HC Deb 25 May 1939 vol 347 cc2549-60

Order for Second Reading read.

Motion made, and Question proposed, "That the Bill be now read a Second time."ߞ[Sir J. Simon.]

4.15 p.m.

Mr. Pethick-Lawrence

I beg to move, to leave out from the word "That," to the end of the Question, and to add instead thereof: this House cannot assent to the Second Reading of a Bill which continues a series of unbalanced Budgets, shelves all the major financial problems, adds nearly four hundred million pounds to the national debt, fails to exact from wealth an adequate special contribution to meet the emergency, and, under the pretext of spreading the burden equally among all classes, imposes additional taxes, some of which will press severely on the very, poor. After the remarks that have just fallen from your lips, Mr. Speaker, I rise with something of the trepidation of a Member making his maiden speech in this House. I hope I shall not offend either you or the hon. Members who are listening to the Debate and hoping to take part in it themselves. It will be seen that our Amendment condemns the Bill both for its sins of omission and its sins of commission. I propose to start with a few words on the first subject. The grave emergency with which the country is faced to-day has its immediate and urgent financial repercussions. One that leaps to the eye is the increase of no less than £250,000,000 in the expenditure as compared with last year, bringing the total up to the unprecedented figure of £1,320,000,000; and since the Budget statement there have been further increases owing to conscription, with all its financial repercussions, and extensive new agricultural and shipping subsidies; and there is no reason to think that we have now anything like reached the end. Such allowance as the Chancellor made in his Budget Speech for supplementaries is likely to be considerably exceeded, and the £250,000,000 increase surpassed. I ask the Chancellor, what is his contribution to meet this increase? I find that his tax contribution is some £20,000,000. In view of the gravity of the situation, this surely is a pill to cure an earth- quake. The Chancellor proposes to borrow at least £380,000,000, and he will probably, in fact, overtop the £400,000,000 mark; but even that is not the worst. What is to happen next year and the year after—not on the terrible assumption of war, but on the favourable assumption that war is averted? Ask the Chancellor when is borrowing going to stop; he does not know. Ask him what is going to happen when it does stop; he has not the faintest idea. Ask him whether the Budget can ever again be balanced, and I will reply not in my own words but in the words of the Prime Minister on 21st February this year: One cannot help wondering whether the annual cost of maintenance of this increased armament, together with the cost of interest and sinking fund, may not be more than it is possible to extract from the taxpayers of this country out of current revenue. He was speaking, as I am, of several years ahead; and he goes on later to say: It would be criminal to allow the situation to go on developing as it has been developing without making some determined effort to put a stop to it."—[OFFICIAL REPORT, 21st February, 1939; col. 233, Vol. 344.] We say that this Finance Bill is shelving all these major financial issues, and I challenge any hon. Member in any part of the House to deny it. Hon. Members may say to me, "What would you do?" I gave the answer in a speech on the Budget Resolutions a month ago; and I propose later to-day to develop my suggestions further, and to answer some of the questions and criticisms that were made against them in various parts of the House.

But, before doing that, I want to deal with the second half of the Amendment, and its criticism of the sins of commission in the Bill. First there are the taxes on sugar and tobacco. To the majority of hon. Members opposite, these seem so small as not to be worth worrying about; and maybe that is true for the bulk of our population. But if you are an old age pensioner, on 10s. a week, you will bitterly resent this burden on your one solace in your dire poverty; or if you are a family on the means test having to account for every halfpenny, even the small increase in the price of sugar is grievous. The Chancellor of the Exchequer has no right in the name of equality of sacrifice, to harass this class of people, who are already living on the margin of starvation without giving them some compensating relief. He will hear more on this subject during the later stages of the Bill.

I turn now to the increased horse power tax. I say frankly that when I first heard this proposal, I thought it had some ulterior purpose, namely, the damping down of the motor car industry in order to free more skilled men for munition works. But the Chancellor and the Financial Secretary to the Treasury have made it clear that that was not the object, and they defended it on purely financial grounds. I shall, therefore, deal with only that aspect. I suggest that this tax offends against all the canons of taxation, because it will cost the citizen far more than it will bring to the Revenue. I very much doubt whether it will bring in extra Revenue at all, when all the repercussions are taken into account, resulting from people buying smaller cars, putting them by for part of the year, reducing the mileage and the amount of petrol used, and various other causes. But the Motor Agents Association assure me that, owing to the immediate drop in the value of used cars, their members alone have lost something like £3,000,000 already, and the individual owners of motor cars must have also lost in the aggregate an amount greatly in excess of that figure. Therefore, between those two classes of people, there has already been a loss to the community in excess of the £6,250,000 which the Chancellor hopes to get by this duty—and that before a single penny of the actual taxation has been paid. Further, I say that the tax is antisocial, because it will be a burden on the citizens by inducing them to change their habits without bringing in revenue to the State. Finally, it will be felt severely by small people and commercial travellers, who between them use cars of 10-horse power and under to the number of over 1,000,000. For all those reasons this taxation is to be condemned.

With regard to the Income Tax Clauses, I think I am speaking not merely for my party but for most Members of Parliament, if not all, when I say that all honest taxpayers want to see the evasion of proper liability checked. But it is not easy to tell, until we have had a meticulous discussion on the Clauses, how far this object is achieved. I am inclined to think that it is not achieved to any great extent. I cited a number of cases of avoidance in the earlier discussions on the Budget, and I am very doubtful whether any but a small proportion of those will be touched by the Bill. The House will await the explanation that the Chancellor has to give, and it will also await the explanation with regard to Clause 19, which deals with the expenses of employés and others. I confess that I am a little alarmed lest it produce more vexation than taxation, but I shall await what the Chancellor has to say with quite an open mind, because it is certainly my desire that all illegitimate evasion of this or any other kind shall be got rid of.

I now revert to what is, after all, in my opinion, the major issue on the Bill, namely, its failure to check the rapid growth of the National Debt. Something like £400,000,000 is being added this year. Who will lend this money? In ordinary times the power to save, and therefore to lend, is a function of the family cycle. The skilled manual workers are in a position to save in early manhood and again in later years, but not during the early youth of their children. The professional classes also can save after their children have been educated. The rich classes save mainly when the estate is in the hands of a minor, when the actual expenditure is generally comparatively small. In ordinary times the results of this saving go into industry and increase the annual output of the country, and it is out of that increased annual output that the interest on such debt is paid. But in times of emergency the money arises either by the curtailment of industrial capital, or by the curtailment of expenditure, voluntary or compulsory, which the conditions may make desirable, and the money which is paid goes, not to increase production, but into the dead hole of armament expenditure, and interest which may subsequently be charged on it is, therefore, taken away from the natural income of the people of the country, and that is a very grave position. It is to meet this situation and to prevent, or at least to check, the indefinite expansion of the National Debt that I made the specific proposal a little while back to which I will now revert.

The proposal that I made was for an emergency tax on wealth, and I pointed out that administratively it would be best to confine it to large fortunes. I estimated that a graduated tax at an average of 1 per cent. on fortunes of over £50,000 each might be expected to bring in about £80,000,000 and that if it was extended to fortunes of over £20,000 each, it might bring in about £100,000,000. Those were conservative estimates, and they have not been challenged, so far at any rate. The proposal that I made was for an anuual tax for the duration of the emergency, and I deliberately did not call it a levy, because a levy suggests a single operation. Also I used the word "wealth" instead of the word "capital," because in a similar proposal some few years back I found that the word "capital" was misunderstood by a body of public opinion throughout the country. In the course of the discussion which followed, several hon. Members criticised my proposal, and I will endeavour as far possible to give them an answer to-day.

Mr. Mabane

Will the right hon. Gentleman say whether he wishes us to consider his proposal on the basis of a 1 per cent. or a 3 per cent. tax?

Mr. Pethick-Lawrence

Perhaps the hon. Member had better listen to what I have to say. I want first to answer a specific question which the Chancellor of the Exchequer put to me, when he said, "Is this tax to be an addition to or in substitution of the Death Duties?" I have long thought—and I think the opinion will be shared by hon. Members on both sides of the House—that the Death Duties are not a wholly equitable form of taxation. They have certain objections, the most important being that they fall unequally. One estate may change hands, owing to death, four or five times, and pay tax every time, while another may change hands only once and pay only one tax. I have come to the conclusion that a permanent annual tax on capital of so much per mille might, therefore, work out more equitably and more smoothly in substitution of the higher ranges of the Death Duties; and somewhat the same remarks apply to a less extent to Surtax. That is a matter which may be considered by the Chancellor of the Exchequer at some future time. But it is quite a different thing from the proposal that I am making to-day, which is, by an annual tax, to raise a substantial additional amount for the duration of the emergency. Therefore, for this emergency period it would be an addition to and not a substitution for the Surtax and the Death Duties. If the Chancellor seriously proposed to adopt this proposal and in so doing proposed to relieve the Estate Duty payer and the Surtax payer of the increases which he is imposing this year—which are quite negligible in their aggregate amount and which must of necessity be negligible to deal with the emergency position—I, personally, would not be disposed to object.

Now let me come to the major criticisms. In the first place, it is said generally that the scheme is unworkable. I would remind hon. Members that precisely the same thing was said by the forerunners of hon. and right hon. Members opposite when the Supertax was proposed and when the Death Duties were put up, and even, if you go further back, when the Income Tax proposal itself was commenced. Yet these impositions are the sheet anchor to-day upon which Governments of all parties rely to give them the sinews of national finance. Of course, the same criticism was made with regard to the proposal of the capital levy, which was put forward almost simultaneously by me in a book and by the man who is now the Noble Lord, Lord Arnold, in a speech in this House. That criticism, that it was unworkable, was refuted by the present Lord Privy Seal, who at the time was the Chairman of the Board of Inland Revenue. He showed that not merely our proposal but a far more complicated proposal, involving two valuations, both in past time, were quite practicable of solution. Hon. Members called the capital levy at that time a new method of "soaking the rich," and I have no doubt that they look upon my proposal in the same light. It was very much to their surprise that they discovered that no worse Conservative than Mr. Bonar Law himself was in favour of it, and I am not sure that either now or a little later they will not discover a similar support for my scheme.

It has been said that the valuation would be impracticable. I think that was put forward by the hon. Member for Hastings (Mr. Hely-Hutchinson), and the Chancellor of the Exchequer said that it might easily take a year or more. I have myself been an executor for a considerable number of estates, and I believe this view to be quite unfounded. I would remind the House that the number of fortunes to be brought under review on the higher basis is comparatively small, some 50,000 in all, and I would remind them, further, that whereas in the case of Death Duties, the original owner is dead, in the present case there will be the very considerable advantage of forming the valuation with the possessor of the fortune alive. Further, he would generally be a Surtax payer. Quite clearly in the matter of stocks and shares, which form an exceedingly large part of the kind of estates of persons I am thinking of—I believe it is more than 50 per cent.; I have even seen the figure, for which I will not vouch, of over 75 per cent. quoted—no difficulty will arise. So far as any difficulty does arise in the matter of house property or land, there is always Schedule A in the background if a more suitable form of valuation is not available. A small difficulty may be experienced in the matter of the valuation of private businesses and firms, but I do not think that that in any way would be insuperable. A number of other things may occur to other hon. Members, but I believe that they can be met, and if there was any delay in valuing, some conventional method of valuation might be adopted, and we should not get so very far astray, because this would only form a very small part of the total wealth that we are considering.

It has been said that the matter of paying the tax will provide great difficulties. The hon. Member for Hastings, I think, said, or his argument practically amounted to this, that there would be sellers of securities and no buyers. He surely forgets that this proposal comes at a time when the Chancellor is intending to increase borrowing by £400,000,000, and whatever scheme be adopted, there will have to be lenders, who will have to find the new money. It may not be the whole £400,000,000, because some of it may be met by financial means, but a large part will have to be new money, and those who provide it will be the buyers to come in in the case with which I am dealing. I am satisfied that this matter of payment can be easily met, first of all, because it will fall only on a few people with substantial fortunes, and the tax can be paid in title deeds or in money. I think generally they would prefer money, for the reason that they have in nearly all cases a very large amount of stocks and shares and marketable securities, which they can realise. If there be a few exceptions, I do not believe they will present any insuperable difficulty.

Now I come to the effect on future revenue. The Chancellor painted a gloomy picture on the lines of killing the goose that lays the golden egg. He suggested that private wealth would be reduced and that private incomes would be falling year by year, and therefore the yield on all taxes would steadily decline. But the right hon. Gentleman forgot two salient and essential facts. The smaller one, which will at once occur to anybody who thinks about it, is that at the same time enormous profits are being made through armament manufacture and other things; but the much larger reason is that the Chancellor himself proposes to create £400,000,000 of new debt, and though no doubt it will be an obligation on the Exchequer, it will, of course, be an asset in the hands of the people who own the debt. The emergency tax is at best a partial set-off against this vast new debt.

I come to the gravamen of the criticism, which is, that it imposes an unfair hardship on the class assessed. Let us see how it works out. Take a fortune of £100,000, a sort of middle figure in the kind of amounts that we are considering, on which it is fair to assume that the average would probably be the actual tax imposed. The hon. Member for Huddersfield (Mr. Mabane) asked me to state precisely how much the tax would stand at, and, of course, I cannot answer that question. It will be for the Chancellor of the Exchequer to decide the precise rate he imposes, but I suggest 1 per cent. or 2 per cent., 1 per cent. bringing in £80,000,000 to £100,000,000 and 2 per cent. bring in double that amount.

The Chancellor of the Exchequer (Sir John Simon)

The right hon. Gentleman has suggested 1 per cent., but owing to the fact that there have been proposals for military service, he said that he would propose to double or treble that. I understand him now to suggest 1 per cent.

Mr. Pethick-Lawrence

I do not think that the Chancellor of the Exchequer has anything of which to complain in what I am saying. I am saying that if the Chancellor of the Exchequer has to impose the tax, it will be for him to decide what it is to be. I frankly state that, if we are to have the conscription of life, 1 per cent. is a small amount, and I am prepared to stand by 2 per cent.

Mr. Mabane

You said three.

Mr. Pethick-Lawrence

I said that it should not be out of proportion to the conscription of life. I am going to take the average figure of 2 per cent. which is quite a reasonable amount. Take the man with £100,000, and supposing there is a 2 per cent. tax, it will mean that he will have to hand over to the State in that particular year part of his wealth to the amount of £2,000. The Chancellor of the Exchequer says "This is equivalent to some 10s. in the £ Income Tax, and if you add that to his other liabilities he really will not be getting any income or very little income at all." But that really is an attempt to criticise the tax by misrepresenting its purpose. This does not pretend to be, and is not, an income tax. It is something quite different. Let me illustrate my point in one or two ways. When an estate passes from father to son, and there is, say, a tax of 20 per cent. Estate Duty paid on it, the amount is equivalent to something like five years' income. But you do not say that the son has no income for five years. You say he has had to sell out part of his capital and thereby reduce the corpus of his estate. Take another illustration of what has actually been happening during the last two years and a half. If hon. Members look at the figures, they will find that since October, 1936, gilt-edge stocks have depreciated by something like 15 per cent. in market value during the period. The holders of these stocks would be very surprised if you told them that they had had no income in these years during this depreciation. What they have really had is a hidden capital levy not of 1 per cent. or 2 per cent. but of no less than 15 per cent. during that period. If the policy of unbalanced budgets and rapidly increasing debt continues, this process will continue, as it did during the War, when capital values fell 30 per cent., 40 per cent. and in some cases nearly 50 per cent. Personally, with a fortune of £100,000, I would far rather hand over £1,000 or £2,000 of that for several years during the emergency than I would suffer that enormous depreciation in capital value.

Finally, as to injustice. There are two things for which this country may be called upon to fight—liberty and wealth. Two things are necessary to win this fight—men and money. When I say "to win the fight," I mean also the preparation to win the fight. Men are being conscripted to-day not merely for six months' military training in peace time, but to be ready to give their lives, if necessary, in war. Is money not only not to be conscripted but not to make a fractional special contribution annually during the emergency? Am I to be told that my proposal is unfair and unjust? What, then, about the pride of patriotic sacrifice? Is the old age pensioner to glow with pride when he surrenders his one solace, or the child of the unemployed man when he tightens his belt? Is the young stripling on the threshold of manhood to offer his life willingly for his country? And is the owner of wealth alone to remain unmoved, cold and unaffected? Truly, how hard is it for the rich man to enter into the Kingdom of Heaven.

4.52 p.m.

Mr. Clement Davies

The answer to the question put by the right hon. Gentleman the Member for East Edinburgh (Mr. Pethick-Lawrence) at the end of his speech, surely, is in the affirmative. Wealth has been conscripted, and will be conscripted. There is one part of that speech with which I am in entire agreement, and that is the expression of doubt on his part as to the equity of the Death Duties which are at present levied. I am glad to know that he and I, in expressing doubt as to the equity of that, are in the very good company of the former Liberal Chancellor of the Exchequer, Mr. Gladstone. This tax was certainly introduced by a Chancellor of the Exchequer of the Liberal party, but it was after the retirement of Mr. Gladstone. One has felt all along that, though it has led to the distribution of wealth and the prevention of the accumulation of wealth in great quantities in the hands of the individual, nevertheless, it is in essence an inequitable tax, following as the right hon. Gentleman himself has pointed out, by accident perhaps, only occasionally in certain instances, and then in quick succession in other instances.

The time has come for a review of the whole situation created by that tax which has been in force since 1894. A long time has elapsed, and we have had the experience of its working. It has undoubtedly put a heavy burden upon agriculture and upon agricultural estates. They have suffered much more than any other form of property. I have had occasion before in this House to point out that if a man is the holder of shares in a company, and when he dies, the estate has to find money to meet the Estate Duty, those shares can be sold. What really happens is that they are distributed among a great number of people. It does not necessarily follow that any man is put out of work or that it has any effect whatever upon the business or the factory. But when a landowner dies and money has to be found to meet the Estate Duty, only too often it means the cutting down of immediate expenditure on that estate. It leads to the discharge of a great number of people and to poorer farming and a falling off in the improvements that otherwise would have been made upon the land.

Mr. Tinker

Can the hon. and learned Member cite any case?

Mr. Davies

Certainly. I well remember the estate of the landlord of the farm on which I was brought up, my father being the tenant. The owner had died in 1897. At that time there were about 25 people employed upon that not very large farm. There were carpenters, bricklayers, hedgers, ditchers, and people who assisted the tenant farmer in drainage work. Money had to be found to meet the Estate Duty. Unfortunately, the whole of the money was sunk in the estate, and one of the first things that had to be done was to cut down expenditure on the estate. I shall never forget that black Friday, young as I was, when 22 out of the 25 people received notice. It was a real black Friday in my little village. It has never been forgotten. As a result, unfortunately, the condition of the farms on that estate has gone back steadily since that time. There have not been the repairs of the kind hitherto carried out, and the buildings and houses are not in as good a condition as they were at that time. The field drains have become blocked up. That is one of the effects which I myself have witnessed.

I am not going to follow the right hon. Gentleman the Member for East Edinburgh with regard to his most interesting suggestion as to a further form of taxation. I would have expected him as a purist not to be in favour of increasing the methods of raising money, but rather decreasing them. As I understand his suggestion, he will be selecting a certain class of people who will be subjected to indirect taxation of all kinds, who will have to pay Income Tax (Schedule A), Super-tax, and be liable also for Estate Duty, and at the same time be called upon to meet this extra expenditure. Apart from all else, I think that his argument was weakest when he came to deal with how he was going to make and to assess the valuation. I am bound to point out to him the tremendously long time that was taken in valuing estates after the famous Budget of 1909–10; the work had not really been completed by 1914. That was one of the reasons why some of those taxes which I wished to be kept on had to be done away with, because even up to 1920–21 they were producing very little. I hope, and everybody will hope, that the emergency and crisis will have passed away long before such a long period has elapsed as was the case when they were trying to assess the true valuation—

Forward to