than to give the same advantage to people who, whether they are asleep or awake, have their bank balances steadily increased? In other words, is it not better to emphasise discrimination at this stage and, with the object of stimulating incentive, to increase the relative tax advantage given to earned income?

We have been told that the young business executives feel frustrated and handicapped. Maybe they do. Then should not they, when taxation is reduced, have an additional advantage over the retired people of equivalent income, the rentiers, the people who cannot for physical or mental reasons any more make a contribution, the people who have passed beyond the reach of incentive? Why treat these two the same? If incentives are what we are out for— or social justice from another angle— the Chancellor should have expanded the difference between earned and unearned income in relation to these Income Tax reliefs.

I think it is disappointing that nothing has been done to help the earned income receiver in the middle ranges of income. We used to do that. When I say " we", I speak for several people who have been Chancellors of the Exchequer. Speaking in chronological order I increased the earned income relief in two Budgets. Sir Stafford Cripps did it, the present Lord Privy Seal did it and the right hon. Gentleman the Member for Monmouth (Mr. P. Thorneycroft) did it in a rather special way about ceilings of relief. We all took an interest in this, but now it seems to have gone out of fashion. I regret that nothing has been done in that way at this time.

On Purchase Tax, I have only one point to make, which in effect my right hon. Friend has made already. I think there is an advantage in not spreading the tax widely over commodities just for the sake of going wide. I should have thought the essential thing to do was to clear the tax off the whole range of really necessary articles. It would have been much better to take it off the whole of the 5 per cent. class, or as much as we could afford, and leave the higher rates as they were, because in the 5 per cent. range of Purchase Tax we include clothing and a large number of other necessaries of life and, if we are interpreting Purchase Tax, as I do, as being essentially a tax upon comparative luxuries as against necessities, that is the way in which that character can be maintained and yet a wide range of relief can be given to a large number of people of very moderate means who would have appreciated cuts in the prices of clothing, boots and shoes and the rest. We would also, in the present circumstances of the textile industry, have contributed much more to the relief of unemployment than is possible by this general reduction of the rates of tax on the more highly taxed groups of commodities under the present Purchase Tax proposals. So I agree with my right hon. Friend that, although we welcome the Purchase Tax reliefs in principle, they are all wrongly distributed as between the commodities concerned.

Beer has been mentioned—a reduction of Id. a glass. Does anybody say, " No, 2d. a pint "? If so, they show themselves unqualified to discuss this subject. Why did the Chancellor choose beer? The Paymaster-General has given a number of ingenious semi-statistical arguments, but the Chancellor did not put it on that ground at all. The Chancellor said, " I wanted to keep down the cost of living " —I am not saying that is a wrong thing to do; I am endeavouring to restate what the Chancellor said—" and therefore I consulted my pundits and asked, How do I get the biggest reduction in the cost of living for the smallest tax remission? ' ". That was the problem. I remember putting the same question to the pundits of the day when I was Chancellor. It is an interesting problem. One does not want to give away more revenue than necessary, and one wants to keep the cost of living down as much as one can. It is simple. They said, seemingly, " Go for beer ". Well, on the whole, as compared with certain alternatives, I think that was not the wrong choice.

When the Chancellor was dealing with that point in his Budget speech, I was rather afraid that he might have decided to take something off tobacco, and I want to congratulate him on not doing that. At any rate, whatever may be said about beer, it does not cause lung cancer and it does not cost dollars, and these are two not unimportant arguments. If we are looking at it only from the cost of living angle, I think that tobacco would have stood up fairly well in that comparison.

It would be interesting, if in the Chancellor's reply to the debate later on, he could tell us what tobacco revenue would have needed to be thrown away in order to get the cost of living down by how much? I am merely guessing; I have not had any recent information about it, but I think that toboacco might have run beer rather close, judged by that criterion.

The Chancellor of the Exchequer (Mr. Derick Heathcoat Amory):

Speaking from memory, I think it would take about twice as much revenue to produce the equivalent result.

Photo of Mr Hugh Dalton Mr Hugh Dalton , Bishop Auckland

That is an interesting general answer, and I should be very grateful if later on the Chancellor could give us an exact figure, because I should find it very interesting.

I do not think the Chancellor must expect that people will go on drinking his health wherever beer is consumed for very long. I think he should be warned, in the light of history, that popularity evaporates very quickly if based on nothing more than a few tax concessions in a Budget speech. Many Chancellors in the past have been saddened by the short memories of the people. If in about six months' time it will be important—in October or thereabouts—I do not think that many people then, when they drink their pints or glasses, will remember just exactly when the price was changed or who changed it.

Photo of Mr Cyril Osborne Mr Cyril Osborne , Louth Borough

It cannot then be an electioneering Budget.

Photo of Mr Hugh Dalton Mr Hugh Dalton , Bishop Auckland

I did not call it an electioneering Budget. I was merely presenting a general reflection. It may well be that at the end of six months time, when we have had thorough debates and discussions about all this, the Opposition will be getting the credit for nearly all the real improvements which the Budget has made, because recollection is a very queer thing. However, I will not develop that further.

My own personal observation leads me to believe that very soon after these most substantial tax reliefs we shall have the same old clichés about the crushing burden of taxation and its acting as a brake on initiative. That will go on being said as long as there is any taxation left at all, even in the Utopia of Mr. Khrushchev and others, in which there is to be no income tax and, perhaps, no other taxes either.

I want to say a word or two about postwar credits. I think it was time that something more serious was done. The first steps to repaying post-war credits were taken by me in 1946 and 1947 when we set up in two successive instalments the plan that repayment should be based entirely on age— 65 and 60— and I think that that was quite right then. That was the way to begin. I have never been quite convinced that the way to go on was by dropping the age and not do much more, because the notion of 65 and 60 was that people were then passing into retirement and that was a good moment for them to get a slight accretion of resources. When we drop the age limits to 60 and 55, those people ought not to be going into retirement. They ought still to be working, and not suffering this sharp discontinuity of income which can be eased by a special accretion of post-war credits.

I am inclined to think that there are several other ways, one of which the Chancellor is rather boldly adopting, of trying to define and limit certain outstanding hard cases. This all derives from suggestions that we on this side of the Committee have offered in the course of debate, as was pointed out by my right hon. Friend. Indeed, one has only to read HANSARD to find that it is all there. I think that the Chancellor is acting very gallantly, administratively, in tackling it, because every kind of person will come up with new suggestions and he will have to put up a lot of resistance at certain stages. Then, the Paymaster-General's description of a "popular " Budget may become even more unreal and absurd as this process goes on. It will not be thought generally sound and universally accepted and universally popular, but less and less so.

The Chancellor has said that he has still got other plans waiting to be brought in if need be at short notice. I would otter him one suggestion. It used to occur to me sometimes, when thinking about these things and being conscious of the difficulty of defining hardship, that there might be something to be said for the payment of post-war credits by a whole year at a time. There are five years, and in the first year a relatively small total. We should say "Now, this year we will repay the whole of the first year's post-war credits." This is easy, administratively, because every post-war credit document does not carry an age indication of the recipient, but it does have quite clearly on the face of it the date when it was first issued. If we do not by this method give as much to many of the people concerned as we would do if we divided them into groups and on the basis of hardship or age, we should still give something to everybody and all the hardship cases would pick up something as we went along. If we can made the whole of these repayments in a comparatively short time, as I hope may now be possible, we shall not keep people waiting too long for the later years of post-war credits, even if at the beginning of this final stage of repayment, we concentrate on the earlier years.

My hon. Friend the Member for Stockton-on-Tees (Mr. Chetwynd) asked a Question about this a little while ago. It was answered by the Financial Secretary. I was not in the House at the time, but when l read it I was surprised that he said that this plan would present great administrative difficulties. I am not convinced about that. I should have thought that it would have been quite easy. Perhaps we could discuss that again later, because I think it is a possible approach to this problem which at any rate should be examined.

I do not wish to go over all the other arguments. I think there are great objections in detail to the way in which all this—I do not call it simply a reduction of tax, because some of this release of resources should have taken other forms, such as the building of hospitals, schools and so on—but there are great objections, which were developed very ably by my right hon. Friend, to the order of priorities in the Government scheme, and these can be further discussed, so far as the rules of order permit, in later arguments here.

I must end by making this observation, which has been made by others before me and which will be made again and again. There are two classes of people, two groups in our community, who stand behind this Budget discussion, whose present condition is a reproach to the economic condition of the nation. First of all, the unemployed, whose number, no matter what debating gyrations the Minister of Labour may have indulged in. well written up by the Press—the most tendentious reports I have ever read of a debate in this House —is twice as large today as it was a year ago—still 550,000 People — over half a million— unemployed, half of whom have been out of work for two months solid or longer. This is a great reproach, and if all these years of the applied intelligence of the Conservative Party can produce nothing better than this, they should be thoroughly ashamed of it.

In the second place, there is the question of the deep poverty of large numbers of old people which will also have to be discussed. We are making our own contribution to the discussion and solution of that problem, and that will continue. So long as these two groups of people stand substantially in their present condition, there is something seriously wrong with the economic and financial affairs of this country. They are very much in our minds when discussing this Budget. Nothing whatever is done for these people, except the promise that they will not be robbed of their existing pensions by any further increases in prices. Nothing else, not a penny for any of them. It is only lately, in a Standing Committee, that a vote was taken when, by one vote, a proposal was defeated that the existing pension should be increased by 10s. a week. That was recorded and will not be left unremembered. Nothing is being offered to them at all in this Budget or by this Government— nothing whatever.

Regarding the others, the 550,000 unemployed, it still has to be decided— and it will be one of the main tests of this Budget— how far this scheme of rearrangement and redistribution will bring them back into employment. That is what they want. If one were to say to anyone in my constituency, where they have suffered more from unemployment in the past than almost any other comparable place, " Do you want to be sure of a steady job, do you think that is more or less important than having a penny off the glass of beer?", they would certainly say that they preferred an assurance of a steady job. Then they would have the wages to buy the beer they wanted, even if they had not the penny off the glass.

Therefore, this is the test of the proposals in the Budget. How far shall we bring back into effective employment any number of the unemployed army of today? On this test future debates will undoubtedly develop in the near future; and it may well be that the slightly " cocky " tone of the Paymaster-General this afternoon will be found to be not wholy appropriate to the reactions of public opinion.

5.42 p.m.

Photo of Mr Enoch Powell Mr Enoch Powell , Wolverhampton South West

As the Committee listened to the right hon. Member for Bishop Auckland (Mr. Dalton) listing, with a watering mouth, additional reliefs in taxation and additional items of expenditure which had not been included in the Budget— excluding, of course, as usual, relief in the tax upon tobacco — one felt, rather nostalgically, that he was the same old inflationist as ever.

The right hon. Gentleman at least would probably not agree with his right hon. Friend the Member for Huyton (Mr. H. Wilson) and my right hon. Friend the Paymaster-General— on this they did seem to be agreed— that the budgetary deficit which my right hon. Friend the Chancellor of the Exchequer proposes is of about the right amount. The size of that deficit the £ 721 million, shall we call it? —is, indeed, the central issue of this debate and of this Budget; and I imagine that arriving at that figure—taking the decision that that was approximately the right magnitude—must have caused my right hon. Friend the Chancellor more anxiety and more thought than all his other Budget decisions put together.

I should like to approach that decision from the budgetary history of the last year or two. Last year my right hon. Friend the Chancellor budgeted for an overall increase in Government expenditure. above and below the line, comparing Budget estimate with Budget estimate, which was greater in percentage and in amount than had been proposed in any year since 1951. At this point I should perhaps mention that these comparisons are rendered difficult for the year 1956 by the change of accounting in that year; but I do not think that that fact invalidates the comparisons which I have to make. In the event, the increase in expenditure overall in the financial year which has just ended rose, not as was envisaged at Budget time by just under 5 per cent. but by only 2 per cent.

There were three main factors which contributed to that. One had been foreseeable; that was the decline in the cost of financing the National Debt. The other two big factors were the decline in the cost of the agricultural subsidies and the startling, and, I think, very welcome, decline— in fact, disappearance— of the direct call upon public funds made by the Public Works Loan Board. Those three main factors, and other minor factors, together resulted in an increase overall in Government expenditure, comparing out-turn with out-turn, of only 2 per cent. That falls to be compared with an increase in the national income last year of over 4 per cent. Thus, in 1958. we experienced once again, as we have done every year since 1951, a decline in that share of the national income which is collected and spent on Government account.

This year my right hon. Friend has budgeted for a still higher increase both absolutely and proportionately in total Government expenditure. The increase was to have been of the order of 5.3 per cent. before the decision on post-war credits was announced; if that decision is taken into account, the increase exceeds 6½per cent. We are, therefore, comparing Budget estimate with Budget estimate — which is the only sound or, indeed, practicable form of comparison at this stage— looking forward to an increase of 6 5 per cent. in overall Government expenditure in the Budget.

Should my right hon. Friend's hope of stable costs and prices in 1959-60 be fulfilled, as we all hope it will, then, even should that year be marked, as we all equally hope it will, by a resumed increase in industrial and total national production, the result must still probably be that in this financial year, for the first time since 1951, we shall see the Government's share of the national income, the share of the national income which is spent on Government account, increasing instead of diminishing. That will be a reversal of the trend of the last seven years.

It is as a corollary of that change la prospects and intentions that my right hon. Friend, before his Budget decisions, found himself facing an overall deficit to be met by borrowing of £355 million in this financial year as compared with £182 million in the last. But of course, as the Committee knows, the Budget decisions which he announced, the additional expenditure under the heading of postwar credits and the alleviations of taxation, raised that deficit to £721 million. To that figure there falls to be added the cost, whatever it may turn out to be, of the promised increase in public service pensions. Thus it is that this figure of over £ 720 million, to be borrowed in this financial year, dominates the Budget, and, in a sense, will dominate Government finance in the coming twelve months.

It is a stupendous sum; perhaps one way to recognise the size of it is to remember that it represents an increase, in one year only, of no less than 2½per cent. of the whole National Debt. That gives one some idea of the proportions of the sum with which one is dealing. Certainly, the crude comparison between £ 182 million borrowed to meet last year's deficit and £ 720 million or more, four times that amount, to be borrowed to meet this year's deficit, is not in itself necessarily accurate. In the coming year my right hon. Friend should have at least two favourable factors on his side. He will no longer be having to find internal finance for the large and most gratifying increase which has taken place in our reserves of gold and convertible currency; so that one internal strain which always accompanies an increase in the reserves will this year be absent.

It also seems certain that he will have to meet a much smaller block of maturing Government stocks than in the twelve months that have elapsed. One can never estimate the burden of maturing stocks exactly, because the total amount maturing never represents the total which is still in the hands of the public. Putting on one side that difficulty of arriving at the exact quantity, however, it seems certain that in the next twelve months the burden of maturing debt will he less of a problem for my right hon. Friend and will exert less claim upon the funds coming forward to be lent to the Government.

On the other side must be mentioned the fact that the extremely favourable conditions for selling gilt-edged stock which have prevailed during the greater part of the financial year now closed can hardly be expected to repeat themselves. The virtual certainty during much of that period that the next change in interest rates must be downward was of great assistance in the great funding achievement of my right hon. Friend in the past twelve months. It was assistance on a scale which can hardly be expected to be repeated in this financial year. So, after making allowance for changes both ways. We have to face the fact that we are planning to borrow approximately four times as much in the coming financial year as we had to do in the last financial year. We are expecting to come to the lenders for at least £ 720 million.

Two questions now arise. To one of them my right hon. Friend no doubt knows the answer, though I should not dream of expecting him to give it to us. To the second question, no one knows the answer. The first question is: how much of the £ 720 million does my right hon. Friend intend to try to borrow from the public and how much from the banks? I dare say that he has made a broad decision of strategy on that important point. Indeed, unless he contemplates that some part of the necessary borrowing will be from the banks, will be, in other words, expansion of the money supply, it is difficult to see how the additional demand which he wishes to impart to the economy by the Budget can be successfully imparted, after the initial effect of higher Government spending and the psychological effect of recent Government decisions and of the Budget have spent themselves. One may therefore, assume that my right hon. Friend does not intend to have to borrow the whole from the public. No doubt he intends to borrow a proportion from the banks. Yet for the greater part of the deficit of over £ 720 million he must surely intend to have recourse to the public.

The second question, the one to which nobody knows the answer, is: how much will it be possible to borrow from the public in the following twelve months? On the answer to that question, when we eventually know it, much must hang for the fortunes of this country. It is a speculation dependent upon prospects which can at this stage only be conjectured. Over and over again in his Budget speech my right hon. Friend emphasised how material to all his plans and to all our prospects was stability of wages and prices. If, by some ill chance, we should in the coming months not succeed in maintaining that stability, it can hardly be doubted that the effect would be direct and serious upon the amount which it would be possible for the Government to borrow from the public.

Nor is it only internal movements of that kind, internal checks, which can affect the Government's prospects of borrowing. Events outside this country, as we have seen more than once, affect directly or indirectly confidence in the value of our money at home and abroad, and can react drastically and rapidly upon the power of the Government to borrow from the public. We are therefore, to the extent of the amount of the deficit, of this immense sum of about three-quarters of a billion pounds—in American terms —giving hostages fortune, to the chance that the Government will be able successfully to borrow from the public and to continue funding. Such is the danger, and the difficulty, which attach to the engineering of economic expansion by increases in Government expenditure.

This risk, which my right hon. Friend is deliberately and with calculation taking, points a moral. The moral is that we ought to rely, and that we must rely, primarily upon other forces and other sources for the renewal and carrying forward of the expansion of our economy. The true, the real, the lasting source of economic expansion lies within the people and within the economy itself. It lies in the progress of invention and science, in the diffusion of skill and knowledge, in the increased readiness of our people to save, to invest, to take risks and to compete. It lies in the real world to which all these things belong. Only on forces arising in that real world can a true and sustained increase in the national prosperity be rested.

I believe that my right hon. Friend the Chancellor would be the first to recognise that the assistance which he can give by monetary means, by means of Government expenditure, and by the manipulation of budgetary deficits, can be only temporary and ancillary, compared with those real and underlying forces upon which, in the last resort, we must rely. That is where the gulf exists between this side of the Committee and the Opposition side.

My right hon. Friend the Paymaster-General has quoted passages from the central part— I might almost call it the "dead heart" — [Interruption]. — yes or the "soft centre" —of the Labour Party's policy statement. There we read their prescription for dealing with what they are pleased to regard as Tory stagnation. That prescription is, in a single word, "Control ". I will trouble the Committee with only one quotation: Through the Budget and key controls Labour will ensure that this vital expansion programme is not held up by lack of money and equipment, or by any timidity on the part of managers and investors. So the policy of the Labour Party for summoning up the energies and the forces of progress in the nation is to threaten, to accuse of timidity, and to impose controls on those very elements in the economy upon which our future progress can alone lastingly depend. What the Labour Party describes as "a policy of controlled expansion "would prove, if, unhappily, it were ever attempted, a policy of resumed inflation combined with more Socialism.

6.0 p.m.

Photo of Mr Jo Grimond Mr Jo Grimond , Orkney and Shetland

There were one or two curious omissions from the Chancellor's Budget speech. I thought his failure to comment at all on the proposed increase in Government expenditure was indeed odd, as the hon. Member for Wolverhampton, South-West (Mr. Powell) has indicated.

I can remember previous elections when Conservative candidates in the days of Socialist Government invariably inveighed against the extravagance of the Socialist Party and the tremendous height of Government expenditure, but of recent years under the Tories it has risen steadily year by year in total, though as a proportion of the national income until this year it tended to fall, but in fact it is now going to be higher than ever. No comment was made on this by the Chancellor, nor did he give an indication of how it is to be controlled. I agree with the right hon. Member for Bishop Auckland (Mr. Dalton) that Government expenditure and taxation will always he too high for some people, but equally at the same time there will be plenty of people suggesting new things the Government should do, and within the Government itself there will be sufficient pressure to keep them reasonably high.

I do not myself think that the great bugbear of which we should be frightened is a severe drop in Government expenditure or taxation. I am indeed more than a little surprised that a Conservative Government should not be frightened of that high level which leads to great difficulty in managing the financial affairs of the country. Of course, this is an election year, but the reputation of the Chancellor is such that no one can even begin to suspect him of producing an electioneering Budget. He even produces a bottle of beer with the air of extreme respectability usually seen only in old family retainers, absolutely above suspicion. But, although it is not a vote-catching Budget, it may be a fund-raising Budget and an indication that although there may not be an early election there is a preparation for an election later in the year. By that time, perhaps, the Government will have come round to doing something for the old-age pensioners.

I should like to make two points about old-age pensioners. Like other hon. Members, I must confess that it seems strange if, as the Government admit, they are engaged in pumping out more purchasing power to the economy they do not give some of it into the hands of the pensioners.

Secondly, on his own figures the Chancellor has a certain amount in hand. Perhaps before the end of the debate he will indicate whether he contemplates using that to improve the position of the pensioners.

Now I should like to begin by testing the Budget on the Chancellor's statement about its theme. He said yesterday: The conclusion I reach is that it is impossible to exaggerate the importance of our maintaining and, indeed, improving our competitive position through efficient investment and lower costs. This is. to my mind, the key to success in the future."—[OFFICIAL REPORT, 7th April, 1959; Vol. 603, c. 40.] Somewhere in the speech I think he said his theme was to make our industry competitive—though I must confess I now cannot find the place. Which parts of the Budget are directed towards this great theme? It can hardly be said that the reduction of beer duty will make our industry very competitive. It was argued by the Chancellor that it would reduce the cost of living, but in fact what he meant was that it would have an effect on the cost-of-living index, which seems to be a slightly different thing. There are many people, particularly old-age pensioners and others on small incomes, in whose budget beer does not appear very largely. It seems a little like Marie Antoinette to reduce the cost of living by taking 2d. off the pint.

The other major change in the Budget is the reduction in Income Tax. I must say that my heart warmed when I heard the right hon. Member for Bishop Auckland regretting that 1 s. had not been taken off the tax. Despite a certain feeling that it is a pity that his record still stands, the reduction is still 9d. and is not to be despised. After all, it took a world war to get 1s. off and I do not think we want to go back to that simply in order to get a reduction in taxation when it is over.

Looking at the taxation system, and particularly at Income Tax, it seems to me that the effect of the reduction is curiously small seen against the incidence of the tax as a whole. Secondly, the present rates of Income Tax and Surtax are extremely difficult to defend. If we look at the salaries and emoluments paid to directors of great companies we see that they appear astronomical. The directors of one company share £447,000 annually between them. [An HON. MEMBER: How many are there?] There are twenty-three. I am not saying that it is wrong. I am not one who believes that top-level management is easy to get and can be obtained on the cheap, but, if we have to lay aside that sort of thing in order to reward top-level management in our companies, something seems to be gravely wrong with our tax structure.

These figures have risen considerably. It may be argued that an increase in profits is on a different basis to an increase in wages as, strictly speaking, profits are not a direct cost on production, but salaries and emoluments to directors are and they have risen on the whole more steeply than have most wages. The Chancellor ought to have a look at the whole position of Income Tax payers from about the range of £1,500 a year to £3,000 or £4,000. I suggest that at the very top of the range people do pretty well. They have expense allowances, free houses and free cars, but a lot of professional and technical people in the middle ranges are tightly squeezed and it is on them to a greater extent that the economy must depend.

I agree that ultimately all our welfare depends on the skill and hard work of people who run our affairs and not on the Government at all. I do not think we should squeeze these people to death. It is on this level that the main squeeze operates so harshly today and for these people some further alleviation of Income Tax is necessary. I suppose the Chancellor would claim that his investment allowances are also assisting our industry to become competitive, but surely it is a very bad thing for industry to have this continual chopping and changing about of allowances. If investment allowances are to become part of our financial structure, they should become a permanent part of it.

I think there is a great deal to be said for making some change in depreciation calculations instead of doing that. I believe the Swedes allowed companies to depreciate as they like. The only trouble was that one could never define what was productive and what was non-productive and a lot of non-productive building was depreciated at a high rate and escaped tax. If it is not possible for companies to depreciate more quickly and we are to concentrate on investment allowances, they should not go in or out year by year. If, as they say, the Government are confident that the economy is on an even keel, that we can sail steadily ahead, the weather is better and all that, they should attempt to even out the chopping and changing which goes on, not only in investment allowances but in other things. It has a very disturbing effect, not only on the private sector of industry, but on the public sector. Changes in the investment programme in the public sector may be convenient for Government, but they are inconvenient for those who want to get on with railway modernisation, electrification and so on.

If we are to make industry competitive, and that is the main theme, there are two or three glaring omissions from the Budget. First, I should have thought it more useful to take something off diesel oil and petrol rather than off beer. That may not enter heavily into the costs of many industries, but it enters into the costs of quite a few, including country bus services, which the Chancellor alleged he is anxious to help, and increases the costs of many industries, if only in a small way. I remember well the days when the Conservative Party bitterly complained that the Labour Party put an extra tax on petrol; but, so far from it being taken off, it has been increased and there is no sign of it being reduced.

After an early reference to international trade the matter seemed to drop out of the Budget statement. To make industry more competitive and to keep down prices of raw materials, is not this a year for making some cuts in import duties? Could not the Chancellor have told us more about the effect of the exclusion of this country from the Common Market? That was entirely ignored.

Another subject which seems to have been ignored and which is very worrying is that of heavy pockets of unemployment. There was nothing, for instance, about State assistance to deal with redundancy. There was no indication that it might be worth while to increase the road building programme in certain places like Lancashire to make it easier for industry to go to such places where unemployment is very heavy. If we are to tackle this problem of local unemployment we have probably to look again on the whole system of wage negotiation. If that is done on a national level it leads to great difficulties for some areas faced with unemployment and the difficulty of attracting new industries.

Another striking omission from the Budget was any indication that the Chancellor is anxious to stimulate voluntary saving put into industrial investment. Again I follow the hon. Member for Wolverhampton, South-West in believing that this is the right way by which we should build up our economy. No doubt there is a need for a certain amount of forced saving, through the Government for the nationalised industries, but we think that more and more people should be taking an interest of their own accord in the private sector of the economy. Why, for instance, did the Chancellor not take off the Stamp Duty? Why did he not examine sonic of the proposals for allowing a certain amount of saving, particularly saving invested in industry, to escape taxation unless the savings were withdrawn and spent? At present there is too much emphasis on getting savings into Government securities and too little emphasis on getting it into industry.

I wish to make one or two comments on other particular items in the Budget. As to Purchase Tax, I do not accept the view that the articles which the housewife has to use are fair game for the Chancellor to put tax on. We want to encourage the housewife to improve her tools of trade and it is just as important for her to have labour-saving devices, and so forth, as it is for industry. There are also these items like clothing which still bear Purchase Tax and which I should like taken out of the Purchase Tax Schedules altogether. I have grave doubts about the whole Purchase Tax system, but I feel confident that the direction in which we should move is to free necessities and to move towards a common rate for the articles for which Purchase Tax must be, temporarily at least, retained.

Further, there is no mention of any reduction or abolition of the 10 per cent. tax on the building societies' surplus. Very strong representations have been made about that and it would have been a very small matter, but an important one, to abolish it.

I welcome the fact that post-war credits are to be paid two years earlier and I welcome the fact that certain categories of people are to get them. Cannot post-war credits be made transferable now? The Chancellor is to pay interest on them. If he could map out ahead the dates upon which various blocks could be redeemed would not it be possible to allow the present holders to sell them to other people as ordinary interest-bearing securities? There are difficulties about this suggestion. It has often been raised before. But if interest is to be paid on them we are getting a little nearer to the position of making them transferable, and it is a very desirable one.

Finally, as has been said. the Chancellor is to rely a great deal upon borrowing. He is to be faced with finding about £720 million. One of the difficulties of the economy at present is that, as soon as we begin to move forward, if the Government borrows heavily the credit base is greatly extended and we are back to inflation. I do not believe that the ordinary people of this country will settle down for ever to the prospect that the only time when they can expect heavy tax cuts is when there is unemployment and stagnation. If we are to run a private enterprise system. we must be able to run it so that we do not depend upon having a semi-depression before the ordinary people get any remission on beer duty or Income Tax or any other duty.

Therefore, I believe that we must examine the whole credit structure and ascertain if it is not possible to divorce Government borrowing from the indefinite creation of credit. Further, I had hoped in this Budget that the Chancellor would have said rather more about the nationalised industries. One of the things which bedevil long-term Government borrowing is the immense sums required by the nationalised industries. Those sums cannot be raised in the market. They still come out of the Budget.

If and when the Chancellor introduces a new Budget, I hope that some further attention will be paid to these underlying difficulties in our economy and also that we may have a Budget really directed to making industry in this country competitive and to enabling us to employ our resources, if not to the maximum, which I agree is difficult, at any rate to a very much greater degree than we have been doing for the past year.

6.15 p.m.

Photo of Sir David Price Sir David Price , Eastleigh

I find myself in agreement with many of the remarks of the hon. Member for Orkney and Shetland (Mr. Grimond). It struck me that his criticisms of my right hon. Friend were very much on the lines of the criticisms of the right hon. Member for Bishop Auckland (Mr. Dalton). Their criticism was that we were not spending enough in the public sector. There were various suggestions as to where we should spend more. It was also said that my right hon. Friend had not gone far enough in tax remission. The simple arithmetic of that clearly is that they were not satisfied with the extra amount of purchasing power which my right hon. Friend thought was proper to put into the economy. The fears of my hon. Friend the Member for Wolverhampton, South-West (Mr. Powell) would be even more emphasised if my right hon. Friend were to adopt the policies advocated by the two hon. Gentlemen opposite.

Photo of Mr Jo Grimond Mr Jo Grimond , Orkney and Shetland

I do not want to make another speech, but I suggested substituting certain tax concessions. I do not think that in total I suggested any drastic increases.

Photo of Sir David Price Sir David Price , Eastleigh

We will not develop the matter further, otherwise we shall be involved in an arithmetical argument. The hon. Member for Orkney and Shetland has made his position clear.

I fear that the right hon. Member for Bishop Auckland was, as always, straight inflationary. He was saddened by the shortage of the public's memory of the beneficence of previous Chancellors of the Exchequer. To some hon. Members on these benches the memory of a Labour Chancellor emeritus and his performance today was infinitely more agreeable than the performance of a Labour Chancellor aspirant. Whereas the right hon. Member for Bishop Auckland continues to have a song in his heart, the right hon. Member for Huyton (Mr. H. Wilson) has only vitriol in his heart. When I listened to his speech, if one can call it that, it struck me as being one of the cheapest forms of gutter electioneering. [An HON. MEMBER: " The hon. Member should know."] I am learning fast. I was reminded of the remarks of Charles Churchill, who said: Who wit with jealous eyes surveysAnd sickens at another's praise ", because I think that the whole country praises my right hon. Friend for his very clear exposition yesterday of our economic situation and our prospects.

My right hon. Friend told us, as we had already known by reading the appropriate White Papers issued within the last few weeks, of the success of the Government's Measures last year. I say " success " unrepentantly. Reserves rose from £661 million in September, 1957, to £1,121 million in March of this year, and that includes a repayment of £71 million to the International Monetary Fund. For the first time for many years we had £120 million on visible trade account, which had not been achieved for a very long time.

Photo of Sir David Price Sir David Price , Eastleigh

It was not achieved in 1951. It has not been achieved either under a Labour Government or under Conservative Governments up to 1957, but it has been achieved now. There is, in addition, a balance of payments surplus of £455 million.

The right hon. Member for Huyton spoke a great deal about capital investment, and quite rightly so, but I did not hear him mention that we now have capital investment running at 20 per cent. of the gross national product. My right hon. Friend developed that point in his Budget speech, but the right hon. Gentleman the Member for Huyton avoided any reference to it.

I noticed that the right hon. Gentleman also avoided any reference to the increase in our long-term overseas investments. Last year, we exported £240 million of capital—double the rate of eight years ago. Many of us would like to see the figure go even higher, and I should have thought that the party opposite, which has so often, and quite rightly, reminded us of the problems of the under-developed world would take same interest in the Government's achievement. We would like to see the figure even bigger, but at least it is bigger than it has even been before.

The right hon. Gentleman might also have mentioned personal savings, which, last year, were as high as they were in 1957. In 1949, when the Labour Government were in office, personal savings amounted to £224 million. In 1957, they amounted to £1,484 million. Making all possible allowances for the declining value of money, there is still a vast increase in real terms. Again, prices have been steady. The right hon. Gentleman dismissed that in his usual rather cocky way of addressing us, but I am sure that had he and his colleagues been in office they would have been pleased to have had twelve months of steady prices.

Stability has been brought into the economy against a world background of moderate recession. That fact was not mentioned by the right hon. Gentleman. He always addresses us on economic matters as though we were a little island with a self-contained economy; as though the Government of the day could order all things, and all the factors affecting the economy were under their control. In the technical sense of the word, the right hon. Gentleman stands for a policy of national Socialism. I merely ask the Committee to consider what would have been the present state of our economy without the severe and austere measures that my right hon. Friend the Member for Monmouth (Mr. P. Thorneycroft) had to take in the autumn of 1957? What would have been the position of the £? What would have been the state of our reserves?

It is true that, on the negative side, production is 1 per cent. down on last year, but the main cause of that is not what the right hon. Gentleman, in his attractive terminology, referred to as " deliberate stagnation " but is due, as the White Paper suggested, to a 3½ per cent. fall in exports—and I want to talk about exports in due course because, looking ahead, I believe it to be the most disturbing feature of our future prospects.

We hear of unused resources of capacity and labour. The National Institute of Economic and Social Research suggests that they are such as to permit of a rise of between 10 per cent. and 15 per cent. in the next two years. These, however, are very difficult figures to compute. For instance. when we talk of potential resources of machinery, are we thinking in terms of day work or of three-shift working? It makes a lot of difference. One can only take the figures, as my right hon. Friend has, as a guide. One cannot argue on the basis of them in too much detail.

Looking ahead, two things worry me particularly in the world economy. The first is the danger of continuing world deflation. Some of my colleagues in the economic profession would have people believe that one can just turn on the taps of demand overnight. I do not believe that that can be done as easily as some academic economists have led the public to believe. As my right hon. Friend pointed out yesterday, there is not too much that we alone can do about stimulating trade. It requires international action.

We are all pleased, of course, that we have taken part in increasing international liquidity by our increased contribution of 50 per cent. to the International Monetary Fund and an increased contribution of 100 per cent. to the World Bank. I do not know whether hon. Members have had an opportunity of studying the Tenth Annual Economic Review of the O.E.E.C.—" Policies for Sound Economic Growth "—but if they have they will recall that one of the conclusions is that … countries in a stronger economic position have the major responsibility for taking adequate measures to ensure a renewal of growth. I believe that my right hon. Friend has discharged that responsibility. Looking towards the end of the year, he took a calculated risk over our balance of payments. because if his stimulant works there is a danger of our imports of raw materials increasing to satisfy an increased demand from British industry. On the other hand, for reasons that I shall shortly give, he took a chance of exports not increasing equivalently. My right hon. Friend is taking a calculated risk, and I want there to be no doubt that it is a calculated risk. There is no certainty that exports will rise correspondingly. But I believe that it was a risk that he was absolutely justified in taking if we are to fulfil our international obligation to stimulate world trade. In the long run, that is not only a " do-gooder " act, but is in our own interests.

It was in the same line of fulfilling that responsibility that my right hon. Friend has told us of the £20 million to be advanced to colonial Governments, and of the increase of £28 million in the funds allocated to the Export Credits Guarantee Department, of which, as the Committee knows, quite a large proportion is to go to the under-developed territories, consequential upon decisions taken in Montreal.

If there is this danger of continuing deflation, there is, on the other hand, the danger of people misunderstanding the nature of inflation, and of regarding it as a disease that can be cured once and for all if the right measures are taken. This is true, of course, whether we have a Socialist or a Conservative Government. In this Committee we have hon. Members on both sides who say, " Vote for us. Take the appropriate measures, pursue them with determination, and inflation is over once and for all."

That is a complete misunderstanding of the nature of inflation, of its incidence and of the harm it does. In simple language, inflation arises when we have an excess of demand upon the available supply of goods and services, and arises mainly from an excess of monetary supply. How to steer the economy between the Scylla of inflation and the Charybdis of deflation is the constant task of any Chancellor and of any Government's management of the economy. The fact that at one moment it is being done successfully does not guarantee of its being done successfully next year or the year after.

There is no simple blueprint. To realise that, one has only to consider the sheer difficulty of trying to get into accurate figures exactly what supply and demand will be in, say, six months, nine months or a year ahead; the number of factors that lie outside the control of any British Government, and further, the factors that are not amenable to accurate forecast or statistical measurement but which all affect the economy.

If the summit talks fail, if the Berlin situation gets worse, what statistical calculation should a Chancellor make this April in relation to the effect of possible aggression on world opinion—stockpiling, rearming, and the like? What allowance should he make this April to prepare for such an event, which we all hope will not happen? It is, therefore, the constant task of any Chancellor to steer a very delicate way between inflation and deflation.

Economists—and we, as politicians—sometimes give the public the idea that we are wiser, abler and shrewder than we really are. We are reluctant to admit that so many of these factors which affect the economy do not lie completely under our control. We might occasionally do better if we explained to the public the very great difficulty of steering the economy between inflation and deflation, and pointed out that there is no single remedy, no single tonic that can be taken. We might do better to say to then, in the words of Hilaire Belloc: Physicians of the utmost FameWere called at once; but when they cameThey answered as they took their Fees'There is no cure for this disease.' What are the prospects for the financial year we are now entering? My right hon. Friend has said, " Steady ahead." My own doubts are about exports. Last year, they were down by 3½ per cent. I believe that the favourable terms of trade we have been enjoying may, in the long run, be against our interests. In fact, I go so far as to suggest that they are. This country provides 50 per cent. of the imports into the primary producing countries. To put it another way round, that amount of goods represents 50 per cent. of our exports. Therefore, it is essential for those primarily producing countries to keep up their overseas incomes and earnings for us to be able to maintain a high level, let alone an expanding level of exports to those countries.

I believe that the problem of the underdeveloped countries is rising in importance. 1 believe that some of the creditor nations are not playing their part, particularly one or two nations on the other side of the Channel who are in a prosperous position, especially Germany which, I think, should play a larger part in helping the under-developed countries.

This is an international problem which we cannot handle on our own. In the long run the gradual resolution of this problem and of raising the level of economic development in the world is of direct importance to our export potential. I also believe that too many of our exports are of a speculative nature. That is inevitable. One can be too successful in the North American market and pay the price of success in increased tariffs, as my hon. Friend the Member for Shipley (Mr. Hirst) will confirm, over wool exports and hon. Members for Birmingham over bicycles, and more recently, as hon. Members know, over power station contracts.

We can do too well in America and then find them slapping up tariffs against us. That is understandable, because they have 6 per cent. unemployment. It means that many of our exports are at risk. We have the recent position of B.O.A.C. over its air route round the world. There is also—and this was mentioned recently in the House—rising competition from behind the Iron Curtain. I could speak or certain products in my own industry in certain markets where this is not a potential threat but an actual threat at the moment.

Then the hon. Member for Orkney and Shetland mentioned the danger of the gradual exclusion of British goods from the centre of Europe. Last year 16 per cent. of our exports went to the Common Market. It is not so much the fact that it was 16 per cent. but the fact that among the make-up of those exports were many of our more sophisticated products where the percentage was not so much 16 per cent. as 30 per cent. I used the words sophisticated exports to refer to those high conversion margin products where brains, skills and capital play a large part in the total cost make-up and where the cost of the imported raw materials is low compared with the final selling price. These type of products arc those upon which we increasingly depend for our export trade.

We must also remember the effect that the Common Market may have on the export of the oversea sterling area. Western Europe last year took 30 per cent. of the exports of the overseas sterling area. The Common Market today has in many ways as important an influence in the world as the American economy when one looks at its present position and the rate of economic expansion which has taken place in Europe over the last ten years.

Prospects at home, I believe, are good; my fears were for the exports. One reservation which I have is the danger of wage inflation. We had last year 3½ per cent. increase in wages which we got away with because of lower import prices which covered it. But as my right hon. Friend said yesterday, almost everything depends on the degree of restraint shown in wage negotiations this year.

We all agree that what we want to see. in practice, is wage increases covered by increased production and by increased productivity. I should like to remind the Committee of what the Cohen Committee said in its second Report in August last year: For annual increases in wages of 3½ per cent. are not merely higher than the present rate of productivity increase: they are higher than any rate of productivity increase which can reasonably be forecast over any long period of future years. It is virtually certain that a continuance of wage increases on this scale year after year would lead to a resumption of price inflation. Similar views are expressed by O.E.E.C. in its tenth Annual Report, which states: But wage claims should be settled in the light of overall demand and cost considerations and should allow increased productivity to lead to price declines for some products, if steady increases in the general price level are to be avoided. Similarly, the link between wages and cost of living indices should not he too rigid—particularly when the cost of living is affected by temporary factors. The warning is clear enough. Will it be taken? It is a free economy. This problem will be the same for the Labour Party should it, by mischance, become the Government, because the Labour Party has told us that it has no intention of going in for the direction of labour or a national wages policy. I do not really believe the little bit of electioneering of the right hon. Gentleman the Member for Huyton when he said that if we had socially just policies the trade unions would show the necessary restraint in not pressing wage claims. I do not believe that the difference in social policies, if the right hon. Gentleman should find himself Chancellor of the Exchequer, would be so substantial or so significantly different that there would be a complete change in the attitude of the ordinary trade union members towards pressing wage claims.

As my right hon. Friend told us yesterday, the object of the Budget was to assist expansion and assist the economy to become more competitive. The great question which my hon. Friend raised was what extra purchasing power is right to be injected into the economy. The Chancellor of the Exchequer's figure has been about £366 million gross, tax concessions £295 million and post-war credits £71 million. I cannot cavil at that figure. because a month ago, in a speech I made, I suggested that the right figure should be £350 million. If I am wrong, I am wrong in good company. The object is to stimulate trade and make it more efficient. Does the reduction in the standard and lower rates of Income Tax help to stimulate trade? I believe that it does, not only for its effect on company finances but more particularly for the incentive effect that it will have on individuals.

We hear it said that there are many people who do not pay Income Tax. A Question was recently asked by an hon. Member opposite and the Treasury gave a reply in which we were told that of the 21 million taxable incomes—remember the joint incomes of husband and wife count as one—only 21 million did not pay some form of Income Tax, which means that of all incomes as assessed by the Revenue only 11 per cent. do not pay Income Tax in some form and at some rate. That seems to dispose of the argument that the reduction of the standard rate and lower rates of Income Tax is merely a concession to the higher paid.

Let us also remember that if one accepts the argument—and I think most of us do that there should be differential earnings for different jobs and that we should not merely have a flat-rate wage for all irrespective of job, when we come to reduce direct taxation, those earning higher incomes will, in actual figures, have a higher reduction if we are giving the same percentage reduction. If we say that we will always give in actual cash the same reduction to every taxpayer we are very near to saying that everyone should get the same wage irrespective of what they are doing or what their qualifications are, or how well they do the job.

I think that that is a policy which, if hon. Members think it out, they would not support. If there is any reduction in direct taxation the people who pay most cash in actual cash terms will have a bigger cash reduction than those who pay less. That is in the nature of a progressive tax. Conversely, if we put up the rate, those with higher incomes pay more and when it comes down they pay less. I cannot see why hon. Gentlemen opposite should cavil at that. The right hon. Member for Huyton, of course, cavils at it because he sees a chance of making a cheap election jibe.

The Purchase Tax reductions have been very substantial, but it seems to me that we are moving towards a more rational form of Purchase Tax structure which will, in my view, probably culminate in a four-tier sales tax, the fourth tier being those products which do not attract any tax at all, which will be all the things which are outside Purchase Tax at present. It seems to me that this tax will remain permanently because it is of great assistance to the Exchequer, and this is a sensible approach to it. The question has been asked: why not abolish the 5 per cent. Purchase Tax category? In my view, if we are moving towards a sales tax, it is reasonable to leave the 5 per cent. tax in, because it covers quite a wide range of goods.

I do not accept the proposition that reducing the Purchase Tax on the ordinary motor car from 60 per cent. to 50 per cent. is a great concession to the rich and the plutocrats. The right hon. Member for Huyton made another of his cheap gibes about Rolls-Royces and Bentleys. He would do well to walk round his constituency—I have no doubt he does—or to walk round my constituency, Eastleigh, again, if he wishes, and see the number of motor cars which our ordinary constituents are, happily, in a position to buy. In parenthesis, I will add that the more often he comes to Eastleigh the larger will be my majority at the next election.

I agree very much with the argument of the hon. Member for Orkney and Shetland in his comments about the investment allowances. Frankly, I accept them reluctantly. Like investment in the public sector, to which my right hon. Friend the Chancellor referred, investment in the private sector cannot be turned on and off as though with a tap. In my own view, there are certain essential conditions necessary to stimulate investment. Investment does not take place in vacuo. First, there must be market prospects. If a manufacturer sees a chance of expanding his business, he will do it if he has any " go " in him. Secondly, there must be an adequate level of savings to provide the investment capital. Thirdly, we must have a stable currency. If those three conditions are satisfied, investment will flow naturally of its own.

The proposition that one can stimulate investment without regard to markets will lead one only to the embarrassing position of putting a large amount of capacity to work with raw materials which one has to import and pay for on one's balance of payments, finding in the end that one has a lot of goods one is not able to sell. The two—markets and investment—things must go together. That is why I have devoted so much attention to our export prospects. I believe that they are the key to Investment. Provided that one maintains a reasonable level of savings, which we have, and a reasonably stable currency, investment will flow, provided there are reasonable prospects of maintaining and expanding markets.

I should have preferred it if my right hon. Friend, instead of providing for these investment allowances, had concentrated on depreciation rates. It is the total figure allowed for depreciation, even mare than the rate, which matters. I do act want to take up further time on the matter of replacement cost over original cost, but I think that any hon. Member would be very bold if he were to say that the £ sterling would in twenty years have the same purchasing power as it has today. When putting in a machine, one has to think not of what it costs originally but of what it will cost to replace. Furthermore, replacement is not merely replacement of a machine because it is physically worn out. Far more often in modern industry, replacement is necessary because the machine is technically obsolete although it is still working very well.

It would have been a bold measure, and my right hon. Friend would no doubt have had many accountants and certainly the Revenue against him, but I should have preferred him to move over to replacement cost instead of original cost. I believe that such a move would give the greatest possible continuing help to industry, rather than this in-and-out business of initial allowances and investment allowances. It would be something permanent upon which we, in heavy industry particularly, could plan. I believe that my approach is right for modern industry, and I suggest that our authorities should heed the words of Thomas Carlyle The foul sluggard's comfort: It will last my time. The trouble with British industry is that there are too many machines in use which people have said will last their time. Indeed, because they have been well maintained and looked after, they are lasting their time. Part of the spare capacity we have unused at the moment is capacity which we should never use. It is out of date and it is high-cost capacity. If we want this stimulus in industry, I seriously suggest that we ought to adopt a rather different approach.

In the long run, our success and the success of this Budget will be judged by the general stimulation produced in the economy. It would have been possible for my right hon. Friend to give greater stimulation at home. I believe that that course would have led to balance of payments problems within a year or eighteen months and would certainly have led to more inflation at home. I think that my right hon. Friend was right to take the figure he did. I believe that he has taken risks. For the reasons I have given, I am worried about our export prospects for the next eighteen months.

6.46 p.m.

Photo of Mr Arthur Blenkinsop Mr Arthur Blenkinsop , Newcastle upon Tyne East

We have listened to a very long speech from the hon. Member for Eastleigh—

Photo of Mr Arthur Blenkinsop Mr Arthur Blenkinsop , Newcastle upon Tyne East

—composed of two parts. In one part he simulated anger against my right hon. Friend the Member for Huyton (Mr. H. Wilson) but seemed, nevertheless, to accept much of his argument. In the other part, which we shall read with some interest, he adopted a more rational approach. I was a little amused to hear the hon. Gentleman apparently attacking my right hon. Friend for, as he said, dismissing the good fortune which this country has had in having a favourable trade balance and speaking of it as a windfall.

Apparently, the hon. Gentleman regarded what my right hon. Friend had said as very wrong. Later, however, in one of the more rational passages in his own speech, the hon. Gentleman himself deplored to some extent the advantage which we in this country have gained because of its effect upon the underdeveloped territories of the world concerned in producing primary commodities.

This is the very point. We have been enjoying this windfall. We are doubtful about the use the Government have made of the time which has been given to them and the country, and we are concerned, also, like the hon. Gentleman, about the effect which our windfall has had upon those markets abroad and the standard of living of the peoples there which has been so much affected recently.

The Government having enjoyed a windfall, it is worth while for us to examine the way in which they have made use of it. It is the priorities which they have established which are of most interest to us because they indicate the attitude of mind of members of the present Government and suggest to us that it is very important that Her Majesty's Government should be changed as rapidly as possible.

The first matter of great concern, which has been mentioned already by several of my right hon. and hon. Friends, is the way in which the Government have dismissed the claims of social service expenditure in their determination of priorities. When we examine the large figure at their disposal and the use which they have made of it, and when we see the large area of social service expenditure which has been left out, we are perfectly right to call the Government to account.

I would first refer to a point touched on by my right hon. Friend the Member for Huyton. It is the question of the Government's withdrawal some time ago of housing subsidies, and the value that there would be to the economy as a whole if those subsidies could now be restored—the very small financial cost it would inflict on the Government as against the very real advantages to the economy that would undoubtedly flow from it.

In response to a Question asked only yesterday, the reply from the Minister of Housing and Local Government showed that there had been a fall in building by local authorities of houses to rent. The figure in 1954 of some 257,000 houses built by local authorities was down to 145,500 last year. Indeed, there has been a dramatic drop in the house building activities of local authorities.

It can be fairly said that in 1958, compared with five years before, only half the number of houses have been built for renting, and we know perfectly well why this has happened. It is because of the prohibition by the Government of local authorities carrying out general building, and their action in stopping housing subsidies, except those for slum clearance and old people's houses. I am sure there is no doubt in the minds of my right and hon. Friends that one of the priorities that should have been given urgent consideration was this one, all the more because it is apparently common ground that we want to make full use of resources that at the moment are not being used because of the Government's inaction.

What is the position? We know that a very large part of those who are unemployed today are building trade workers. One of the worrying factors is that although there have been improvements—which we noted with pleasure—during the past month, it is still true that very large numbers of building trade workers are out of work throughout the country, in my own constituency and elsewhere. These workers could now be building the houses that are so urgently wanted, especially for renting. There is an urgent need for more houses to rent in our big cities, and this need cannot be met by additional private house building for sale. This need could be met satisfactorily if the Government were prepared to allot a very small amount of this windfall at their disposal to local authorities for this purpose. That this opportunity has not been used shows how shallow is the Government's claim that they are eager to see an end to the lack of use of our resources. We on this side of the Committee will see that the Government are not allowed to forget this point.

There are other examples. Recently there have been important debates in the House about the Government's policy on important social problems such as the development of the mental health services and the care of old people. On every occasion we were assured from the Treasury Bench of the good intentions of the Government and how much they were concerned with these problems. It was pointed out that the Government were in the course of passing through the House a new and important Measure relating to mental health. Tragically again, finance has not been provided either there or for the developments that are agreed to be necessary for provision for old people.

Not long ago there was a discussion in the House on the provisions the Government were making for mental health. To start with, they are not making any direct provision for mental health at all. They are making only an addition to the general block grant which may or may not be used for these purposes, or for other purposes that local authorities may decide on. The contribution that the Government have agreed to make to the block grant is so small that it cannot make any impression on the problems that face local authorities in the years immediately ahead. There is very real danger that a Bill that we all want to see carried out may in fact come to nothing because of the refusal of the Government to provide adequate financial support and to ensure that the finance is directed to this purpose.

Here again, there is an indication of the way in which the Government are refusing to face the obvious needs of the country and refusing to satisfy those needs when the opportunity is available. When, a short time ago, the House was discussing the whole question of these new block grants to local authorities, the Government were complimenting themselves on the way in which this would enable considerable improvements to he made. They were challenged and it was discovered that the so-called improvements were almost non-existent. Local authorities were not to be able to spend any considerable sum of money in extending their services, for example, for old people. It meant that, in a service which we all agreed to be important—the providing of extra domiciliary care and proper residential accommodation for old people —our cities and counties would each be able to provide another ten places for old people during the next year, and that was; all. if some authorities wished to go further they would have to find the money out of resources which were needed for other purposes.

These things are so clear that it is impossible to accept the sincerity of right hon. and hon. Gentlemen on the Treasury Bench when they claim to wish to make progress. One could quote many further examples, but the care of old people is one of the most striking.

Several right hon. and hon. Gentlemen have referred to the fact that no provision appears to have been made by the Government so far as the actual money allowances for old people are concerned. An equally important matter is the development of services for old people, and there again the Government have clearly put this claim to one side, even though they are saying at the same time that they wish to see the services developed. There is no better example than that of the hypocrisy with which these claims are made.

Let me turn to another matter that my right hon. Friend the Member for Huyton raised when he spoke today. It was the question of the opportunity that was presented to the Government to take action with regard to the Health Service charges, or at least some of them. It is to us an amazing thing, after the criticism which there has been of the way in which the charges have been imposed -purely, it was said, to meet urgent needs at a time of great stringency—that this opportunity has not been taken to get rid of at least some of these charges.

My right hon. Friend referred in particular to the prescription charge. We have evidence now, which has been presented to the House, of how the additional prescription charge which was imposed not so long ago has led to waste, to over-prescribing, and to possible medical danger as well. We all have from our constituencies examples, particularly among old people, of those who are quite seriously affected by these charges as they are enforced today.

One would have thought this an obvious matter of which to take account when sums were available of the size referred to by the Chancellor of the Exchequer in his Budget speech yesterday. Here are these hard cases of people who, perhaps, do not qualify for complete refund from the National Assistance Board, marginal cases who have to go to all the trouble of application to the Board only for the applications to be rejected, or to be accepted only in part. These hard cases could easily have been done away with by a relatively modest expenditure by the Government out of the funds which they admit they have at their disposal. Since we have those cases it is intolerable that these funds have been used to benefit those whose claim is surely, by common agreement, far less important than that of those I have mentioned.

I have already suggested ways in which the Government could have done far more if their object was indeed to improve employment in the country. Here is an instance where clearly they could have made a very real and important contribution to the maintenance of the sense of social justice. The hon. Gentleman the Member for Eastleigh suggested that a sense of justice was not enough. Maybe, but it is a very important contributory factor in making our appeal for a better contribution by our people. My right hon. Friend rightly said that there are many among those who enjoy and will enjoy the remission in the duty upon beer who would have preferred to have seen some at least of that money used far the sort of purpose I have been mentioning.

The prescription charge which has been condemned by the professions and attacked by social scientists and others is not the only charge which the Minister should have looked at. There is also the dental treatment charge which the Guillebaud Committee years ago unanimously called upon the Government to review as soon as financial circumstances permitted. Presumably we are not likely to have a better opportunity of financial circumstances permitting than this. Here, presumably, is the opportunity which the Guillebaud Committee had in mind when it reported. The Guillebaud Committee said clearly that it recognised that the speed with which charges could be withdrawn would depend upon economic circumstances, but it also clearly said that in its view one of the first to be tackled was the charge upon dental treatment, which, in its view, had done a great deal of damage to our dental health services. I think we would take much the same view.

Indeed, the Guillebaud Committee, a very independent Committee, made a similar recommendation affecting spectacles. Although the Government have taken no account of those recommendations, there is no doubt that these charges have imposed a good deal of hardship, especially among older people, who are entitled to some help and encouragement at this time. There are the smaller charges, too, which I think it is fair at any rate to remark on, for artificial limbs and for other services which our hospitals provide. It is quite monstrous that there should be continued charges for surgical boots and all kinds of equipment which are quite vital for a disabled man to carry on at a job. These are charges one would have thought the Government would have been eager to get rid of.

It is, of course, possible—all things, presumably, are possible—that the Government have it in mind to bring in the necessary amending legislation later.

Photo of Mr Arthur Blenkinsop Mr Arthur Blenkinsop , Newcastle upon Tyne East

Nearer the election, as my right hon. Friend points out, but I must say, because of my desire to see these charges got rid of, that I would welcome that action being taken by the Government.

We therefore challenge the Government to say now, while we are discussing their own proposals, whether indeed the Chancellor is considering this proposal, or whether he is regarding all these Health Service charges as a permanent part of our legislation, never at any time to be remitted. Or is he not going to take the opportunity of advising the Minister of Health to bring forward amending proposals to deal, if not with the whole of the charges, at least with some of those which have affected both young and old very seriously indeed in these past years?

As the Chancellor is in his seat, I would particularly direct his attention to the matter which was referred to by my right hon. Friend, the urgent need to deal with the prescription charges and the additional charges which were imposed only a relatively short time ago and which have been the subject of such bitter criticism both in Parliament and in the country and which, in our view, impose such great hardship.

While I am referring to matters which show a lack of sense of social justice exhibited by the present Government, I would quote one other example. It is a matter in which I have been particularly interested for some years. The Government make relatively small contributions to the United Nations and to one of its agencies, the World Health Organisation, which is one of many. The World Health Organisation has been doing remarkable work over the past years with really very little money. In order to tackle a major world problem—indeed, disaster—which can now be solved, that of malaria, it instituted a special fund, with the object of getting rid of malaria M the whole world within five or six years. That was its hope, and it believed that it could be achieved.

It appealed for special contributions from countries all over the world. It invited countries to volunteer contributions for this purpose. America, I must say, has made successive contributions. This country has made absolutely none. It seems to me fantastic that we are not prepared even to show our good will, that we are not prepared to act as leaders to encourage other countries to come forward as well with their contributions for a purpose which is so much in the common interest of the world as a whole.

I believe that the Government's refusal to take any notice of appeals of this kind shows how shallow is their claim to have an interest in wider issues of world welfare, or, indeed, to have any sense of the importance of social justice in this country. That is the reason I feel that the Budget proposals, while offering many welcome remissions, show the Government's hypocrisy in their major claims to the country and demonstrate how urgent is the country's need that these more important matters should be given attention by another Government soon.

7.10 p.m.

Photo of Mr Henry Price Mr Henry Price , Lewisham West

I sometimes feel, Mr. Blackburn, that you and your colleagues in the exercise of your discretion, and, perhaps, to relieve the tedium of your task, have quiet little jests of your own. I fancy I have detected one this evening in that you have called from this side of the Committee consecutively my hon. Friend the Member for Eastleigh (Mr. D. Price) and myself. Perhaps it is not inappropriate that in a debate on the Budget "prices" should be to the fore.

I shall confine my remarks to two separate categories, neither of which will take me very long. First, I will comment on the Budget itself and, secondly, on its possible consequences.

When we are discussing a matter which affects almost every aspect of national life it is very easy to find subjects for criticism. It is extremely easy to accuse the Chancellor of sins of either omission or commission. The right hon. Member for Bishop Auckland (Mr. Dalton), for example, expressed regret that the Chan-cello- had done nothing about Schedule A tax. I entirely agree with the right hon. Gentleman. I understand that the 2d. a pint off beer will cost the Exchequer £40 million. I wish that that money had been devoted to the reduction or the abolition of Schedule A tax. But it so happens that 1 am trying to buy my own house and that I do not drink beer; it may be that my view is influenced by that.

There are two points about the Budget which I feel are open to criticism, and both of them have been mentioned. First, I agree with those who have said that they wish that the Chancellor had found it possible so to arrange his Income Tax concessions that those who were at the lowest level of Income Tax were relieved of Income Tax altogether. It could have been done in many ways, and the Chancellor knows them better than I. Why I am so keen on this is that it would exercise an incentive effect far greater than similar amounts of money devoted to concessions higher up in the Income Tax level.

The second point of criticism is one on which I feel even more strongly. It concerns the Government's attitude towards Purchase Tax. The principle which the Chancellor has followed of reducing Purchase Tax by one-sixth is, I think, unfortunate, and in this I agree, surprisingly enough, with the right hon. Member for Huyton (Mr. H. Wilson), who said that a substantial proportion of these concessions will not reach the public. I did not agree with the right hon. Gentleman when he accused the manufacturers, for I think that this process of withholding the benefits from the public takes place more in the shops than at the manufacturing level. Even so, I am not criticising the shopkeepers. As I will try to show, the process is almost inevitable.

I will try to demonstrate it by reference to articles about which I know a little—articles made of paper. I will take greetings cards as an example A greetings card which sells in the shops at 6d. carries Purchase Tax at the old rate of 10s. 8d. per gross. The reduction in the Budget is 1s. 9½. per gross, or roughly one-seventh of a penny per greetings card. If anybody can tell me how a retailer can pass on to a customer a reduction of one-seventh of a penny, I will tell my shopkeeper friends, but so far neither they nor I have been able to think of a way.

Even if we turn to prices higher in the scale, the reduction in Purchase Tax on a greetings card which sells in the shops at 1s. is only about one farthing. Do we expect the shopkeeper to sell such a card at 11frac¾? I do not. Shopkeepers never have done so and never will. We have to go to a retail price as high as 4s. on articles chargeable at 30 per cent. Purchase Tax, before the reduction is as much as Id. It is only at that level that the reduction becomes one which can reasonably be passed to the customers.

Of course, when one goes higher in prices to articles costing £10 the reduction is measurable, but on lower prices of 4s. or less, which covers a very wide range of articles indeed, it is practically impossible to pass on the benefit of the reduction in Purchase Tax to the customer and it is held back somewhere earlier in the chain. I do not know whether it is possible for the Chancellor to do anything about this. I think that the only solutions are to relieve such articles from Purchase Tax altogether or to leave them as they are. I should prefer the former method. I pass these comments to the Chancellor in the hope that the practical problem will receive consideration.

I turn to the consequences of the Budget, a theme on which I feel a good deal of concern. Since the end of the war and until eighteen months ago we have had constant, uninterrupted inflation in this country. Inflation is a complicated subject in which many factors play their part, but I am satisfied that the biggest single factor is that of wage and salary increases unmatched by increases in productivity. I have here some figures which I observed the other day and which illustrate the point clearly.

Since a date which I have not noted. and which does not matter because it does not affect my argument, there has been an increase of 85 per cent. in the gross national product, but only 29 per cent. of that is increase in real wealth. The other 56 per cent. is due entirely to higher prices. Against this increase of 29 per cent. in real wealth during the period wages and salaries have risen by 90 per cent. and profits by 67 per cent. No wonder that money has bought less and less, that savings have shrunk in value and that there have been insufficient savings to finance essential capital investment.

In an era of over-full employment in- creases in wages have been too easy to obtain, and in an era in which demand has appreciably exceeded supply profits have been too easy to make. By eighteen months ago the condition had become chronic. Neither Government had been able to solve it. It was not until then that this Government took drastic steps to deal with the problem, steps initiated by my right hon. Friend the Member for Monmouth (Mr. P. Thorneycroft) and continued by his successor, the present Chancellor. It seems that their policy has succeeded and that almost, if not quite, inflation has been ironed out of the economy. But we have had to pay a price. The price has been an appreciable increase in unemployment, which in January this year reached a figure of 620,000, or 2.8 per cent.

Some hon. Members opposite sometimes say, and even more often imply, that this increase in unemployment has been deliberately sought by Her Majesty's Government. I say to them in all frankness that that is importing an undesirable element of prejudice into the argument. I am quite satisfied that that was not the Government's purpose. Their purpose was to defeat inflation. It could be argued that the increase in unemployment flowed from that determination, but it was not the Government's purpose.

Nevertheless, unemployment reached a level at which it became uncomfortable. Since it was foreseen six months ago, the Government began then to take measures to increase demand, to expand the economy and to hold down, and later reduce, unemployment. That is the process upon which we are now embarked and the present Budget, by pouring £366 million into the economy, will go still further along that road. But I have a nasty feeling that before very long we shall be back where we started, in an era of inflation.

My right hon. Friend the Paymaster-General said in his speech that America had been making a remarkable recovery from the recession and that Western Europe was moving into an era of expansion. So are we. I also gather that commodity prices, which have been moving in our favour for some time, have begun to harden and have, indeed, begun to move against us. Now, we have another £366 million poured into the economy. I wonder whether my right hon. Friend the Chancellor of the Exchequer has not gone too far.

My right hon. Friend the Paymaster-General also expressed the hope that we should not be faced with a round of wage claims unmatched by productivity and unrelated to the cost of living figure. I hope so too, as did my hon. Friend the Member far Wolverhampton, South-West (Mr. Powell). I am sure we all hope so. I wish, however, that we could have something a little more tangible than hope. How firm is this hope? Is the Chancellor at all confident? I am not. I have an uncomfortable feeling that under the influence of the trends which have already been referred to, we shall move back into an inflationary economy, prices will soar again, money will lose still more of its value, there will be still less left for capital investment and again we shall have to adopt measures to cure inflation and we shall be back where we started.

The only people to whom such a process. would bring any comfort would be the leaders of the Communist world. Their influence is spreading all over the world. One has only to look at the map and consider recent developments in the Middle East and in Africa. It is spreading by the use of economic, not military, weapons. My right hon. and learned Friend the Foreign Secretary wrote an interesting article in the April issue of a well-known magazine in which he referred to this very point—that Russia is fighting an economic war. If we are to win the economic war, we must fight it with economic weapons. I suggest that we have not been doing so these last ten or twelve years and that we shall not be able to do so in the future if my fears of a return to inflation in a few months' time prove to be justified.

Is there anything that we can do about this? I have a feeling that there is. It is based mainly upon an impression which I have received from speeches delivered by certain eminent industrialists in recent months and letters written over their signatures in several organs of the national Press and from the speeches of prominent trade union leaders. I have a feeling that they are all very conscious of this problem and are willing to do something about it, but that they are waiting for a lead and that their desires have to be co-ordinated and harnessed to a programme in order to be effective.

The way I see it is that for the last twelve years we have been on a see-saw —inflation up, unemployment down, then inflation down, unemployment up—and now, perhaps, we are moving in the opposite direction again. My right hon. Friend the Chancellor tells us, and I believe him, that at the moment we are comparatively stable; the see-saw is level. I wish I could think that it would remain so. Does the Chancellor really believe it to be possible to hold it there for any measurable period of time? I doubt it. If we are to get off it, the time to do so is now, while it is stable. It is a little difficult and dangerous to jump off a see-saw while it is in motion. Now while it is stable, is the time.

What we must do is to make a supreme effort to seize this opportunity, which may not recur, to move into a price-reducing economy and make a positive effort to reduce prices. Here again, I can illustrate what I have in mind by some figures related to 1957. In that year. Britain's total outlay on consumption rose by 4.6 per cent., but the real rise in consumption was only 2 per cent. The other 2.6 per cent. was accounted for by increased prices. Had prices risen by only 1.6 per cent. instead of 2.6 per cent., the increase in consumption would have been 3 per cent, instead of 2 per cent.—in other words, 50 per cent. higher than it was—and the small loss in profit would have been compensated for by increased turnover.

Such a process, once begun, would feed upon itself. A reduction in prices would mean increased consumption. Increased consumption would mean greater efficiency and still further reductions in prices. We could face with confidence the battle to maintain, and even to increase, our exports against the ever-increasing competition from abroad and we could put ourselves in a position to meet the economic war which we have to face from behind the Iron Curtain.

The Government could help by legislation. The Chancellor has already helped by the restoration of the investment allowance. That is welcome and will make a contribution. The Government could help still more, but I recognise that the extent to which they can help by legislation is not very great. They could, however, help by giving a lead; by calling together the leaders of industry and of the trade union movement to point out the dangers and the consequences of failing to measure up to them, and to the nature of the present opportunity and calling upon both sides to make an all-out effort to increase productivity, to harness increased efficiency and up-to-date machinery to the task of reducing prices and to pass on those reductions to the consumer; not to absorb them in increased profits or in higher wages.

To the wage earner, a reduction in prices is just as good as an increase in wages in the short run. In the long run, it is even better since it strengthens our export position. To the producer, a smaller margin of profit on an increased turnover is just as beneficial as a higher margin on a smaller turnover, and in the long run he increases his export capacity too.

I repeat that I believe the danger to which I have referred is present. But I believe that the opportunity to meet it is there. I call upon the Government to take a lead in seizing it while it lasts.

7.30 p.m.

Photo of Mrs Jean Mann Mrs Jean Mann , Coatbridge and Airdrie

I am sorry that I cannot follow the hon. Member for Lewisham, West (Mr. H. A. Price) in his argument. I hope to say a few words about Purchase Tax later. I think that on the whole this is a very comprehensive Budget, showing traces of a very humane Chancellor, who I think has the respect of Members on both sides of the Committee.

This Budget is rather like those which I made up myself every week, in which I was able to give great satisfaction to some of my children, whereas others were told that they would just have to wait. They would not be jubilant about this Budget, but I think that every parent in budgeting would probably first ensure that there was security overhead and would then attend to the members of the family who needed assistance most. It is because there are members of our British family who need assistance most that I want to take the opportunity to bring their plight to the attention of the Chancellor because I know that my words will not fall on stony ground. I am not referring to old-age pensioners. They have their pressure groups. They can lobby Members in the afternoon, can write out their resolution and make their threat. They are well organised. Certainly they have a just and needy cause and I hope that care will be taken of them.

I want to talk about widows and orphan children whose mothers get nothing whatever from the State for their upkeep. I know that some hon. Members have always thought that children of a widowed mother receive the benefit of the widowed mother's allowance. However, that is not so if their dad died under the wrong Act. There is the widow who receives 10s.—out of which she has to pay 7s. 10d. for the stamp—but nothing whatever for her orphan children. She is deprived of the £1 for the first child and the 12s. for the second child. She is told by all parties, "Go out and work."

What a strange thing, when we consider that in 1948 we in this House decided that it was a bad thing for a young widow with young children to go out to work, so bad that we imposed an earnings rule on her. Yet we say to her, "Get out to work. It does not matter whether you have young children. We are not giving you anything for your young children. Their dad died at the wrong time." Such mothers write to me complaining that the father had paid for the insurance stamp all his life, but under the wrong Act. It is inconceivable that we can have widows and orphans in this Christian country, which believes that true Christianity is to look after the widows and orphans, who come right at the bottom of the ladder, forsaken and forgotten.

If anyone thinks that I am drawing a long bow, I should like to refer to a reply which I received from the Joint Parliamentary Secretary to the Ministry of Pensions and National Insurance. The reply stated that the fact that a widow has young children does not in itself give entitlement to a National Insurance widow's benefit. She is told, in effect, "Get out and work for your young children. You will get nothing from us." Fifty thousand of these young widows are on National Assistance.

When we decided in 1948 that it was wrong that widows with young children should go out to work, we had the bright idea that they should have a full maintenance allowance. That does not apply to the widow receiving 10s. We decided that they should have a full maintenance allowance and that if they then went out to work we would penalise them. My hon. Friend the Member for Southampton, Itchen (Dr. King), who I am glad to see on these benches, has fought time and again in the House for the 10s. widow. I believe that he has organised a group on their behalf in Southampton. I think that there should be a march, not from Aldermaston—although I do not disapprove of that by any manner of means —but a march of the 90,000 widows who are getting 10s., less 7s. 10d. for the stamp, and nothing for their children.

The Minister of Pensions and National Insurance on one occasion, when I thought that I was getting the support of the House on this question, told me that I was merely citing the case of ladies whose opposite number get nothing at all. In other words, we on both sides of the House—this is not a question of politics —are led to believe that the 10s. widow is getting something more than her opposite number. That reply from the Minister somehow or other got into the Press, and I was inundated with letters from widows who said that it was not true. On my landing there is a widow of the same age as myself who receives 50s. with no stamp deduction and 32s. for 'her two orphans. One woman wrote to me saying, "My sister is in the same age group as myself and she gets 50s., 32s. for her orphan, with no stamp deduction, whereas I get 2s. 2d. and nothing for my orphan".

I became a little bolder and put a Question to the Minister to clarify once and for all how many widows in the 50 to 60 age group were getting 50s. and how many were getting 10s. The reply was that 165,000 widows are receiving 50s., and the orphan allowance with no stamp deduction. There are 90,000 widows who are getting 10s. less 7s. 10d. with no orphan allowance.

Psychiatrists often tell us what leads to criminal tendencies and what makes certain people take the wrong way. If my widowed mother were struggling, knowing that the State had no regard for my brother or myself and insisted on her going out to work until she was 60, while there are so many other widows, often like myself, who are receiving the full orphan and widows' allowance, I would think that it was a crazy State with a crazy, cold, heartless system for its widows.

Three women have lately been to see me in my interview room. First, there was Amy, a widow with three children. She lived in a bungalow on which unfortunately she still had half the mortgage to pay. Most of the people who live in bungalows in this district vote Tory and so unfortunately does she, but I think that she will be a non-voter in future. Who would blame her? She goes out to her old job at £7 10s. a week in order to keep up payments on the bungalow and to maintain her children, one of whom is a deaf-mute. Because she goes out to work. £2 10s. is deducted from her widow's pension.

Across the street there is a woman of her own age who works in the same office and whose husband also works. She doers not need to go to work but she says that there is always a little extra for the children if she does. Amy's children had nothing extra at Christmas time, but the other woman's children had expensive toys, including a lovely motor car and a pram. If it had not been for a kind benefactor, Amy's children would have had nothing. It is true that the benefactor could not afford to give expensive toys, but she saw to it that Amy and her children had a good Christmas dinner and that Amy was able to buy a couple of good Burberry coats and a good pair of winter shoes.

The second woman, Dora, came to see me on Sunday. She is a fine specimen of a woman with three fine children. She is a school teacher and she told me that she kept at her job when she lost her husband. She received from the Chancellor £390 in Income Tax allowance when her husband was alive, but when her husband died she lost £250 of the allowance, for she is now treated as a single woman for Income Tax purposes and has £8 8s. a month deducted from her widow's pension. I would tell my hon. Friend the Member for Itchen that here is one who is willing to lead the march.

The third woman is a nurse, and we all know how much the country needs urgently teachers and nurses. She writes to me that she needs the full hours she works at the hospital as much as the hospital needs her. She needs them for her three children. She is ambitious for her children, but she adds that every hour of part-time work that she does at the hospital is given voluntarily and she is just about the last person who can afford to do that.

Although there are very few hon. Members in the Chamber, I am sure that what is lacking in quantity is made up in quality. When the time comes when I am no longer doing this kind of work, I am quite certain that some hon. Members will remember and carry on the fight for the widows.

Photo of Dr Horace King Dr Horace King , Southampton, Itchen

I am sure that the Committee is listening with interest to my hon. Friend, but I should like to remind her that there is a third group of widows apart from the 50s. and 10s. group. There is a " no shilling a week " group.

Photo of Mrs Jean Mann Mrs Jean Mann , Coatbridge and Airdrie

Yes, I am glad that my hon. Friend has reminded me, as I am constantly reminded in my correspondence, that there are widows who get nothing at all, not because they have not paid for the stamp on their cards over the ten years but because some of those years have been in the wrong date group.

Purchase Tax talk leaves me quite cold. I had a good laugh when I read in a newspaper this morning the comments of the owner of a cosmetics shop who said: This is certainly good news. Women have had to pay this rather large Purchase Tax on cosmetics for long enough. Now they are to have a marvellous reduction on the price of a 7s. 6d. lipstick. They will have the great amount of 3d.

Photo of Mr Ellis Smith Mr Ellis Smith , Stoke-on-Trent South

Do lipsticks cost 7s. 6d.?

Photo of Mrs Jean Mann Mrs Jean Mann , Coatbridge and Airdrie

Yes. My hon. Friend has put his finger on the matter. A lipstick really ought to cost 6d., if my son, in a little medical research which he has conducted, has diagnosed the contents properly. Now we are expected to give utter whoops of delight because there will be a 3d. reduction. The old lady who is receiving no increase in her pension will have a penny reduction when she buys a new frying pan—if she can buy a new frying pan at any time. It is more than likely that she is condemned to use one in which the holes are past patching up.

Again, on a £30 carpet there is to be a reduction of 11s. Purchase Tax talk leaves me cold after my experience a year ago when I probed it to its depth and found that there is no enforcement whatsoever by the Government to ensure that the reduction in the tax reaches the consumer. Retailers can pass it on if they like. The honest, reputable merchant will probably pass it on whilst a merchant next door or in the next street makes no concession at all. I asked the Chancellor time and time again about this during the passage of the Finance Act last year, but he passed the buck to the President of the Board of Trade who, hemmed in, answered " No, Sir " when I asked if he would do anything to see that Purchase Tax concessions were enforced and the consumer received the benefit.

I must tell the Committee why Purchase Tax talk leaves me cold and why I do not trust the Government in the matter of the stability of the cost of living. I prefer the expression "stability of the cost of living " to " stability of prices ", because I am reminded of Oscar Wilde's description of the man who knows the price of everything and the value of nothing. In this age of prepackaging, when everything is handed over the counter with no weight stated on the box or on the cellophane wrapper, and no weights stated on the packet of powder or detergent or even on a piece of wrapped cheese, people know the price of everything and the value of nothing. It will be quite in order if I point out to the Chancellor that over a full year I paid stable prices for everything that I used in my house by way of food and other commodities, yet by the middle of each week I found that I had to renew supplies because of the fluctuating weight and content of the packets sold to me.

I have here a memorandum which I have brought to the notice of the President of the Board of Trade. It is dated 30th January, 1959, and was sent out to shopkeepers by Radio and Allied Industries Limited. It states: We want to accelerate the movement of our whole range.… We have chosen to offer supplies to all our dealers, special nett prices leaving the list prices unchanged. These nett prices, as you will see from the list below, provide the inducement of a substantial extra profit which will enable you to give an extra incentive to your sales staff.… Not, mark you, to reduce the price of the article. The instruction is that the list prices must remain unaltered. The extra profit is listed as follows: on a 32 guinea set, £5 10s. 3d.; on a 55 guinea set. £7 17s.; on a 59 guinea set, £9 Os. 10d.: on a 67 guinea set, strange to say, £8 8s. 5d. 1 cannot understand that fluctuation. I see that on the 67 guinea set of which the old trade price was £53 8s. 4d., the new net price in this memorandum is £45. I believe the labourer is worthy of his hire, and I am not against a reasonable profit, but I think a 67 guinea set reduced to £45 can well stand the £8 8s. 5d. being passed directly to the consumer.

When I sent this memorandum to the President of the Board of Trade and asked him what steps, if any, he would take to ensure that this practice would be stopped, I received the usual reply, "None, Sir." So when I read my Daily Express, which tells me to whoop and shout for joy because there is a Purchase Tax reduction of £2 on a £60 set, and I know that there has been a reduction of £9 already, about which the President of the Board of Trade said they could do as they liked, I am not entirely enraptured, because I know that the same attitude is taken by the Front Bench opposite towards this £2 reduction in Purchase Tax, namely, that the shopkeeper can pass it on if he likes.

Our warm-hearted Chancellor has a different attitude towards beer. He gives 2d. off the pint and he lays down the law specifically from the Box. I quote his words: I intend that the benefit of this concession shall he wholly passed on. I know that he must pass by in his own life many women who would probably jump at the chance of him. We should not be surprised, perhaps, that where housewives and women are concerned he passes on and will not give us any guarantee that his Purchase Tax reduction shall be passed on to the consumer, only to the man who wants his pint of beer.

I conclude with what I regard as the greatest indictment of the right hon. Gentleman in respect of the cost of living. Whilst paying due regard to the stability of the cost of living as being of the utmost importance to the economy of the nation, the right hon. Gentleman said that he must consult his right hon. Friend the Postmaster-General as to whether food prices would rise or not.

Mr. Amory:

I think the hon. Lady is misquoting me. What I said was that I thought, by the law of averages, we could hope for a better potato crop this year and—rather a poor joke, I admit—I said that I would ask my right hon. Friend the Postmaster-General to consult " Ernie " to see whether he could tell me what were the exact chances of a better potato crop.

Photo of Mrs Jean Mann Mrs Jean Mann , Coatbridge and Airdrie

The last time the right hon. Gentleman and I had a brush about potatoes in the House of Commons he told my right hon. Friend the Member for Warrington (Dr. Surnmerskill) and myself that we were both very poor housewives, that he could buy potatoes cheaper than either of us. I am certain that the right hon. Gentleman would be easily spoofed by potatoes done up in a cellophane bag, where the specks and spots on them were hidden so that he could not see them. That is why he got them for 3½d. when we wiser housewives were paying 5d. a pound.

I come back to the question of price stability. This is the age of the self-service store. Every day more and more goods are coming on to the market, and the pre-pack trade is in itself now a formidable industrial group. My grocer tells me that the pre-pack group simply will not stamp their packages with the weight but have been offering 3d. off the packet. Again they are like the radio people. The grocer is given the money and he can pass it on if he likes. He is given 3d. for every label left in the shop.

My grocer wrote to me to say that he could take 6d. off the price of the package but that if he liked to put 3d. in the till he was free to do so. That is Tory freedom. Tory freedom works. Let us have the full play of free competition. But where is the competition today? There are monopoly groups on every side. That same grocer told me that he told the traveller that on his shelf there was a packet which contained two ounces less than it should do, and yet the price was the same. The traveller said something about condensation or evaporation. " But ", said the grocer, I have some of the old stock also. Would not that suffer more from evaporation? Yet there are two ounces more in the old stock ". Hoy, can any Minister of Labour or any Chancellor accurately assess the cost-of-living index figure if he relies entirely on prices and shuts his eyes to the ever-changing weight in the packages, in the boxes and in the cellophane packets?

I apologise for keeping the Committee rather long but I hope that some change will be made.

8.0 p.m.

Photo of Mr Geoffrey Hirst Mr Geoffrey Hirst , Shipley

I am delighted to follow the hon. Lady the Member for Coatbridge and Airdrie (Mrs. Mann), because this is the first time I have had that pleasure in any of our debates. She devoted her speech largely to two subjects, and I think we all recognise her sincerity and the nearness to her heart of these social problems which she touched upon, particularly the widows in the circumstances which she mentioned, and especially what are known as the 10s. widows.

I hope quite frankly that full note will be taken of the personal experiences which the hon. Lady has had, because they are not all that different from what many of us have found. This is a problem which many of us have found from time to time a little difficulty in answering on the basis of the official letter on this subject. Therefore, I certainly would be grateful if it could be examined. There are a lessening number of these people as the years go by, and possibly it would not be too bad, however illogical it might be, to see if we could bridge the gap between the two classes of widow. I, personally, would welcome it. I recognise the sincerity with which the hon. Lady addressed herself to this subject.

So far as the other subject, that of Purchase Tax, is concerned, I could not quite follow the hon. Lady or entirely agree with what she was saying. Nothing alters the fact that reductions in Purchase Tax have been made amounting to something like £80 million in a full year, and that is an enormous sum. One can always make a fuss about odd examples and say that it is only a penny off this or that, but many of us buy a lot of odd articles in the aggregate in the course of a year, and they add up in our spending. It is fair game for any Opposition, and it is always easy to hold up something and say, " It is only a penny off this or 2d. off that ", but the fact of the matter is that nearly all the articles, or the great majority, in the Purchase Tax field are common purchases. I admit that a few are in the luxury group, but there must be some overall advantage.

I get tired of hearing about this business of the enforcement officers and all the rest of it. I suppose it is typical Labour Party policy, which is one of the reasons why I am a Tory. There are several others, but that is one of them. I think that this is underestimating the standard of common sense of our people, and it really does disturb me. Even our own sex are quite able people quite capable of knowing what is a good buy and what is a bad buy. We all get " done " occasionally, but we get " done" anyhow, even when we get a packet marked so many ounces. Not many of us know what fourteen ounces of a commodity look like in a container. I have spent years in the pharmaceutical business, and I know quite a lot about packing, and when walking round a factory or a laboratory I have often queried whether certain packages contained what they should, because they looked so much less. Even when I have had the contents tipped out and measured, they have only looked different because of the container. No one should imagine that we should all become brilliant judges of weights if all packages were marked.

This is so much nonsense. It might well be, and probably is, good politics, but it certainly is not common sense. I think that there is enough common sense in the majority of our people that if they find that any manufacturer is " doing " them, they will soon change to somebody else. If the manufacturer fails, he will get no sympathy from me.

My right hon. Friend the Paymaster-General, rather early in his speech, said that very little had been said in the debate about the Budget. I think this is true, and I think that the right hon. Member for Huyton (Mr. H. Wilson) actually squeezed his sour grapes until the last reluctant pip squeaked. He certainly made the kind of speech for which, as a professional after-dinner speaker, he might have been paid a high fee. We had it for nothing, but 1 must say that it had very little to do with the Budget. I found that the speech which had a little bit more to do with the Budget was that of the right hon. Member for Bishop Auckland (Mr. Dalton), whose speeches I always enjoy the further away he gets from the Front Opposition Bench.

There is only one thing with which I will grumble, and it is about this idea about unearned income, which positively makes me tired. The way in which some people talk about this makes unmitigated nonsense. Unearned income, or as I prefer to call it invested income, or savings. in fact, is just as valuable as any other form of income. Where on earth should we be now if a lot of firms up and down the country had not put their savings to the support and extension of their businesses? Nearly every big business today started as a relatively small business. in which savings—the unearned income—have been used to build up the business from which they get some return, to which they are just as much entitled as labour. Over recent years, they have not had an awful lot, and it is nonsense to talk of unearned income as something to be ashamed of. This sort of talk is all right for the platform, but here we ought to have a little more sense and more regard for the facts of the case.

Photo of Mr George Lindgren Mr George Lindgren , Wellingborough

I am reluctant to interrupt the hon. Gentleman, but this is a vital point. The fact is that there would be no profit but for the basic earnings of the person who is the primary producer. It is a fact that wages have been low and those at the top have taken an undue proportion of the value of the work produced by the workers and it is from that that they have got their unearned income.

Photo of Mr Geoffrey Hirst Mr Geoffrey Hirst , Shipley

No. I will not enter into a debate on what the proportion is now or has been. I say that capital and labour must be a partnership. I will not argue about whether the proportion has been wrong in the past, but the fact is that we must have a partnership of both, and to suggest that unearned income is something to be ashamed of, something which ought to be more heavily taxed, is quite out of date and begs the whole question of regard for a sensible industrial practice.

Several hon. Members have mentioned investment allowances in respect of depreciation which my right hon. Friend has included in his Budget. I rather share their views. I know that it is difficult in any industry to plan ahead when one does not know whether one is to have an investment allowance or not, or whether it will be taken away and all the rest of it. That is why I myself feel that some new basis of depreciation, although I think it could be costly in the first instance, would be a better way. I have made at least eight or nine speeches in the House in recent years asking for the depreciation basis on replacement value rather than on the historic value.

It is not at all difficult to get, but it would mean a revaluation, though after that there is a formula that can be applied. It is not difficult to do, but I admit that in the first instance it would be costly. Ultimately, we must be placed in a position of equality with our competitors, very many of whom have much better systems of depreciation allowances than we have in this country. I hope that if all goes well, and I have every reason to believe that it will, and there is an opportunity in the next Conesrvative Budget, which will presumably be in a year's time, this matter can he looked into and dealt with.

I have no hesitation in praising my right hon. Friend for the courage, and I think on the whole the wisdom, of his Budget. I agree with my hon. Friend the Member for Wolverhampton, South-West (Mr. Powell) that a risk is being taken, and that is clear to anyone who follows these matters in the slightest degree. There is a distinct risk being taken, and there are some conundrums to be faced, but it was a decision which had to be made one way or the other. I think that my right hon. Friend has done the right thing, and I am glad that he has not tried to dilly-dally, because it would have been much worse if he had done only half the job. The Budget will be a considerable boost to production and also to the employment of labour, and I praise wholeheartedly my right hon. Friend's proposals.

I believe in leaving industry, through lower taxation, to its own resources so far as possible so that it may develop and modernise itself, rather than offering " carrots " in the form of investment allowances, initial allowances and the rest of it. Had I been planning this matter, if I may be vain enough to say so, I should have preferred to see 1s. off the Income Tax and not so many " bits and pieces." I am convinced that a reduction in the standard rate of Income Tax, with the necessary reductions in the lower rates, is the greatest possible incentive to industry. There is nothing to equal it for getting the wheels of industry turning. It is far better than a lot of "clap-trap " about putting up factories all over the place when there is no knowledge of the amount of orders which will come to them. Trade is not stimulated in that way. The market must be encouraged so that industrialists will re-equip themselves to take advantage of the opportunities which they can see. They do not carry out programmes of re-equipment for fun; nor will the "carrots " I have mentioned attract them any more than the kind of controls which are imposed by the Labour Party.

Last year I declared a modest interest in the matter of Customs and Excise, not for the first time, when I expressed my desire to see a reform in the licence duty. In a speech which took up a considerable amount of space in the OFFICIAL REPORT I discussed the historical background of this interesting subject, and so T must say a big "Thank you " to my right hon. Friend. He has gone much further than the 25 per cent. reduction for which I asked. Incidentally the figure was identical with what was promised by my right hon. Friend the Member for Woodford (Sir W. Churchill) in 1929 but on that occasion, owing to an unusually speedy election, the promise was not fulfilled. On this occasion, obviously, there is no danger of that.

In the same connection I think it a good thing that there should be something off beer. I support what was said by my right hon. Friend the Paymaster-General about beer paying a " Purchase Tax "—that is the way they like to look at it—paying on average gravity of something like 150 per cent. That is a phenomenal amount. I do not see why a little cheer should not be given in that direction. It is appreciated by a lot of people and has been long deserved.

We cannot have everything. 1 have heard a few "shopping lists " read out today and I will spare the Committee my own, but I must say that I am a little sorry that the problem of the Stamp Duty has not been tackled. That is only because I want to see the way clear for some scheme which I trust the Government are considering, in addition to those which are already operating, to help the small man to engage in industrial saving. I should like to see the ordinary wage-earner able to invest in industrial securities and, where it is suitable, in the firm in which he works. That sort of stake in the country not only represents sound Conservative policy but, obviously, is a sound policy from the national viewpoint; because the more people there are with such a stake in the country, the greater the stability of the country and the less risk of Communist infiltration.

I was also interested in the matter of expenditure, although not only in the rather technical way in which it was approached by my hon. Friend the Member for Wolverhampton, South-West. I can foresee that the time will come when, to assist the economy and achieve tax reductions, aid will have to come from totally different sources and in a different way from that in which reductions are being achieved this year. It will have to be carried out by means of a reduction in the demands of Government Departments. That is a matter which must be examined. I plead for some system of examination of Governmental expenditure.

We know only too well that Ministers have not the time to be, as it were, managing directors of their Departments. They may act as hard-working chairmen, but they cannot be full-time managing directors. Therefore, there must be some system whereby expenditure can be overhauled, and some machinery must be devised which will be independent of the Departments. I appreciate the difficulties, but a way can be found if we have the will. It is no use referring these matters back to the Department concerned. It is necessary that there should be some separate machinery to ensure that an independent investigation is made of forms of expenditure which appear unnecessary. Despite all the work which has been done in that direction during the last few years, we must search for other ways of making considerable reductions in this form of expenditure.

The economic side of the Chancellor's speech was, I thought, summed up to-day by the Yorkshire Post in this quotation: The vital point to be grasped is that monetary policy alone cannot ensure this country's prosperity. The nation's well being depends to a very large degree upon our success in selling our products abroad: and we shall not continue to maintain headway against our formidable rivals in foreign markets unless we pay close regard to our production costs. There are two fundamental aspects of production costs. One is modernisation and efficiency in industry, to which this Budget will take us in greater degree. The other has been made clear by the Cohen Committee, the Three Wise Men, the Economic White Paper and by my right hon. Friend the Chancellor; that is, realistic wage levels in the sense that there should he some reasonable regard to the productivity of the country.

Thought might be given to some tribunals which would appear not to have served the nation too well or had regard to such relevant matters as the amount of money in the economy. There was, for example, the recent award to town clerks. It is not reasonable to pay £800 or £900 here and there. That kind of thing does not make it easy for those trade union leaders who desire to be reasonable to explain to their members why they cannot receive something. It would appear front the decisions of some of the so-called independent tribunals that they have paid little regard to the economic factors which really decide these matters and indicate whether a particular wage award is right or not.

My right hon. Friend was extremely modest in his speech yesterday. He underestimated some of the actions of the Government. He was absolutely right in his modesty to indicate that the greatly improved balance of payments position was substantially due to lower import prices from which we benefited. But the climate of opinion, particularly among people abroad in relation to our country, has been affected by the action of the Government in killing inflation and showing the world that we could achieve substantial stability and come through a depression in international trade with an unemployment figure less than that in other countries. The unemployment figure in Italy and Canada has been three times greater and in Germany and America it has been twice as great as ours. We have weathered the depression with less effect on the economy than has been the case with some other nations.

Sterling has been shown, under the Conservative Government's administration, to be quite equal to the dollar, which is something which we had not seen since the war. It is a very important factor indeed. There is a slight doubt in the minds of some people abroad, a rather foolish doubt, whether there is not the slightest danger of a change of Government. It is undermining the final decision of confidence in our standing. For all the reasons I have given, we have much for which to congratulate the Government and my right hon. Friend. They have been a little lucky, and one of the great features for which we can thank them is that they have known how to use their luck in the interests of the nation as a whole.

8.21 p.m.

Photo of Mr Douglas Houghton Mr Douglas Houghton , Sowerby

The hon. Member for Shipley (Mr. Hirst) should not complain that the debate has gone rather wide. It has been customary for many years for us to discuss the general economic situation at the same time as we discussed the Budget Resolutions. It has become the convention that we should range widely over the economic problems of the country and we have the Economic Survey to assist us.

The hon. Gentleman disparaged the suggestion made by my right hon. Friend the Member for Bishop Auckland (Mr. Dalton) about improvement in earned income relief, and he brushed it aside rather roughly, bearing in mind that his right hon. Friend the Home Secretary is on the record as expressing the hope, when he was Chancellor of the Exchequer, that earned income relief should be increased from two-ninths to one-quarter.

Photo of Mr Geoffrey Hirst Mr Geoffrey Hirst , Shipley

I was not brushing that suggestion aside. I was merely arguing that I did not see the distinction to be drawn between earned and unearned income. They are both partners in helping the economy.

Photo of Mr Douglas Houghton Mr Douglas Houghton , Sowerby

No one suggests that unearned income has no right to consideration in our fiscal policy. I believe I have told the Committee previously about an Irishman who was a member of an earlier Royal Commission on Taxation who could see no reason for discrimination against unearned income. He said that Income Tax was based upon an assumed ability to pay and that it did not matter twopence where the income came from: it stood equally when assuming ability to pay. We have departed from that point of view for many years. Earned income relief is a traditional feature of our taxation system.

The hon. Member for Orkney and Shetland (Mr. Grimond) was searching for a passage in the Chancellor's speech which I think I had in my hand at the time. I was going to make a reference to it as the beginning of the remarks I proposed to make. It is in column 47, where the Chancellor was saying that every Budget should have a main aim or theme related to the current needs of the country. He went on to say: I have no doubt whatever what the first requirement is today. It is an improvement in the competitiveness of our economy. All our hopes for the future depend on this."—[OFFICIAL REPORT, 7th April, 1959; Vol. 603. c. 47.] Perhaps I should first ask the question, What message has the Budget for a constituency like mine, which is in growing difficulty on account of the recession in cotton textiles? Contrary to the general belief, cotton textiles are made in Yorkshire as well as in Lancashire. Towns on the fringe of the Cotton Belt, as it is called, may be as grievously affected by recession as some of the towns in Lancashire. This is rather a futile question to ask, because the Budget has no message for my constituency different from any other constituency; no more and no less.

Of course, we recognise the limitations of budgetary policy in dealing with our stricken textile industry, which is casting a blight over a very large number of people for whom there appears to be little hope. The mayors of a number of cotton textile towns are coming to see the Prime Minister on 17th April. What will he tell them about their future? This is where the capitalist system breaks down. An industry has grown up over the years concentrated in a particular area and a very large proportion of the workers in the area are dependent upon it. It falls on evil times. One of the main causes of its difficulties is the entry into the country of cotton textiles and made-up goods, duty- and quota-free, from certain Commonwealth countries.

The classic remedy for that position, according to Tory philosophy, is protec- tion. The demand is therefore made from those towns for protection, but the Government say, "For the wider interests of Commonwealth trade policy, we do not propose to give protection to you. It would be contrary to our general economic relations with Commonwealth countries and would have an adverse affect upon their ability to buy from us ", and so on. If protection is not to be given, what is to be the fate of those places? If this industry is to suffer in the interests of the nation as a whole and to preserve relations between this country and the Commonwealth, what is the nation prepared to do for the stricken areas which are bearing the brunt of the suffering?

I know that we have the Distribution of Industry (Financial Provisions) Act, but, as the Economic Secretary to the Treasury knows quite well, it does not come to the rescue of a town or area until there is a high level of unemployment which is likely to persist. As I have said before, the doctor arrives only when the patient is very ill. Not only has he to be very ill, but it must be expected of him that he will be ill for a long time unless something is done. Could not some of the resources of the Budget have been placed at the disposal of these areas for the development of other industries or for the modernisation of plant which, given that advantage, might still maintain a competitive position despite imports from overseas? Is there any message which can go to these areas represented mostly by hon. Members on this side of the Committee?

Although I am not going to pretend for a moment that the removal of the 5 per cent, level of Purchase Tax would have made a material difference to this industry, at least it would have been a gesture and psychology matters so much, as I shall attempt to show, in connection with the whole of budgetary strategy. I do not think there is any answer to that in the context of the Budget provisions. There seems to be little enough answer in any other context. I think it is the duty of Her Majesty's Government to tell those areas what the future has in store for them so far as they can see and what they propose to do about it.

Let us look more generally at the general test which the Chancellor has applied. I find difficulty in reconciling the Chancellor's stated aim with what he has done. In the course of this debate, we ought to be more satisfied that what the Chancellor has done really flows directly from the aim for improvement of our competitiveness and for the expansion of our industrial production. Let us look at personal taxation. I am frankly sceptical of the effect which tax relief has on incentives at any level of individual effort. That may be a view not shared by other hon. Members, but I suggest that there is no real evidence that the level of personal taxation has been a disincentive or discouragement to effort or production at any level. The Trades Union Congress, giving evidence to the Radcliffe Commission some years ago, certainly left the Commission in no doubt of the view of the T.U.C. that the level of taxation and deduction of Income Tax from earnings was not a material factor in individual productivity.

Photo of Mr Alan Green Mr Alan Green , Preston South

I have great sympathy with the views the hon. Member is expressing, but will he explain why so many hon. Members on both sides of the Committee complain that young, extremely experienced and highly skilled technicians tend to go overseas where the level of taxation on the work they put in is so much less severe?

Photo of Mr Douglas Houghton Mr Douglas Houghton , Sowerby

If such do leave the country—and I believe the number can be exaggerated—I am not certain that it is desirable for them to stay here. After all, there is something in utilising technical knowledge and ability, provided in many cases at the expense of the State, within the community where that training has been given. I do not think there is any real evidence that the will to achievement is dependent upon the rate of Income Tax. It would be an insult to suggest that it was, because I am convinced that character, ability, desire for legitimate power, the satisfaction of creative instincts, the desire for esteem—these and even more intangible and mysterious forces—are at work in most of us.

It must be recognised, if we are honest, that there are limits to fiscal policy as a stimulant to individuals, or, indeed, to the nation as a whole, by lowering the level of taxation. Does the slogan, "You will keep more of what you earn " do anything to anybody which can be counted in output, efficiency or initiative? I really doubt it. I believe the conditions of our greatness and survival and out ability to earn a living as a trading nation go much deeper than that. believe that a feeling of social justice, of community spirit, of real co-operation, are essential conditions for the release of the spirit of endeavour.

At the same time one is not going to say that tax reductions should not be made because the return from them cannot be directly measured in terms of efficiency and higher production. But the Chancellor was so specific about the principal aim of the Budget. If he had said, "It probably will not make any difference, except that I want to make the people happier and I have money to spare. There is no reason why I should retain a level of taxation which is not necessary, and therefore I will make tax reliefs which seem to be fairly distributed over the whole field of taxation ", I should have understood it, but he did not say that.

Although the Chancellor's desire for equitable distribution for tax reliefs was rather slurred into his main theme, he may have thought that he wanted as far as possible to harmonise the two purposes. I ask myself where the money has gone and where it will go.

The hon. Member for Wolverhampton, South-West (Mr. Powell) stressed that the Chancellor wishes to borrow back more this year than last year, absolutely and relatively. The hon. Member expressed some doubt whether the Chancellor would be able to borrow the large sum required to finance expenditure below the line. Whether or not he meets with that difficulty, the fact is that the Chancellor, after having made substantial tax reliefs, asks those who have received them to lend him back the money in even larger quantities. That is in order that he can, for example, finance the capital expenditure of the nationalised industries.

It could be asked why in those circumstances the Chancellor does not retain the revenue in a larger surplus in order to finance the nationalised industries out of his surplus instead of giving tax reliefs only to borrow them back. These are obscure aspects of budgetary policy. It is a little difficult to relate reliefs on personal taxation in the Income Tax field to the main theme of the Chancellor's Budget. These reliefs are substantially in a band of income from £1,000 a year upwards. Below that the reliefs are negligible. Even in the Chancellor's Purchase Tax reductions the maximum relief is given to those tax bands in which the better-off people will make the largest purchases. Therefore, a double relief is given to them.

On top of that, if the newspaper reports are anything to go by, the Chancellor's hon. Friends were quizzing him last night as to why he had not abolished Schedule A Income Tax. That would have been the crowning insult, because at a time when subsidies are being squeezed out of local authority housing, and rents are being increased for privately occupied houses it would have been manifestly unjust if the Chancellor had begun indirectly to subsidise those who are in a position to buy and own their own houses. I hope that any hon. Member opposite who is interested in this matter will get the opportunity of moving a new Clause to the Finance Bill so that we can debate the subject thoroughly.

Had the Chancellor wished to help companies by freeing resources for expansion and investment over and above the provisions he is already making, he could have done so by dealing with Profits Tax without any or not as great a reduction in the standard rate of Income Tax. Unfortunately, last year he threw away the provision for discriminatory treatment, for Profits Tax purposes, of distributed and non-distributed profits. However, he could have done it in that way.

He has returned once more to investment allowances. If there is anything in our taxation system with a more chequered history than the initial and investment allowances. I should like to know what it is. When I saw the right hon. Gentleman in another connection a little time ago I asked him whether he had made any research into the relationship between the actual level of investment in the private sector and the fluctuations of investment and initial allowances. That subject would repay investigation.

He might be surprised to find how little bearing on investment programmes these allowances have. From experience, industry has been unable to rely on them and has had to make its plans irrespective of whether or not any relief in that direction would be given. There is a risk, and the Chancellor must face it, that by his proposals some part, I do not know how much, of the tax relief to industry will be distributed in higher dividends—and, indeed, some part may be distributed in higher wages—because these two demands on the resources of industry cannot be left out of any forecast of the likely consequences of the proposals. I very much doubt whether those who will principally benefit from the reliefs will matter economically as, perhaps, they matter politically.

The hon. Member for Lewisham, West (Mr. H. A. Price) expressed forebodings about a repetition of the old story that our economy is being run by fits and starts. We boost, then we pull back, then we relax, then we spur it on, and then we have to pull it back again, and then we say, " Now the time has come for a great surge forward ", and off we go, with the possibility of again letting loose forces that have previously had such an adverse effect upon our balance of payments and the strength of sterling.

Unfortunately, the Budget proposals do not give to the great mass of workers reliefs in proportion to those that are being given to the higher income groups. That is a possible source of discontent —though far be it from me to exploit that in any way. We shall watch the next few months, not only with close interest but with some apprehension. The Chancellor has taken a risk. He is not a man, perhaps, given to taking risks, so he must have very great confidence in his judgment or in the surrounding circumstances of his Budget.

If our imports rise, as they must, in advance of an increase in earnings from exports, and if, as he says, a rise in imports is a pre-condition of expansion, there may be danger if the gap gets too wide and lasts too long. Therefore, we must look for the upsurge of earnings from exports to draw abreast of the increased level of imports fairly quickly, otherwise our economy must become weaker. The general verdict on the right hon. Gentleman's proposals will, therefore, be one of caution.

I conclude by saying that I think it would have made his proposals more socially acceptable if he had been prepared, at a time when he is making the second largest reduction in the standard rate of Income Tax since the war, to put a stop to the malpractices which are ever increasing in Income Tax fiddles and avoidance and which are a source of a great deal of cynical discontent.

I suggest that the Chancellor should study what has just been done in Australia. where an omnibus protection of the revenue is being written into law, so that the Inland Revenue will have a defence against the new tax dodgers, the new form of bond-washing and dividend stripping. But some of those practices would probably be outside the scope of even such comprehensive protection. There are people who pretend that they are in business as market gardeners or as poultry keepers and who are merely using that as a means of carrying the expenses of running their property and the amenities of it as a charge against the profits of a business which will make a loss anyhow and the losses are thereupon set against other income.

Even a condition that the loss admitted for tax purposes should not be allowed to exceed the gross takings would—astonishingly enough—be a restriction upon this racket. When the time comes, I think that the Committee should devote itself more thoroughly to what is now a widespread evil in our taxation system. If the Chancellor is to reduce taxation for the Income Tax payers and if he is to try to lighten the burden upon their shoulders, at least he is entitled to ask them to play fairly and honestly by the Revenue and drop all the malpractices which they now indulge in, otherwise he must take drastic steps to cleanse the fiscal system of their activities.

8.49 p.m.

Photo of Mr Cyril Osborne Mr Cyril Osborne , Louth Borough

I heartily agree with the last few remarks of the hon. Member for Sowerby (Mr. Houghton). I should like to see those who fiddle stopped. It is not very easy, as he knows as a tax expert, because as one gap is closed by the Treasury officials so the clever lads find another way round or through. All he has asked—and I support him—is that the Treasury should act as quickly as the clever boys in the City and that as soon as a gap is made it is plugged. Obviously, the more fiddling that goes on the more those of us who do not fiddle have to pay. I hate paying my fair share of Income Tax, but I hate even more having to pay more than my fair share. I support him to that extent.

The hon. Lady the Member for Coat-bridge and Airdrie (Mrs. Mann) made a very moving appeal to the Chancellor, who was present at the time. She said that we had a very human Chancellor. She made a special appeal to him, and I should like to put it to my right hon. Friends on the Front Bench. She said that those who needed help most should be at the top of the queue. I thought that she was going to refer to the old-age pensioners, but she did not. She said that the old-age pensioners were well organised and could look after themselves. The hon. Lady appealed for the widows and orphans who receive practically no help at all. I confess that I am not conversant with the details of the case which she put forward, but she made a very moving appeal. I wonder whether before the debates close the Treasury can give an estimate of how much it would cost to close that gap, a gap which it is very right should be closed, in order to help the widows and orphans who seem to be in neither one category nor another but whose case is just about the most deserving of all.

I welcome the Chancellor's tax concessions. Broadly, the difference between the two sides of the Committee is that we on this side regard taxes as a necessary evil, as something which we wish to see kept as low as can be, whereas hon. Members opposite, quite sincerely, I think, like to use taxes as a means of securing what they consider to be social justice. Hon. Gentlemen opposite, however, in their desire to impose taxation in order to bring about a greater redistribution of national wealth would cause a slackening in the economy and a decrease in efficiency which would damage the very people whom they, in a very honourable manner, wish to help. After all, one can take out of the pool of our national life only what is put into it.

After twenty or twenty-five years of legislation to even out differences and redistribute wealth, the problem today, as I see it, is not one of bringing about a greater redistribution of the national wealth. The problem is to create greater national wealth.

I am delighted, therefore, that there have been reductions in Income Tax. We are still far too heavily taxed in this country. Income Tax at the top level in certain categories, at 17s. 9d. in the £, is still far too high. Every man, I believe, ought to be entitled to keep at least a quarter of what he earns. I say to my hon. and right hon. Friends on the Front Bench that 15s. is the most that they ought to take out of every £. After all, the human donkey is entitled to some sort of carrot if he is to continue to work.

I wish that it had been possible to repay post-war credits five years earlier instead of two years earlier. There is hardship here upon quite a large section of the community, the older section, and I hope that we can look forward to the other three years being added next year, assuming that we still have a Conservative Chancellor and a Conservative Budget then.

I want to make a point to hon. Gentlemen opposite about industrial investment. I am glad of the extra allowances which are to be given to industry. Obviously, if industry is to work to maximum efficiency it must have the most modern machinery. On the other hand, hon. Members opposite generally assume that the way to cure our economic problems is to cram factories and plants full of the latest machinery in the belief that, ipso facto, the problems will be solved. They will not. I have seen many factories with the finest of up-to-date machinery which still work inefficiently, and I have seen old machinery which still works well and produces fine results. It is day-to-day management and know-how which is important. How the machines are worked matters more than the amount of capital outlay. Hon. Members opposite will remember that Sir Stafford Cripps, in 1949, I think it was, offered the Lancashire cotton trade a great deal of help for re-equipment. Much of that, which was paid for largely by the taxpayer, was never productively used. The provision of extra machinery and plant does not necessarily mean that our problems will be solved.

I will give this example. In the coal mining industry over the last ten years no less than £620 million has been spent on fixed capital expenditure. During the last three years about £100 million has been spent each year, but at the present time we have 20 million tons of coal, some of which has been produced at a loss of £4 a ton, dumped in unused quarries and left to deteriorate, which will not be worth anything like the money we paid to get it out. All the new investment in the world will not help the coal mining problem because far too many manufacturers and producers are finding that oil is more convenient to use than coal. When atomic power becomes available it may well be that coal will go out altogether. That is looking twenty, thirty, or forty years ahead.

It may be a tragedy, but that is the point I want to put to the hon. Gentleman. It is no use putting a lot of new capital into an industry that is doomed to die. The very essence of life it change —it cannot remain static. Whilst I am grateful for this investment allowance that has been granted, I want to warn hon. Gentlemen opposite that it will not necessarily solve our problems.

Photo of Mr Eustace Willis Mr Eustace Willis , Edinburgh East

The hon. Gentleman ought to warn the Chancellor.

Photo of Mr Cyril Osborne Mr Cyril Osborne , Louth Borough

I hope that what I have said will be read by the Treasury tomorrow morning. I do not say this in any nasty way, but the Chancellor is nearer the problem than some hon. Gentlemen opposite.

My other comment on the Budget gifts, as it were, is this. I regret no promise has been made this time for further help to the old-age pensioners. I would willingly have sacrificed a penny off the concession on beer and 3d. off Income Tax—much as I like to see it come dow—to provide a nest egg for the widows about whom the hon. Lady the Member for Coatbridge and Airdrie spoke so movingly. I do not expect an announcement now, but I would like the money put on one side ready to meet the just claim of old-age pensioners. Most Englishmen enjoy their own good fortune and good luck all the more if they feel that their poorer brethren are getting something as well.

Lest this be thrown at me too hard, may I say this to hon. Gentlemen opposite. The old-age pensioners did far better, and have done far better, under successive Conservative Chancellors than under Socialist Chancellors. There is no argument about that. Do not let the meanness of the Socialist Chancellors be the standard for our policy. If no statement can be made today, I hope that before the Budget debates are finished someone from the Treasury Bench will be able to say whether the money is there in order to give widows and old-age pensioners the next cut.

George Schwartz, who writes amusing and sometimes wise articles in the Sunday Times, on 5th April, 1959, said this regarding the Economic Survey: The country is in better economic shape than at any time since 1913. I wonder if I can believe that in view of the loss of overseas investments between the First and Second world wars. I think it is rather an exaggeration and overstatement. But there is no doubt about it that the Economic Survey shows that the country is in a far better position than it was, say, in September, 1957, and that is a wonderful tribute to the present Government, and especially, I think, to the present Chancellor of the Exchequer. It reveals that since we were put on the spot by the run on sterling in September, 1957, when a 7 per cent. Bank Rate had to be introduced and the credit squeeze, the country has made a remarkable recovery, and I think we should acknowledge this.

However, I want to issue a warning to my hon. and right hon. Friends. I think there is great danger in taking too optimistic a view, as George Schwartz does. I should like us to remember that the present good position is largely due to what I call the Thorneycroft austerity measures. Without them, sterling would not be as strong as it is today, nor would our reserves be as good, and if sterling were not as strong our foreign trade could not be conducted as well as it has been. What the Thorneycroft measures did was to make the nation more conscious that it had got to live within its income. Therefore, I should like to support what the Chancellor said, that this is no time for a spending spree.

I want also to say this to my right hon. Friends. Will the Chancellor keep a very keen watch on all the spending Departments, both nationally and at local levels, to see that extravagance and waste is eliminated? In recent months there have bean too many Reports from the Select Committee on Estimates showing that public money has been thrown away. There has been shocking waste in some cases. I should hate the spending Departments to feel that merely because the Economic Survey shows that we are in rather better fettle a good time can be had and that all the tightening-up done by the former Chancellor can be relaxed. There is a great danger there. It is so much easier to spend other people's money than one's own, and, if I may say so, it is such a great danger that those who have not had a lot of their own to spend may satisfy their appetites by spending other people's money. I beg of the Treasury to see that the spending Departments are kept well down, and that the taxpayers get good value for money.

If the Committee will forgive me for saying this, I fear, especially looking at the Press this morning, with the headlines about 2d. off this and 9d. off that, the suggestion that a good time can be had by all. It reminds me of what was said in the old Book when the same atmosphere was created and a man said to himself: Soul, thou hast much goods laid up for many years; take thine ease, eat, drink, and be merry. If we take that line, then just as certainly as we are here today someone will come to give us the same answer as was given to that man: Thou fool, this night thy prosperity shall be required of thee.The Times yesterday had a much better article on the position than George Schwartz. It said in a good editorial, which I should like my right hon. Friend to look at: Trouble still lurks ready for any unwary Government. World export trade has not picked up as optimists a year ago thought it would. That is not the fault of this Government, but of the general economic situation throughout the world. Secondly, The Times said—and this is the point which it is difficult to get the ordinary person in the street to understand: Britain is less insulated than any other major industrial country from the impact of world economic conditions. We are affected more quickly, more vitally, than any other nation in the world by what happens in any corner of the world. We are very much as the mercy of what happens elsewhere.

Lastly, The Times said: Meanwhile, the stiffer challenge in export markets means that British industries must make themselves still more efficient in order to maintain their present position, let alone improve it. I like this very much better than George Schwartz. It is easy to tell people how good things are and so urge them to take. their ease. In some respects I would rather have some of Sir Stafford Cripps back in our economy than George Schwartz.

There is only one economic test of the Budget and it is, will it stimulate exports? If it does not, then it is the wildest gamble that a cautious Chancellor could have taken. I was alarmed to read on page 11 of the Economic Survey—the most important statement in the Economic Survey—that In 1958 the volume of exports of goods and services was about 2 per cent. lower than in 1957. That spells ruin. It is more true of this country than of any other country that we must export or die. If the volume of our exports continues to fall, nothing can stop a fall in the standard of life in this country and another wild bout of inflation.

I am glad that my right hon. Friend the Paymaster-General is here to listen to my speech. I put it to him that if the Budget proposals stimulate the home market, the domestic economy and what I call the sheltered industries and leaves the export trade unaffected, then nothing can stop a wild inflationary movement which would make 1957 look like child's play. It is a great gamble and an act of faith on the part of the Chancellor.

It is fair to tell hon. Members opposite, because so many of them believe the contrary, that it is impossible for the United Kingdom to spend itself into prosperity. It is foolish to say, "Let us create more spending power and trade will improve." That is nonsense.

Photo of Mr Patrick Gordon Walker Mr Patrick Gordon Walker , Smethwick

But that is what the Chancellor has said that he is doing.

Photo of Mr Cyril Osborne Mr Cyril Osborne , Louth Borough

I am saying what I believe to be true. If we stimulate home demand and do not increase our exports, nothing can prevent wild inflation.

Photo of Mr Patrick Gordon Walker Mr Patrick Gordon Walker , Smethwick

I agree. I was only commenting that the Chancellor told us that he was doing that very thing—increasing home demand in the hope that exports would follow. The hon. Member should address his remarks to the Chancellor.

Photo of Mr Cyril Osborne Mr Cyril Osborne , Louth Borough

If the right hon. Gentleman will listen to the end of my speech he will hear the other side of the story. I am saying that the Treasury and the country must be made to face the fact that the United Kingdom cannot spend itself into prosperity.

Photo of Mr Ellis Smith Mr Ellis Smith , Stoke-on-Trent South

We have faced it all our lives.

Photo of Mr Cyril Osborne Mr Cyril Osborne , Louth Borough

I am asking my Treasury friends whether they can bring greater pressure on British industry and businessmen to foresake what I call the soft, easy and more profitable home market and to go out and work in the more difficult, more tiresome, more vexatious and less profitable export market, because if they do not do so we are sunk, irrespective of which party is in power.

My right hon. Friend knows full well that 30 per cent. of all that we manufacture must be exported in order to pay for our imports of raw materials and foodstuffs. Since no Government of any colour in this country can compel the foreigner to buy British, because the foreigner will buy Japanese or German or Italian or American on price, quality and delivery our business men must seek exports. It is a mean and cruel fraud for hon. and right hon. Members opposite to say that they will guarantee full employment. How can they guarantee full employment to men employed in the manufacture of exports when other people cannot be compelled to buy what we produce? It is a terrible, cruel fraud, and I am surprised that such an honourable man as the Leader of the Opposition should indulge in it the other day, when he said in the country that he would guarantee to bring back jobs for all. He cannot do it. Nobody can do it.

This is what we must get over to our people. The 70 per cent. that we consume at home can only be maintained if we import the necessary raw materials and foodstuffs. If we do not sell our exports, not only those engaged in the export producing countries will suffer, but ultimately all those who are producing for the home market will suffer. We export or we die. The only way that we will increase our exports is by lower prices and higher quality. As I said once before in the House, we must produce Rolls Royce quality at Ford prices, and it will not be easy. It will not be possible until both sides of industry realise the size of the problem we face. I believe that it can be done, but it will not be done merely by trying to keep alive the older industries that normally would go out of existence.

The right hon. Member for Huyton (Mr. H. Wilson) keeps on saying that he would pay for the new Socialist programme by increased production. What on earth is the good of producing things we cannot sell? What is the good of increasing production from the coal mines when we cannot sell what they are already producing? To increase their production would be a loss to the nation. What is the good of asking Lancashire to produce more when its products cannot be sold? The time will come when we cannot buy the cotton with which to produce our yardage.

The danger of this year's Budget is that it may leave the country feeling that everything is all right now, all our troubles are over, we can sit back and take our ease and things will work well for us. In recent years, I have been to Russia. Czechoslovakia and Poland. The way that those people are working is terrifying. Of course, they must work - they have no option—but the price at which they are producing stuff and offering it in the international market against our stuff would not make anyone in this Committee feel that things were all right.

We face some terrific hurdles. Therefore, I hope that my right hon. Friend the Chancellor. having given out these reliefs, for which we are grateful, will now take upon himself the role, as I have asked previous Chancellors of the Exchequer to do, of going round the countryside and explaining in the simplest possible terms to everybody, to the employers as well as to the trade unions—because the restrictive practices are not all on one side—the problems that we face and the penalties we shall have to pay if we fail.

This Budget is either a gamble or an act of faith. I hope that it comes off. If it does not, and we have stimulated OUT home market and we do not sell extra goods abroad, our second state will be worse than our first. Hon. Members opposite have criticised my right hon. Friend the Chancellor many times and said that the terms of trade have been in his favour and he has been lucky. I would rather be governed by a lucky than by an unlucky man—the whole nation would be. All I hope is that he continues to be lucky and that the nation is lucky with him. Good luck to him. I am grateful to him for such a good Budget.

9.15 p.m.

Photo of Mr Donald Chapman Mr Donald Chapman , Birmingham, Northfield

The theme about the volume of our exports has been continuous throughout the debate. While hon. Members opposite have been congratulating their right hon. Friend the Chancellor on taking a gamble, they have kept saying that the one thing that frightens them in the coming 12 months is the prospect for our exports. Indeed, I think that the hon. Member for Louth (Mr. Osborne) has emphasised that point more than any hon. Member opposite. I make no apology for the fact that I want to take up that point in relation to motor cars in particular.

I know that the hon. Member will sympathise with me in this respect—we have exchanged remarks across the Floor of the Committee about this point before—because he knows the enormous importance of this industry to our present exporting position. Our motor car industry is now producing about £500 million worth of exports every year, which is about 15 per cent. of our total exports. The outlook for the British motor car industry, even though it is confident, enthusiastic and anxious to meet every possible challenge, is not as rosy as people seem to think, based on the present buoyancy. I am glad that the Paymaster-General is present, because it is the European position in particular about which I want to say a few words.

Perhaps I may preface what I want to say by briefly describing the present position in the industry as it is seen not so much by me as by the industry itself when it put its case to the Chancellor this year. We are now making one million cars annually. We are exporting half of them and consuming half of them at home. That is a very fine position, but the deterioration of our position in the last four years in relation to our main competitors has been quite striking and it is now giving the industry cause for considerable concern.

Four years ago, of our main competitors in world markets—who are, frankly, only France, Germany and now Italy—France and Germany were producing only about half or two-thirds of our motor car production. Italy was a negligible producer. What has happened in the last four years? We are now making one million cars, but so is France, practically. Germany is now producing as many as 1¼ million cars and, whereas formerly it produced half or two-thirds of our production, it is now way out ahead of us. Italy, which was a negligible competitor, is now a quite significant one in parts of the world where it tries to sell cars.

Let us consider the position in another way, not only from the point of view of the absolute figures which have been reversed and have given us such cause for alarm in the last four years, but percentage-wise. Over the last four years, while we have been raising home consumption of cars by about one-quarter or one-half of our 1954 figure, the home consumption of the three competitors which I have mentioned has gone up 65, 75 and 100 per cent. Their production is up 100 to 150 per cent., while our production has risen by one quarter to one half. Their exports are up 150, 200 or 250 per cent., while again ours have risen only by one quarter or one half of the 1954 figure. However we look at the matter, this is not a situation in which we can be complacent about the future of our exports of motor cars. The countries which I have mentioned are chasing us hard and are beating us in some parts of the world.

Why does the situation appear to be so good on the surface? The answer is that in the last four years we have made a sudden spurt in the American market which has covered up the fact that in our most vital market, Europe, we have been losing ground.

Let me now bring to the attention of the Paymaster-General—I am sure that he knows a lot about this matter and I hope he will forgive me if I try to put it succinctly—how the motor car industry has expressed its concern about the future. The industry says of our future in our main markets firstly that we sell one in five cars at the moment to the Commonwealth and our prospects in 1965 are only of holding our present absolute number of sales there. The prospects of increasing our sales are very slender and indeed practically non-existent, because Commonwealth countries are producing their own motor cars and the Germans are eating into our established position. Two out of five motor cars go to America and Canada where we are selling 200,000 cars, but the industry says that we can only hold that position in 1965, on the most optimistic assumptions, because the Americans are now likely to start producing their own small cars. That leaves us mainly with the European market as our potential market for expansion in the next five years.

The industry says, moreover, that Europe now is a market in which more people are lust on the threshold of owning a car than in almost any other part of the world. It says that somebody may sell there half a million more cars each year five years hence, and it says that we must get into that market somehow as the only real tangible hope of expanding our motor car exports. The other markets will not be easy to hold, never mind to expand.

As I said earlier, the greatest worry about this situation is that that is precisely the market in which we have been losing ground in the last four years. We are now selling 100,000 cars in it instead of the 125,000 that we were selling four years ago, and manufacturers say that they are already at the point where in Europe they are "cutting their prices to the bone " and making very little profit in order to hold the market. I know that the Paymaster-General is as worried about this as anybody else and I should like to say three things to him.

First, it is absolutely vital that if this industry, which is making such a valiant contribution to our export record, is to go further or even to hold its place, we must somehow find some way of getting further into the European market. Some relationship must be established with the Common Market nations. We must get into Europe as the one big hope for the motor car industry in the next five years.

Secondly, I know that some of my hon. Friends do not like the reduction in the Purchase Tax on motor cars. I am very glad that it has come. This is the one year in which we could have hoped for it. The Purchase Tax has been removed from commercial chassis, thank goodness, and the Chancellor has also made a start on reducing the Purchase Tax on passenger cars. I compliment him upon it, but it is not enough yet, because what the industry has gone on to say, beyond all that I have listed so far, is that we shall never be able to compete in Europe or anywhere else except on the basis of lower costs. The only way that manufacturers can reduce costs is by having a much bigger home market so as to spread over a great number of motor cars the fixed costs, which in a motor car amount to 40 per cent. of the total cost of production, and thereby reduce prices. The manufacturers say—and this is very significant—that if they could have a big reduction in Purchase Tax they might be able to sell another quarter of a million motor cars at home.

Then my third point: they add that if enormous strides were made in raising the standards of living, so that more people would buy cars and we got out of the doldrums of production of the last few years and there was an expanding motor ownership in a really prosperous economy, they might be able altogether to sell 400,000 or 500,000 more cars in the home market. They say that on the calculations they have made this will enable anything up to a 10 per cent. reduction in cost, and it will make all the difference to the motor car industry in the European market and also in other markets where they are hard-pressed.

So, in so far as I can pay any compliments to the Chancellor, I can congratulate him on making this reduction. I am glad that it has been made. I ask him to note the fact that our home consumption has been held down by the stagnation of the last few years, and that it must increase at the pace at which the home markets of our European competitors are increasing. Their home markets have been expanding much faster than ours have done within the last four years. Only this policy, carried further, will put the industry in a strongly competitive position, particularly in Europe.

In saying all this I have not tried to be pessimistic. I do not think the industry is pessimistic; indeed, it is buoyant and confident. But do not let us think that just because things look right on the surface at the moment, just because employment has been kept up in the Midlands mainly by motor car manufacture, this is destined to go on automatically. The situation is not as rosy, easy and confident as the surface appears to show. We have a long way to go to beat the frightening competition which has brought our European competitors from one half to two-thirds of our production, up to and way beyond ours in the case of Germany and, in the case of Italy, coming up from negligible competition to significant and even nuisance competition in some markets.

The situation is one in which we can do very well. Our models have improved. It was not a pleasant time in. I think, 1956, when we were all complaining volubly in the House of Commons—I think sincerely—about the poor servicing of motor cars abroad, about the lack of after-sales service and about poor salesmanship in foreign markets. It was not pleasant to be saying all that, and it is good to be able to say that those things have been met, that there is now a spirit of enterprise, of new design, of salesmanship and of after-sales service in world markets which has overcome the frightening situation of two or three years ago. Even so, with all that said, I am still not all that happy that we shall hold our position in face of all the existing competition.

It is not often that somebody on the Opposition side can give at least one word of congratulation to the Chancellor on such an issue, but we must face the fact that this reduction of Purchase Tax from 60 per cent. to 50 per cent. had to come. I hope it will be the forerunner of a reduction to the 25 per cent. bracket, because I believe that this is the only way to secure a firm home market on the basis of which our cost of production can be reduced.

In that respect, at least, I wish the Chancellor well. I will add only that if there is this trouble facing us, he must. himself accept some of the responsibility,. because the stagnation and the poor increase of home consumption over the last three or four years has to some extent made it difficult for the industry to bring down costs. So far as we are concerned, he can go ahead with further tax reductions but he should make sure that these are linked with firm steps to secure great strides in our standard of living at. home, and a firm policy, a placating policy if need be, to find some means of living with the European Common Market.

If he can do that, I believe that the industry will go on contributing, as it has been doing, 15 per cent. to our exports and being, what it presently is, one of our best hopes of survival in the exporting world.

9.31 p.m.

Photo of Mr Alan Green Mr Alan Green , Preston South

The hon. Member for Birmingham, Northfield (Mr. Chapman) has made a specialised and very good plea for the industry which is of particular interest to his own area, but he would, I am sure, agree that the motor-car industry is not the only one to which his remarks could be applied. There are plenty of other industries which are likely to require over the next several years at least as free access to the growing European market as he wishes for the motor-car industry.

Furthermore, the remarks which he made about the value of the reductions of the Purchase Tax and the cost to the home buyer of motor cars apply just as well to all those other industrial products requiring a high skill content in their production, whether they are classed as luxury articles or not. For example, the jewel trade. High-class British workmanship in jewellery and cutlery today carries Purchase Tax at a high level, and, as some of his hon. Friends say, ought to do so because they are luxuries, but they are in exactly the same position from the cost of production point of view, if there is not a decent home market, as are motor cars.

I hope that we can move away from this real confusion of a luxury article available to the consumers in this country with an undue luxury tax on it. I think -we should move away from that sort of confusion with social justice, because if these high quality articles that are called luxury articles cannot be made and sold in this country, highly skilled craftsmen will be out of work and their skill will be wasted. I am certain that we must get away from this confusion of tax and social justice which so often clouds our thoughts and judgment when we come to talk in party political terms of a national economic policy. I certainly hope that the confusion will not be worse confounded than it is at the moment.

My right hon. Friend, to do him justice, did state in the course of his Budget speech that unless we could maintain and indeed improve our exports in conditions of price stability while maintaining the value of the £, any efforts to increase the general standard of living in this country would go for nothing. Many hon. Members on both sides of the Committee have not, perhaps, gone back to that statement and given my right hon. Friend credit for making it. Does the Budget in fact help to secure that stated objective of my right hon. Friend? We all have our pet ideas about how tax relief should be given or public money spent. Perhaps hon. Members opposite prefer to think in terms of spending public money widely and, no doubt in their view, beneficently. We on this side of the Committee prefer to say that we should give tax relief when we can, because even after this Budget we are so highly taxed as a nation.

I was glad to find that the Income Tax remissions promised in the Budget have been welcomed generally on both sides of the Committee. I am sure that it is a wrong idea that individuals or corporations who have borne a staggering burden of direct taxation for nearly 20 years should not have some relief. Despite complaints of tax avoidance and tax evasion they have discharged their tax paying liabilities with remarkable fortitude and honesty, and it is high time that this load of direct taxation was lightened. I am delighted that it will be.

I join issue with the hon. Member for Sowerby (Mr. Houghton) about whether a remission of direct taxation is an incentive. I think it is. I do not say that it is the only incentive, and T do not seek to exaggerate the value of a reduction in taxation, but it would be hypocritical to maintain that people do not work for more money, because they do. Of course, they work for other things as well, but we should be hyprocrites if we said that they do not work for more money. Were that not the line of thought, no trade union would ever ask for higher wages and no one would ever want more money. Yet we all know that people do ask for more money. Were that not so, perhaps even the old-age pensioners, bless their hearts, would not ask for an increase in their pensions. I do not seek to exaggerate, but I say it is an incentive, and one which cannot, must not and should not be disregarded.

Photo of Mr Douglas Houghton Mr Douglas Houghton , Sowerby

It is one of those strange kinks in trade union thinking that they attach more importance to a wage increase from the employers than from the receipt of an increase in income in the form of a tax remission from the Chancellor of the Exchequer.

Photo of Mr Alan Green Mr Alan Green , Preston South

No doubt, but the thinking is the same. After all, 18s. 6d. in the £ as the top rate has been taken away by the Chancellor in the past, which is a lot to take away. No one can pretend that it will not give people a little more freedom and a feeling that the thing is more worthwhile if there is a reduction in the heavy load of direct taxation. Furthermore, the more we can relieve the incidence of direct taxation the less tax avoidance there will he. There will be less incentive to find some hole-and-corner way to avoid paying taxes. In circumstances where the weight of direct taxation is unduly high, I do not believe that any Chancellor, however ingenious, would be able to stop up all the ways of avoiding payment if the incentive is sufficient to make it worth while trying to avoid the payment of taxes. So, in the interests of public morality and private morality and in the interests of enterprise and the economy, I welcome the proposed reduction in Income Tax. I only wish it could have been a shilling reduction, like the right hon. Member for Bishop Auckland (Mr. Dalton), although, unlike him, I do not despise the 9d.

I want to say a word or two following the speech made by my hon. Friend the Member for Wolverhampton, South-West (Mr. Powell), who put his finger on the most anxious problem posed by the Budget, namely, the tremendous figure of below-the-line expenditure. Again, let us do credit to my right hon. Friend the Chancellor, who did not flinch from pointing out that this was an enormous figure.

Up till two years ago, not enough people in this country understood that if we tried to invest what we had not saved we were on the high road to inflation. It is equally true that if we fail to invest what we have managed to save we are on the high road to deflation. Both roads are equally bad. My right hon. Friend feels that he has at present a sufficient amount of savings to finance large below-the-line expenditure. I take it that that is his view, and if it is. my hon. Friend the Member for Wolverhampton, South-West was quite right; there is a danger of inflation in the months to come.

Perhaps that is a worth-while risk to take, if the Chancellor keeps his eye closely on matters as they proceed and is prepared, later in the year, to step in to stop inflation from going too far. That my right hon. Friend is taking a risk we all recognise. We hope that he will keep his eyes very wide open, measuring all the time the size of the risk and seeing that it does not get out of hand. If there is one thing which can kill our export chances it is the emergence of a real inflation. We would never get into the European market, on a long-term or short-term basis; we would never hold our own with America or be of assistance to the developing countries of the Commonwealth; we could never take advantage of openings for trade offorded to us in Russia or China, if inflation again crept into this country.

We have to be extremely careful that we do not, in particular sectors, stimulate activity for short-term reasons to the detriment of our long-term prospects. It is for that reason that I am sorry—I know that many of my friends in industry disagree with me about this—that we have reinstituted the investment allowance. I quite see its potential value as a short-term shot in the arm to take up the slack in certain industries. I have personal interest in the production and supply of capital equipment, and I ought to be welcoming the investment allowance in my own trade. If the shot in the arm works I quite see that machine-tool factories, all makers of capital equipment, will have a sudden, short-term rush of orders for the home market. Perhaps two or three or six months from now they may find difficulty in giving the quick, snappy delivery response to a foreign inquiry of the kind that must be given if the capital equipment industry of this country is to get export orders.

It is a prime factor for the gaining of export business in capital equipment that it be not priced out of the market. This industry is every bit as good in most of its lines as any similar industry among our foreign competitors, but it still has some difficulty in giving that sharp, clear, hard delivery date that is the first consideration today of a buyer who seeks to place a large order for capital equipment. If there is too much preoccupation with the filling of orders for the home market for capital equipment, we may lose export opportunities which we desperately need.

Yet, if the investment allowance does not work and does not result in the flood of orders we want, the shot in the arm for short-term purposes will not have been effective. I would much prefer to have seen an increase in the rate of write-up. I should like a 50 per cent. increase which might have cost £150 million a year, but the whole of that £150 million would, of course, be an industrial saving because it would be put back into investment. It would not be consumed nor frittered away in any stupid fashion but would be the kind of additional inflation of the money supply which can be best afforded. I should much have preferred to see that because the higher rate of depreciation would then be much more likely to stop with us. With that we could have looked forward many years with confidence.

I should like to have had that because the producers of capital equipment require to see for years ahead. What we need to do to get our export trade going is to increase the number of highly skilled men. There is an absolute shortage, not only in Britain, but throughout the world of first-class design engineers. It is important that companies which make capital equipment and employ that kind of person, good class draftsmen and high-class design engineers, should be able to carry such people while they are taught a highly specialised branch of their trade. It may be four or five years before such people are of full use to a particular firm and so they may be carried on the books of the company with the company having the knowledge that for many years ahead industrial capacity will be encouraged and not encouraged for just one or two years ahead.

I distrust the investment allowance because it can so quickly be taken off again. We should increase the rate at which capital equipment can be written off, and I should have considerable confidence that no one would take that off in the next year or three years. It would be an incentive to the producers of capital equipment to carry additional numbers of young engineers and draftsmen on their books in order to train them in specialised tasks over three, four or five years when they could go out into the world and sell with confidence in export markets designs at least as good as if not better than their foreign competitors. I should much prefer depreciation rates to be increased than investment allowance reinstated, recognising as I do that investment allowance can be and often is a shot in the arm and that a shot in the arm at the moment appeared to be necessary.

In conclusion, I congratulate my right hon. Friend on a bold Budget. I hope all his assumptions will come right. I know he is a cautious, wide awake man. I am sure he will keep his eye closely fixed on the level of savings and if they do not come up to expectations he will not hesitate to reduce the amount of public money he seeks to invest. Otherwise, I fear we would be running into trouble. I hope he will do that and not be afraid of going a little back rather than seeking to rush blindly forward. I congratulate him on reductions in direct taxation which were long overdue.

I am delighted that he has met the real moral commitments about post-war credits. I do not think any of us are any longer proud of the inception of post-war credits, which was not a very good idea. I was not in the House then, but we must accept the fact that it was done and it is a moral commitment now to do something about it. I am delighted that it is this Government that has taken the first step towards doing it, although I accept at the same time that the Opposition would have done the same in the same circumstances. I do not think that this is a terrific party point between us. It is a moral commitment that is being met, and the whole House can take pride in it.

My right hon. Friend perhaps may not be able to drop his investment allowances and go back to depreciation rates in this Budget. That would be an unrealistic suggestion. However, I hope that he will apply his mind to that thought. I have great confidence in him. I have great confidence in my own party. I am quite sure that this is not his last Budget. I hope that in his next Budget he will be able to think in longer terms than investment allowances, in the interests of the continuing welfare of the British export trade.

9.51 p.m.

Photo of Dr Horace King Dr Horace King , Southampton, Itchen

I have time to make only a few brief points. I welcome the Purchase Tax concessions as far as they go. They ought to have been larger. I wish that they had been distributed a little more equitably and that the Chancellor had taken more off goods bearing the smaller percentage Purchase Tax, because they are, in the nature of things, taxes on articles most used by the people, such as clothing and furniture. I hope that when the Finance Bill comes to Committee we shall be able to persuade the Chancellor to do some of the little things that he said yesterday he was tempted to do but chose rather to concentrate on one or two big things. I think that the Chancellor must have some money up his sleeve, and I urge him to remove the iniquitous Purchase Tax on stationery, which for years even Conservatives have said is inflationary, and particularly the tax on educational stationery.

I hope also that the Chancellor will respond to the pleas that have been made again and again from both sides of the House to end the shocking position that Britain is the only country in the world to tax music and musical instruments. I hope that before the Budget leaves the Committee in its Finance Bill stages we shall have removed all purchase taxes on education and culture and secure further concessions on household goods.

Cinemas are closing every day. I know that tax relief will not solve all their problems, but it will at any rate give some of the more efficient cinemas a sporting chance of survival and help to preserve the great art of British cinemas. Nobody will continue in business at a loss merely to act as a tax collector for the Chancellor of the Exchequer. I have been given the trading figures of a cinema group—the Palladium—in my own town. It paid £9,360 tax last year but lost on the year £2,600, as a result of which it has closed down one of its cinemas.

I have time tonight only to point out that the major defect of the Budget is that it does most for those who need help least and least for those who need help most. It does very little for the people whose income is too small to benefit from Income Tax or Surtax concessions. The Chancellor of the Exchequer is giving £229 million to those whose incomes are big enough to be taxed. The bigger the income the bigger the relief. This is a case of To him that hath shall be given ". The married man with one child who had a net income, even if he does not earn it, of £12,000 a year before the Budget will receive £15,500 as a result of the Budget, which is an extra £3,500.

I call the Chancellor's attention to one serious regressive anomaly in the Budget. The Income Tax concessions help the single man more than the married man. It ought to be the other way. We are moving today in many professions towards the time when we have achieved equal pay. I welcome equal pay. I have been a lifelong feminist. But equal pay as it comes into the professions of this country spotlights the economic difference between the married man—especially the married man with children—and the single man or woman earning the same salary.

I hope that we can improve these proposals so that the movement will not be opposite from the direction in which we should be moving—to give greater relief to the married man, and especially to the married man with children. The Chancellor will know that the National Union of Teachers, for instance, is asking that as the teaching profession moves towards equal pay there should be some financial provision that will equate the condition of the married man with a family with that of the single man or woman earning the same amount.

For a fraction of the £229 million in tax concessions, the Government could. in Committee a week or two ago, have helped the old-age pensioners by accepting the Opposition amendment to raise retirement pensions. I know that the British workman will like the 2d. off his pint of beer, but all the British workmen whom I have met since the Chancellor's statement have said they would have forgone that concession had the money involved been given to the old-age pensioners.

My hon. Friend the Member for Coat-bridge and Airdrie (Mrs. Mann) has already made an eloquent plea for widows. I have with me a petition from widows in the south-east section of England—because the widows' movement, the Ten Shilling a Week Pensioners' Guild, is growing—signed by some 1,872 people, asking the Government to give justice to the 10s. a week widow and to the no-shilling a week widow. The petition asks the House to recognise at long last that ever since we built up our National Insurance scheme we have been notoriously unfair to the widows. Tonight, I have not the time available to argue their case in detail, but I support the plea made, by my hon. Friend in her moving speech.

In common with other hon. Members, I have pressed for years the claims of the railway superannuitants—veteran railway servants whose pensions, meagre enough at their original value, have now shrunk to a derisory amount. A Motion on the Order Paper signed by quite a number of hon. Members calls attention to this. It reads:

That this House, being of opinion that exceptional hardship has resulted to British Railways superannuitants, many of whom are not in receipt of National Insurance benefits, in a period of declining money values, calls upon Her Majesty's Government to bring forward proposals for the alleviation of this hardship.

I have in my constituency quite a number of retired Post Office workers. Their average pension, awarded ten or fifteen years ago, seems to be about £2 a week, which was not bad in 1938. The last pensions increase Act gave such men an increase of only 4s. a week to meet the ever-increasing cost of living that has gone on since 1938. I am delighted by the Chancellor's reference yesterday to the prospects of a new pensions increase Bill. I think that the right hon. and learned Gentleman the Member for Chertsey (Sir L. Heald) may again have been doing some of the excellent back-room work that he did prior to the last Bill of that type.

I hope that we will move towards tackling the root of the injustice; that the veteran pensioner today finds his pension quite out of all relation to the equivalent pension earned by someone doing the same work but in more recent times. Pensions are based on salaries, and salaries, even apart from cost of living, have improved. The cost of living has whittled down the value of pension after pension of veteran pensioners in the police force, the Civil Service, the Post Office, local government and the teaching profession.

Some indication of the feeling of the teaching profession on this subject was shown at their conference at Douglas, when they gave No. 1 priority—over all their own salary claims—to urging the Government to do something for the veteran teachers. The National Association of Retired Police Officers is fighting exactly the same battle, and I hope that when the proposals mentioned by the Chancellor yesterday come before the House they will have the full support of all hon. Members.

I urge the Chancellor, when that Bill is put forward, to widen the net even further than the all-embracing net of the last pensions increase Bill, so as to include such groups as the railway super-annuitants, for whom, after all, we have some moral responsibility. Again I believe that £40 million given to veteran public service pensioners would have been a much better contribution even from the economic, apart from the moral, aspect, than using the money to make the concession on beer; but I urge him to do more than that, for a country which can afford to forgo nearly £400 million in taxation cannot afford, in human decency, to leave the old-age pensioners where they are.

It being Ten o'clock, The CHAIRMAN left the Chair to report Progress and ask leave to sit again.

Committee report Progress: to sit again Tomorrow.