FINANCE (No. 2) BILL.

HC Deb 06 August 1940 vol 364 cc38-176

Order for Second Reading read.

3.50 p.m.

Mr. Stokes (Ipswich)

On a point of Order. Before the Debate starts I should like to ask for your guidance, Mr. Speaker. I should like to know whether, in view of the fact that the Debate on the Budget Resolutions was so much restricted, a rather wider discussion will be allowed to-day than is normally allowed, so as to give those of us who had no opportunity of speaking on or criticising the Budget an opportunity to speak, provided, of course, that the speeches are kept within reasonable limits of time?

Mr. Speaker

On the Second Reading of the Finance Bill the scope of the debate is always very wide.

3.51 p.m.

The Chancellor of the Exchequer (Sir Kingsley Wood)

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

This Bill, when the necessary Parliamentary approval has been given to it, will confirm the proposals for new taxation which I recently made in my Budget speech. Such additional taxation, willingly as I know it will be borne, means a still further appreciable increase in the burdens on all sections of the community, both through direct and indirect taxation. There are, no doubt, differing opinions as to whether one class or another of the community is to-day bearing too much or too little, and whether or not still heavier impositions should be immediately made beyond those now proposed, but there is, I would suggest, no doubt that a real and remarkable contribution by way of taxation has been and is being made in an unprecedentedly short period towards oar war effort. When I say that, I do not minimise for a moment the grave problems that confront us, of which I have already spoken when opening the Budget.

We sometimes forget, I think, in endeavouring to appreciate the questions which arise and the course that we should immediately take by way of fresh taxation, the very substantial burdens that have been imposed in the last 10 months. In September, when the first war Budget was presented, the total revenue from taxes and other sources was estimated to be £888,000,000. As a result of the September and April Budgets and the Budget which I opened a fortnight ago, the estimated total revenue has risen to £1,360,000,000 for the current year, an increase of no less than £472,000,000. But in assessing the real effect of these measures it is necessary to look not so much at the produce of increased charges in the first year as at the produce of a full year, and on that basis the increase in the total revenue over the estimated £888,000,000 for 1939–40 may be put at £650,000,000. That is to say, the total revenue of £888,000,000 will have been raised by nearly three-quarters, or to a figure of the order of £1,500,000,000. As we have seen from the comments made in various countries, this has been rightly regarded not only as a high example of heavy burdens willingly borne but as real and tangible evidence of this country's determination to continue in this struggle until victory has been achieved.

As I have previously pointed out, all this increase of taxation in so short a time has not been effected without hardship and dislocation, which the further increases that are now being made must, of course, in many cases intensify. My right hon. and gallant Friend the Financial Secretary to the Treasury the other day gave examples of the changes in the stages at which the Exchequer takes by Income Tax and Surtax more than half of a person's total income. In the case of married couples with two children, and with earned income, this stage was reached a year ago when the total income was of the order of £17,200. Under the April Budget this year half the total was taken at £8,770, and under my recent proposals the Exchequer takes half when the income is £5,820.

There is another part of the Income Tax scale covering those with incomes between £400 and £800 a year to which I should like to refer. In the case of those incomes, as with others, no doubt further contributions will be necessary, but we should observe what is now being effected under the present Budget proposals. Last year a married man with two children and earned income of £400 a year paid in Income Tax £1 13s. 4d. This year he will pay £15 16s. 8d.

Mr. Benson (Chesterfield)

What did ht. pay in 1916?

Sir K. Wood

I will look it up. In the case of an income of £500 the tax liability has increased from £8 6s. 8d. to £36 13s. 4d.—four times as much as it was a year ago. On £700 the charge has increased from £45 12s. 6d. to £104 5s. 10d.—nearly 2½ times as much; and on £800 the tax is now £139 14s. 2d., instead of £67 12s. 6d., That is, more than double. I say again to the House that the impact of such increases upon people with standing commitments which cannot be easily avoided or even cut down is considerable, and before further taxation is imposed, as some now advocate, I suggest that it is right and just that adequate time should be given.

None the less, I think I can fairly claim that at no time have I disguised the magnitude of the problem that confronts us and the large gap that has to be filled by taxation and savings. We should, however, remember that the Budget deficit, the excess of expenditure over revenue, which is in the region of £2,200,000,000 is fortunately not the measure of what I may call the potentially inflationary gap, that is to say, the gap that must be bridged by taxation or new savings, if demand is not to outstrip production. The House will doubtless remember that this gap, as distinct from the Budget deficit, is reduced by a number of different factors which I enumerated in some detail in my Budget speech. It is, of course, difficult to estimate the quantitative importance of these factors, as ways of relieving our immediate financial situation, but each of them is important and when allowance is made for their aggregate effect, the gap that still remains, and which it is important to cover by taxation and new savings, has been materially reduced.

I would call the attention of the House to another important matter of a different character. It is, as my right hon. Friend the Member for East Edinburgh (Mr. Pethick-Lawrence) knows, a time-honoured practice, from which Chancellors of the Exchequer do not depart, to budget for the revenue and expenditure of a year which ends on 31st March. It is the case also that new taxes do not produce the full year's yield, within the limits of the year so ended, and in particular the Income Tax assessment lags practically a year beind the income which is assessed. Therefore, the full effect of the growth of income, taking place this year, particularly in the field of wages and salaries, will not show itself in Income Tax until next year. Though I have had to set my figures in the framework of a year ending on 31st March next, another view can be obtained by looking at the produce of taxation over the 12 months from now. It is true that I may have to count on a much higher rate of expenditure, but I can count on a much higher rate of revenue. In such a period the new taxes that I have proposed, and also the new taxes of the April Budget will produce something in the region of £400,000,000. Having said that, I wish to repeat—and I do not wish to suggest anything else—that it remains imperative on us to continue to make great efforts in the way of bearing new burdens, in making genuine savings, and in strict curtailment of all avoidable expenditure.

Having spoken of taxation, I would emphasise again the vital importance of all sections of the community saving to the utmost and devoting those savings to the State. I think I can say this afternoon that the campaign for savings, generally, is going well, though of course we must always do better. In the first 36 weeks over £313,000,000 has gone into Certificates, Defence Bonds and increased Savings Banks deposits. Adding, in that period, £300,000,000 of War Loan, £132,000,000 of National War Bonds and £13,000,000 of loans free of interest, we have reached a total of £758,000,000 or £21,000,000 a week since the opening of the campaign in November last.

I would like to say a word in particular about the National War Bonds. Subscription for these bonds opened on 25th June, and up to 30th July, as I have said, £132,000,000 has been subscribed. While these figures are much better than the figures for the early months of a similar campaign in 1917, when taxation was much lower than it is to-day and when a much bigger yield was given, it is clear that we must, as we are doing, intensify our efforts. Sir Robert Kindersley, who has done so much in connection with our Savings effort, is specially devoting himself and his organisation to this object.

I have dealt with the salient features in the financial picture and particularly with the contributions to be made from taxation and from savings, but there is, I agree, a wider aspect of the problem before us, upon which I should like to say something. In the useful discussions which have recently taken place in Parliament and the Press it has been emphasised, I think rightly, that any financial measure which we may take to deal with our problems can by no means be sufficient in themselves, but must be augmented by other means and particularly by the planned reorganisation of our productive resources. In other words, our war-time economic problems and particularly the mobilisation of industry for the war effort, cannot be solved by purely financial means. The organisation of industry for war purposes is obviously a substantial and a complex task. A large number of Departments are actively engaged in it and there has been as we all know a marked speeding-up of production. Criticism has been made on the ground that this has been accomplished, to a large extent, by the wasteful method of working very long hours rather than by drawing additional labour into the war industries. It is true that in the critical situation which arose after the collapse of France, the policy of working very long hours was deliberately adopted as the most effective, and indeed the only practical means of securing that immediate speeding-up of production which was so essential. But it was only a temporary makeshift, which cannot be perpetuated if we wish, as we do, to maintain production at a high level.

Mr. Gordon Macdonald (Ince)

It is still going on.

Sir K. Wood

For example, the hours in building are not in future, save in very exceptional cases, to exceed 60 per week. The hours of women and children in future are, unless special permission is obtained, to be confined within the limits of the Factories Acts. For munition workers generally there are to be, as far as practicable, periods of reasonable rest. This will not only relieve the strain falling on those who are engaged in war work, but will go hand-in-hand with the absorption of additional numbers of work-people into armament production. By this means also, both the toil and the rewards will be more widely and equitably shared.

There is another branch of policy to which I would refer. A great deal has already been done by the Board of Trade to restrict unnecessary production for the home civilian market. Many Orders have been made limiting the amount of goods—covering already a wide range—that can be supplied to retailers by manufacturers and wholesalers. The object of these restrictions is twofold—first, to help the diversion of our productive resources to war purposes, and second, to maintain, as far as possible, our production for export. Controlled goods, other than textiles, are already restricted to two-thirds, calculated by value, of the normal supplies, and as regards textiles too, there are severe restrictions. Another restriction prompted by the same consideration is that which prohibits, except under licence, the supply of certain machinery for the home market.

At the same time let us not forget that we are doing a great deal to prevent the prices of essential food-stuffs from rising, with the object of keeping down the cost of the minimum needs of life. Indeed, a far from negligible item in the expenditure which has to be defrayed is the cost of subsidising certain important articles of food—bread and flour, home-produced meat, bacon and the scheme for supplying cheap or free milk to nursing and expectant mothers and to school-children. These subsidies cost about £60,000,000 per annum.

Thus it can rightly be claimed that we have here an economic policy which will continue to be evolved and extended to meet changing circumstances and changing needs. To sum it up, it discourages forms of expenditure which though they be far from luxury expenditure, lend themselves to retrenchment without undue hardship, and, at the same time, it prevents the prices of essential food-stuffs from rising, with the object of keeping down the cost of the minimum needs of life. It is, I suggest, along those lines, in addition to taxation and saving, that we can best succeed in averting the danger which it is essential to avert, of an inflationary rise of wages and prices. In concluding my observations in this connection, I would say that, of course, by none of these means can finality be reached in time of war. But the action which we are taking, and shall continue to take, should do much to meet those who rightly say that our war-time problems cannot be solved by purely financial means At this stage, it is only necessary for me to refer to two or three provisions in the Finance Bill itself. The proposal for deducting tax from salaries and wages has been generally welcomed, not only as an Income Tax reform, but by those who speak on behalf of the employés, as a real easement in the payment of the taxation now imposed. I have to thank my hon. Friends in all parts of the House for the suggestions which they have made in relation to this matter. To these, I need hardly say, we shall give careful consideration. With the co-operation of employers and employés, which I have no doubt will be given, I am confident that this new scheme will work successfully and to the advantage of both the taxpayer and the tax-gatherer.

I would just say a few words about the Purchase Tax. The House will find in the terms of the Bill the substantial changes that I undertook to make in the original proposals. In place of the flat rate of tax originally contemplated there are two rates of tax, sharply differentiated. Another important alteration is that those two rates can no longer be changed by Treasury Order followed by confirmation of this House, but alteration must be made by substantive legislation. Again, the original Purchase Tax Bill proceeded on the principle of exempting certain goods and making all other goods taxable, except when they were bought by a registered manufacturer or registered wholesale merchant for the purpose of his business. Under this Bill, we have placed in the Seventh Schedule the list of taxable goods and those goods only are taxable. What is not shown in the Schedule is not taxable in any circumstances. We have also made considerable simplification in the machinery. Under the original Bill, all goods except those exempt in the Fourth Schedule would have been subject to tax and it would have been necessary to register all manufacturers and wholesale traders, whether they dealt in taxable goods or not. Under the present proposals, registration is confined to manufacturers and wholesalers who manufacture or trade in taxable goods.

Mr. Riley (Dewsbury)

Are we to understand that goods in the taxable column of the Schedule will be taxable if purchased by a manufacturer for the purpose of his business?

Sir K. Wood

I do not think that the matter can be stated as simply as that. I will give the hon. Member a reply later in our proceedings. In the Seventh Schedule will be found a statement of the goods which are taxable. The detailed proposals contained in the Schedule conform to the description which I gave in my Budget speech. Goods subject to charge at the full rate are either luxury goods or those which, in the hard circumstances of the war, we can do without or of which we can postpone the replacement. No tax confined to pure luxury goods could possibly produce the amount of revenue required, or could reduce civil consumption to the extent required. The Schedule of goods at the much lower rate of duty was described fully in my Budget speech, and relates to goods the replacement of which cannot be so readily postponed.

I realise that this is not a time when the House would desire me to examine the Schedule in detail, but there is one thing I would say. I have already made a substantial sacrifice of revenue, as compared with the original Bill, in applying the reduced rate to the big block of civilian expenditure represented by clothing and certain classes of household expenditure. I have no doubt that arguments can be and will be produced in favour of special treatment of other items in the Schedule, but I must remind the House that I am attempting, in this part of my financial proposals, to collect a substantial revenue and to contract civilian expenditure over a wide field. The Schedule will fail in these purposes if it becomes a honeycomb of exemptions. It must be considered as a whole, and as a balance between the needs of the financial policy I have mentioned and the desire not to make the tax press unduly upon households with limited resources?

Under Clause 19 (2) lists will be issued defining more precisely goods coming within the general classes in the Schedule, and the lists will be laid before Parliament, as is provided in that Clause. The tax will be chargeable on the wholesale value of goods, being the price at which the goods can be purchased in the open market from the registered seller. The registered seller will have to show the amount of the tax separately on the invoice. The tax will be applied to all deliveries of taxable goods made by a registered seller to an unregistered buyer after the date when the tax comes into operation, whether the contract was made before that date or not, and I expect to bring the tax into operation in some two months time. I would particularly mention one case, because I have been asked to do so. Where manufacturers sell direct to retail customers, without going through the usual channel of wholesaler and retailer, tax will be chargeable on the notional wholesale value which will be determined by reference to the prices of similar goods which are sold through wholesalers to retailers.

I would finally call attention again, because it is important that I should do so, to Clause 37 which is designed to prevent gross forestalling. If the Commissioners are satisfied that a registered seller has sold to an unregistered buyer or transferred to the unregistered retail side of his business, after 2nd July, goods out of all proportion to the amount that the normal trade relationships would have justified for that period, they can declare such part of the sale or transfer, made before the coming into operation of the tax, as they think proper, to have been made after the tax comes into operation. This power will not be used where there is a legitimate expansion of business, for instance, in a munitions area now busily engaged in munitions, but the power will be fully used where there is real evidence that opportunity has been taken of the interval before the tax has been brought into operation to move goods in large quantities in order to avoid the tax.

I have described the more important of the Clauses in Part V of the Finance Bill, which deals with the Purchase Tax. Any explanation which may he required of the remaining Clauses can, no doubt, with the permission of the House, be postponed till the Committee stage of the Bill is reached. Nor would I, at this stage, propose to say more about the other Clauses of the Bill which, on this occasion, contains no general provision for the Amendment of Law, but is confined to matters arising out of the specific Budget Resolutions. I have deliberately devoted my remarks almost entirely to matters of general interest, partly because that is customary on the occasion of the Second Reading of the Finance Bill, and partly because I felt that it would be particularly the wish of the House at this time when the impact of the war upon the financial and economic situation is of vital importance and concern to each one of us. I have endeavoured to show that the problem before us extends far beyond the realm of finance, in its narrow and technical sense, and that the policy of the Government for dealing with the situation must be regarded as a whole. The financial aspect represents only one side of the many-sided action which is being taken.

I have also tried to show that the financial weapon is playing its part and that, within the sphere of taxation and of savings, we have achieved much that is creditable in the period of less than a year which has elapsed since the beginning of the war. At the same time, I have not disguised my view that more will be required if our financial strength and resources are to be deployed to the maximum advantage. That strength and those resources must be used to the utmost and it is the aim and intention of the Government to see that that is done in the way which is wisest and most in accord with the national interest. I have no shadow of doubt that our financial and economic problems, however great they may be, can be surmounted and that, however heavy may be the burdens that are being and will have to be shouldered, they will be borne because they are essential contributions to the victory which we are determined to attain.

4.28 p.m.

Mr. Pethick-Lawrence (Edinburgh, East)

I am glad that the Chancellor of the Exchequer allowed himself a fairly wide latitude in the informative and interesting speech to which we have just listened. We have already had opportunities of considering the Budget in detail, and before the Finance Bill leaves us to go to another place we shall have several further opportunities of considering it. I propose to follow the example of the right hon. Gentleman, and to address my remarks to the Budget, in its setting in war finance as a whole. I can afford, not being in an official position, to allow my imagination a little wider play than was possible to a Chancellor of the Exchequer, speaking ex cathedra from that Box to-day.

I am aware that the primary interest and concern of the country are the prosecution of the war. That matter must occupy their minds and almost their exclusive attention. I am aware also that it is the economic rather than the financial aspect which is of supreme importance. If the economics of the war can be adjusted to the transition from peace to war, it ought not to be difficult, and certainly not impossible, to make the financial consideration fit in with the economic facts. Therefore, we shall look forward with even greater interest to the Debate which is to take place to-morrow on the Motion of the Minister Without Portfolio, who will unfold to us the economic plans of the Government with regard to the prosecution of the war. Nevertheless, however that may be, no one could possibly say that the finance of the country in war-time is not of supreme importance. It may be true that a country whose finance is conducted with reasonable efficiency will get through the war somehow, but it will get through the war very much better if its finance is conducted on the best lines; and still more when the war is over the problem that will be left to posterity will be far easier of solution if right finance is adopted than if we muddle through the finance as we are inclined to muddle through in so many other aspects of life.

In the last war we made nearly every conceivable mistake that it was possible to make except to have so bad a finance that it actually lost the war. The war was conducted with gross extravagance. During the latter part of the war and certainly after the war was over, we allowed the rate of interest on borrowed money to go up and up until at one time it exceeded 6 per cent. We permitted a huge inflation, and not only did we have inflation but we had inflation of a most expensive kind. By that I mean that if you are to have inflation, you should have it by the direct creation of money or credit through the machinery by which money or credit is created. Instead of that, we camouflaged the inflation by pretending that we were getting loans from the public when they were really loans from the banks floated at the rate which the public were given in return for their loans and, therefore, at enormous expense. The country certainly paid twice over, and I am inclined to say in some respects three times over, for the expenditure of the war. Finally, when the war was over we entered upon a period of ruinous deflation which had all sorts of disastrous consequences from which we were suffering right up to the outbreak of the present war.

I am glad to say—and I believe I shall carry the whole House with me in this—that we have done a great deal better than that in the present struggle, but that is not to say that we should not do still better than we are doing, with great advantage to the conduct of the war and with still greater advantage to the situation that will follow when the war is over. I propose to go into that in a little more detail towards the latter end of what I have to say. Before I come to that, I want to take a glance at the facts, to see what they are already and to make a certain number of conjectures as to what they are likely to be for the remainder of the war. Of course, I must make certain assumptions in so doing, because naturally all our financial prospects are conditioned by what happens in the war itself. But there is no harm in our making those conjectures and assumptions, because it is necessary, in order to conduct finance to-day as it should be conducted, to take some estimate of what is likely to be the finance of the future.

I shall take as my first assumption that which the Government from the beginning have laid down with regard to the Nvar, namely, that it lasts for three years and that victory comes to us in the autumn of 1942. Of course, if the war ends earlier than that, so much the better, not only in all other respects but for finance. If it should go on longer than three years—I say it with the strong conviction that every other hon. Member agrees that this country is prepared to go on with it until this menace of Hitlerism is destroyed—so much the worse for our financial situation, but it will still be one with which it is not impossible to deal. I will assume, what must generally be regarded as correct, that the expenditure of the State will continue to increase right up to the conclusion of the war, which, on the three years basis, will be at the end of September, 1942, and, of course, we cannot expect very much contraction for the remainder of that financial year, that is, up to the end of March, 1943. The first part year of the war ended March last is already complete; the second year is nearly half-way through, and for the years that follow we shall have to depend upon our imagination and conjecture as to what is likely to happen. I am going to deal with this in very broad figures, because they are much more easily understood. I shall speak in milliards, that is to say, £1,000,000,000.

Broadly speaking, the total expenditure of the State in the first year ended in April last was two milliards of pounds, and we borrowed approximately three-quarters of a milliard. This year it is generally taken as probably true that the probable expenditure of the nation will be 3½ milliards, and of that the Chancellor of the Exchequer is raising by taxes about £1,360,000,000 in the current year. Broadly speaking, we shall have to borrow something like 2¼ milliards in order to foot the bill. The hon. Member for Wrexham (Mr. Richards) put a poser during the speech which he made on the Budget, and asked how it was possible for us to find 3½ milliards out of a total national income of five milliards. The position is this: The income of the country as a whole was probably between five and six milliards before the war broke out, and although a good many people have suffered a loss of income, many others have had a great increase, and a large number of additional people have been brought into the economic machinery of the country. The total national income of the country as a whole is considerably in excess of six milliards to-day, and is probably more like seven milliards. What we are doing at the present time is having to devote half the total income of the country to the prosecution of the war. We therefore have to convert this expenditure of the country, so far as half the national income is concerned, to the prosecution of the war.

I have now reached the end of what may be something like a reasonable estimate, and I now come to conjecture. I think that a minimum conjecture for the expenditure of the State in the year following this one, that is, the year 1941–42, is that we must certainly add on another half milliard, bringing it up to four milliards, on the assumption that no serious inflation takes place. In the year after, we must add another milliard and expect something like five milliards for the total expenditure of the State for the year 1942–43. But if we were to pursue the path along which we travelled during the last war and were subject to inflation and more inflation and cumulative inflation, I am afraid that those figures would be very much higher still. I do not think that in the third year of the war we shall escape under 5½ milliards and in the next year much under 7½ milliards. Those are enormous figures, which seem utterly beyond our imagination at the present time, but it must be remembered that the whole price level would have changed on that assumption.

Let us see what the result of that would be. On the assumption that we put up the taxation revenue in the next year from 1¼ to 1½ milliards, the borrowing next year, on the assumption that we avoid inflation, would be something in the neighbourhood of 2½ milliards, and, if we did not avoid it, as much as four milliards. In the year following, borrowing would be about 3½ milliards on the assumption that we avoid inflation, and something like six milliards if we failed to do so. Adding up all the borrowings for the three years of war and the months that would follow until March, 1943, I reach this colossal figure: Borrowing, on the assumption that we avoid inflation, might well be in the neighbourhood of nine milliards, and on the assumption that we go into inflation it might be as much as 13 milliards. During the last war we increased the National Debt by something like seven milliards—between six and seven, at any rate—and it stood at well over seven milliards at the beginning of the present war. If we add the debts which we may expect to incur during the war to the pre-existing Debt, we get in one case a figure of 16 milliards and in the case of inflation about 20 milliards. That is not all, because I think by one method of finance we shall be borrowing those vast sums at a higher rate than the other. If the true method of finance is followed, if we bring down the general rate of interest to 2½ per cent., and if that be applied to the 16 milliards of Debt, we shall have a Debt charge of something like £400,000,000 annually.

Mr. Stokes (Ipswich)

Might I interrupt the right hon. Gentleman? With regard to the figure of £400,000,000 which the right hon. Gentleman said would be paid in interest annually, could he tell the House what he reckons the annual genuine savings of the people to be?

Mr. Pethick-Lawrence

I do not think that that question arises at this particular moment; in any case, I am coming to that very point, and perhaps my hon. Friend will have the patience to wait a little. This is a complicated argument; it is a very important question to look at these figures as a whole, and if my hon. Friend will have a little patience, I will come to the point that he mentioned.

Mr. Stokes

I was trying to help, not hinder.

Mr. Pethick-Lawrence

If, on the other hand, the full figure of 3 per cent. is charged and the total debt comes to 20 milliards, we shall be spending on the Debt charge something in the neighbourhood of £600,000,000. It may seem that £400,000,000 and £600,000,000 are such astronomical figures that it does not make much difference, but I venture to suggest that there is a very great deal of difference; £600,000,000 will be a further £200,000,000, and I would remind the House that £200,000,000 corresponds to 3s. in the Income Tax or alternatively nearly the whole figure which the Chancellor of the Exchequer is putting on the present Budget, including 1s. on the Income Tax and the Purchase Tax.

What are we going to do to stop the larger figure from being the one that actually comes into operation? I have pointed out that during the last war the first defect was extravagance. I think there is much less extravagance in this war. But as chairman of the Public Accounts Committee, I cannot say that there has been none at all. Our report, recently issued, calls attention to a good many extravagances which are still going on; and in some cases large firms and companies, which have a very great amount of power, are able to extract a good deal more from the national Exchequer than would be the case if they were humbler people. I believe that the Select Committee on National Expenditure have had the same experience. There are a good many loopholes which could be stopped up with advantage. Let us not be niggling in prosecuting the war; but wasteful methods do not make for successful prosecution of the war.

In the second place, there is the question of the rate of interest, As I have said, we have done very much better in this war than in the last. We have kept the rate of interest for long-term loans at 3 per cent. That is a very great achievement. But the Chancellor of the Exchequer must have been surprised at the very large number of people who are willing to lend money free of interest altogether. The figures are very striking. I think that there is nothing to prevent a still further reduction of the rate of interest for long-term loans say to 2½ per cent. I believe that the Chancellor has the power to bring that about, and the public of this country, who in this totalitarian war will put everything into the scale in order to win, will not hesitate to support him if it is essential that it should be done. I suggest that if he cannot get the rate down to 2½ per cent. at once, he might get it to 2¾ per cent. The reduction of middle-term rates from 2½ per cent. to 2 per cent. is another possibility that the Chancellor should aim at. I shall have a word to say about the short-term rate later on.

It must be clear to the House that the economic problem is a fundamental one. At least half, and possibly more, of the economic productivity of the country must be converted from a peace to a war footing, whatever burden the Chancellor of the Exchequer imposes on the country. It can be done only in one of three ways—by taxation, by genuine loans, or by inflation. If it is not done by taxation or by genuine loans, inflation will come in automatically, and will enforce reduced consumption on the people of this country. The Chancellor of the Exchequer has imposed considerable additional burdens, but I am on the side of those who think that he could have imposed even heavier burdens in taxation. I admit that, even had he imposed additional burdens, he, quite clearly, would not have been able to finance the whole of the war by taxation alone. A large amount must be found by genuine loans if inflation is to be avoided.

It is difficult to ascertain precisely what the genuine loans run to at the present time. The Chancellor of the Exchequer gave a figure which indicated that over the whole period of the war something over £20,000,000 a week was being subscribed, but I am sure that he would not say that the whole of that was necessarily genuine saving. I rather think that the figure included the reinvestment of the conversion of the 4½ per cent. Loan. I may be wrong on that point. I am doubtful, however, whether the genuine saving would amount to £20,000,000 a week. But the amount is increasing, and there is no real necessity for anything but genuine saving to fill the gap, if the public of this country is willing to have it so. I was glad that the Chancellor of the Exchequer referred to Sir Robert Kindersley, who has done wonderful work. His savings groups have been extraordinarily efficient. I have seen a great deal of their work, and I can say that the country owes them an enormous debt of gratitude. I wish them all success. It is the duty of all others to assist them in their work. My hon. Friend the Member for Ipswich (Mr. Stokes) must realise that every pound that the Government spends goes into somebody's pocket. If there is increased Government spending there is an increased opportunity for saving. You cannot say that, because the amount saved now is only £x per week, it will be only £x per week six months hence. It may increase very considerably during that time. We depend on that.

Mr. Stokes

That surely depends on whether taxation goes up or not, and whether prices remain level or not.

Mr. Pethick-Lawrence

I think my hon. Friend is putting the cart before the horse. If the voluntary savings are sufficient, together with taxation, prices will not go up; but if they are insufficient, inflation is bound to occur, and people will have their consumption cut down—in a very much worse way, because it will be indeterminate and regressive.

I come to the next point, with regard to the inflation of the last war. I pointed out that in the last war not only did we have very serious inflation, but inflation of the most expensive kind. We are to a great extent, I hope, resisting the temptation to finance this war by inflation at all. Further, in so far as the Chancellor is getting money from bank loans he is going to the banks direct, by means of Treasury bills and this new procedure which he has adopted. That is much better. But I still protest that 1 per cent. is much too high a rate of interest. I know the Treasury's attitude. They take the view that the banks render a great deal of service, and that, in view of all that has happened to the banks since the war broke out, it is not unreasonable that the rate of Treasury bills should be higher than it was before the war.

But we must remember two things. The first is that not only has the rate of interest gone up from a little over half per cent. to a little more than one per cent., but the total number of bills is much increased. Last July it was in the neighbourhood of £1,000,000,000, and this July it was £1,725,000,000. That is an increase of £725,000,000, on all of which they make this profit; and they do not have to do a very great amount of work—though I admit they do some—in order to earn that additional profit. The time has come when this rate of interest should be cut. It would not be at all unreasonable for the banks at the same time to cut their rate for customers' deposits, which is now standing at half per cent. If the Chancellor of the Exchequer cannot get the Treasury bill rate reduced from one per cent. to half per cent., let him make a bite at the cherry, and cut it down to three-quarters per cent. Surely he has the power to do it, and the time has come when it would be perfectly reasonable to do so. That would save the State a considerable amount of money. Those are the suggestions that I have to offer for what should be done during the war.

I ask, finally, What will be the position after the war is over? When we come to that, we have this very troublesome fact to remember. We had not been balancing our Budgets for several years before the war broke out. In April, 1939, when the war was still only a possibility, or shall we say a probability?—it was still a peace Budget—there was a deficit of no less than £300,000,000 in the Estimates for the year. We have to add to that, any additional deficit which is likely to arise out of the war. When in a time of normal finance the cost of the additional debt incurred during the war, amounting perhaps to £300,000,000 or £400,000,000, is added to the deficit before the war, that will bring the total up to £600,000,000 or £700,000,000. That does not take into account the vast expansion of services, which cannot be brought back to normal figures in a few months, or even in a few years. Anyone who hopes that as soon as the war is over we shall go back to the halcyon days of Income Tax at only 5s. 6d., and of what we now consider low taxation on beer, tobacco and the other things, is living in a fool's paradise. But this is the essential fact. It has to be remembered that after the last war the physical wealth of this country was not materially less than it was before the war broke out. The same thing will be true after this war, apart from enemy destruction, the extent of which we cannot at present foresee. Therefore, just as it is the business of this Parliament, sitting now, to try to conduct the war finances to the best object, to prosecute the war, and to retain the living standard of the country, so it will be the business of the Parliament that is sitting when the war is over to clear up the mess of war, to clear up the gross injustices of our pre-war system, and to see that the whole resources of the country, unhampered by the financial strains imposed by war debts, are used to promote a healthy, happy, full life for every member of the community.

5.0 p.m.

Sir John Wardlaw-Milne (Kidderminster)

I have been much interested, as I am sure has the whole House, in listening to the speech of the right hon. Gentleman, and I am glad to hear that he is so optimistic as to the future, from the financial as well as other points of view, if the war continues for another two or three years. He suggested that if the war continued for that period, the probabilities are that although our expenditure would have been very largely increased, so also would the national income. He gave a figure, as our possible income at the end of another two years, of something like £7,000,000,000. The only comment that I have to make about that is that, although the whole matter is, as he suggested, purely one of conjecture, and therefore it is not fair to criticise or even to appear to criticise it seriously—and nobody can foretell in the least what may happen—I am a little doubtful whether, if the war did continue for that period, our income would increase in the ratio to which the right hon. Gentleman referred, although I have no doubt that some increase would accrue. It has to be borne in mind that although, as he said, there are a great many people who will be earning more money as a result of the war, there are also many people in this country who will be earning less as a result of the war, and to some extent the one must be set against the other.

However, my object in rising to-day was not—if the right hon. Gentleman will forgive me—to follow his very interesting, but conjectural remarks regarding the future, but to deal with the proposals which the Finance Bill sets out before the House to-day. These proposals, although I am not qualified by mere inspection to say so, fully carry out I have no doubt the proposals of my right hon. Friend the Chancellor of the Exchequer. It is not in the wording of the Bill that I am interested; it is in the Budget proposals themselves. Again, I would like to bring before the House the total inadequacy of these proposals in dealing with the finance of the war at the present time. The expenditure of the Government is in the neighbourhood, according to my right hon. Friend himself, of £8,000,000 to £9,000,000 a day, and this must rise still further, so that we have a gap, according to the correctness of the estimates he gave as to loans and other methods of raising money, of something like £2,000,000 to £3,000,000 a day which cannot be covered either by revenue or by loans or in any other method so far put before the House by my right hon. Friend. It is a figure of a little over £800,000,000 a year. No ordinary budgetary methods to which this country is accustomed can possibly cover that sum.

Inflation under the present proposals of my right hon. Friend is inevitable. In fact, I would go further and say that inflation has already begun. It is not only a question—and here I slightly differ from the right hon. Gentleman the Member for East Edinburgh (Mr. Pethick-Lawrence) of our taking action to avoid the possibility of a future inflation; inflation is in existence in this country now, and it will increase. It is bound to do so under the present proposals. I do not know that any suggestion that anybody can put forward will entirely prevent inflation. I think it was a remark—I hope that I am fathering it on the right source—of the right hon. Gentleman the Member for Carnarvon Boroughs (Mr. Lloyd George)—at one time that you could not win a war without it. If it was not his particular remark I apologise in advance, but certainly it was made in this House and it is a remark very difficult to controvert. Inflation is possibly inevitable, but we can do a good deal to try and prevent inflation from getting out of control. I have heard it asked more than once in this House what inflation is. It is said to be impossible to define it. I may be unduly confident, but I hope that I am not unduly bold if, at any rate, I try to define it. Inflation results from a steady increase of purchasing power, competing for a static or even decreasing volume of commodities in regular supply. I hope that that is not either too involved or too complicated. The system, in fact, works as a perfect balance. As the supply of goods decreases they become more valuable, prices rise and more money has to be paid to secure them. In other words, the value of money falls. If the process proceeds far enough more token money is required week by week to buy the same supplies until, as was seen in Germany and other countries, even a barrow load of paper money will not buy the simplest necessities. It is very easy for us in this House and for people outside to believe that anything of this kind is quite impossible in this country, but are we at all certain of that? The process may begin very gently indeed, and it may be out of hand almost before we know that it has begun.

To avoid inflation, or even to control it, certain actions must be taken, and to me at any rate they stand out clearly. We must in fact endeavour to reverse the inflation process, that is, to bring about a reduction of purchasing power or an increase in supplies, or better still, both. To name the remedy is quite simple; to apply it, in war particularly, is a much more difficult matter. May I ask the House to assume for a moment that my figure of deficit of £800,000,000 odd is correct. I would make it clear that I refer to the deficit between what we can raise and borrow, as set out by the Chancellor of the Exchequer, and the probable total expenditure of this financial year. If that figure of £800,000,000 is even approximately correct—and it may be considerably more before we are at the end of this financial year—most of this money will be dispersed by Government agency. The first point, therefore, clearly, is that which was so ably made by the right hon. Gentleman the Member for East Edinburgh, and that is, how far is all this expenditure necessary. In other words, are the Government getting full value for every penny they spend?

The right hon. Gentleman spoke of his knowledge of this subject as Chairman of the Public Accounts Committee which gives him a special position from which to examine these matters. I can only say that seven months as Chairman of the Select Committee on National War Expenditure has not convinced me that there are no leakages or that the Government are getting full value for all their expenditure. At the same time let us be honest and fair in these matters. War expenditure on our present basis is something that is so new and so vast that it is impossible to believe that every scheme can be perfectly carried through and thoroughly examined. It is, however, clear that the first consideration in dealing with the possibility of avoiding inflation is the possibility of reduction in expenditure by getting full value for everything spent. The Government spend the money partly, or perhaps mainly, by payments to contractors for works, supplies and munitions of all kinds. This money largely goes in wages and in some cases results in largely increased earnings, particularly in the form of payments for overtime and night and Sunday work. Everyone realises that such conditions are for a brief period inevitable in times of stress such as we have had to go through in the past few weeks, but I have already, on a previous occasion, spoken of the danger both to the health of the worker and to the output of munitions of a continuance of this process, and also—and this is a very important point—of the possible social unrest from the inequality of wages earned by people doing practically the same work.

I would also like to refer in that connection to another matter which is perhaps not sufficiently realised, and that is, the effect of the knowledge of these conditions upon the fighting Services. I am not sure that Members in all parts of the House realise the effect that it must have upon men getting small Service pay when they know that considerably increased wages are being earned by those who were previously their neighbours. I do not want to emphaise this too much, but there is just another aspect that there can be no harm in stating publicly—there is also the effect of the men brought from overseas who in some cases are doing heavy work on the pay of a soldier alongside men earning many pounds a week for doing work which is not nearly so hard or arduous.

Increased spending power will not come from the rentier class. Their available surplus is being steadily reduced. In many cases it has probably gone altogether. It will come, and it will come rightly, from those who earn more as the result of the war effort, and in reason this must not be too much cut down, but it must to some extent be controlled. In other words, those who are earning extra in this way must pay taxes. There is a great deal to be said for the proposal set out by a correspondent in the "Times" a week or two ago and which was earlier put before the House by my hon. Friend the Member for Lowestoft (Mr Loftus) for a universal tax on all earned income over a life-preserving minimum, the tax to be deducted at the source and combined with a system of voluntary allowances, and collected, of course, as it is earned.

Mr. Gordon Macdonald (Ince)

Is it suggested that we should abolish indirect taxation at the same time?

Sir J. Wardlaw-Milne

Oh, no, every section of the community pays indirect taxation. Indirect taxation is not in question. All these things are arguable, but I think there is a great deal to be said for a direct tax on earned incomes collected at the source over and above—a minimum standard, and combined, as I say, with a system of family allowances. This proposal, is one which deserves earnest consideration. The tax on unearned incomes is already very high, and it will probably have to go higher as the war proceeds. So much for controlling and diminishing purchasing power.

There is the other aspect of the problem—the standardisation of prices. This means either an increase in supplies or their rationalisation to avoid an undue demand. An increase in supplies is probably impossible in war, and a great deal has already been done in regard to rationalisation. But further control of consumption will certainly be necessary. It is inevitable that the luxury trades must suffer, and unnecessary expenditure of all kinds, especially on luxuries must be made practically impossible. It is true that the luxuries of yesterday become the necessities of to-day, and none of us would wish that it should be otherwise, and it may be very difficult for the Government to draw the line and hard for us to accept it. But our course is perfectly clear—consumption must be brought down. Lending to the Government—and I was very interested in the figures which the right hon. Gentleman gave us just before he sat down regarding loans—is admirable, and his references in this respect to those who lend and to those who put the necessity for lending so strongly before us. I very warmly support, but lending alone will not fill the gap: and fill it we must.

I am not sure of the accuracy of the figures I have seen quoted, but the latest statement I think is of something like £150,000,000 in subscriptions to National War Bondsan excellent result. Suppose this goes on and, with the sale of Savings Certificates, raises £500,000,000 or £600,000,000 in this financial year. If we add to this the Chancellor's hopes of reduced expenditure on renewals of plant and the very temporary expedient of using part of our accumulated Empire balances, we still have a gap of anything between £700,000,000 and £1,000,000,000. Our reserves in dollar and other securities will help, but we certainly cannot afford to see that one special asset which we hold disappear altogether at a very early stage of the war. Lending, therefore, through the system of loans which we know to-day will help but will not fill the gap. Is there to be a forced loan? Let us face the thing. Is that the next step? If so, the sooner the House of Commons considers that possibility the better. We are not living in ordinary times; we have to deal with conditions previously unknown in the history of this country. There are one or two expedients that, however, we might try before we come to the forced loan. Why not lottery bonds? I know all the objections which have been raised to this kind of issue, and although I sometimes doubt the validity of such objections in peace-time, they certainly ought not to apply in wartime. Some years ago—if the House will forgive me for quoting a personal matter—I put to the Lord President of the Council, then Chancellor of the Exchequer, a scheme for the issue of bonds of a popular character on which no interest would be paid, but on which there was, each half-year, the prospect of very substantial prizes, paid out of the money saved by the fact that no interest was attached to the issue. I based the interest saving at that time at 2½ per cent., and Members who have not gone into the question would be surprised at the sum which would be available to provide the large number of prizes of varying value every half-year on these bonds. These bonds would have an enormous advantage over other issues of this kind because they are not really a lottery. There would be drawings for prizes half-yearly, and all one would lose, if one could call it a loss, would be the interest on each £1 or. 10s. held. I do not think anybody in this country would be seriously concerned at the possibility of a loss on a pound note especially when there was a chance of a prize every half-year. Objections have been raised that this country has never had to do anything of the kind, but when I was visiting one of our Colonies recently I spoke to the Members of the Southern Rhodesian Parliament and the public of Salisbury in the lottery hall. I am not sure whether that is the proper title, but it is a large place which was erected out of the profits of the State lottery. If it is not wrong for other parts of our Empire to conduct a lottery, I do not see why it should be wrong for ourselves, especially at the present time.

We are throwing out of work large numbers of people, and this process must be accelerated under any proposals which deal with the war effort. These people must be absorbed in essential industry as far as possible so that production can be increased, costs reduced and the expenditure on otherwise maintaining them, saved. I would like to know from the Government what are their plans on a really comprehensive basis to deal with this problem. We hear a great deal about the necessity for having more people in munitions activities, but we do not hear nearly so much of the large number of people who, as a result of the war, are out of work and cannot be employed in any industry of which they have knowledge and experience. There may be a considerable number in training, but I do not know what schemes the Government have in view, and I do not think the House has been sufficiently told of their plans. I said at the time the Budget was introduced that the Excess Profits Tax of 100 per cent. was a mistake, and I want to repeat that I still think that was a mistake. By reducing it slightly we would get better returns and avoid destroying enterprise and initiative. Whatever the rate, however, it is inevitable that the taxation and restriction which are necessary in war must reduce private enterprise. The Government are, rightly, responsible, and therefore it is only to them that we must look for action to remedy the present position and absorb the people who have been displaced.

Another immediate matter is a survey of non-essential industry. Many factories are being hampered and many have closed down owing to restrictions and want of supplies. A shortage of raw materials is inevitable in time of war, but in some cases Government Departments are holding up supplies against a possible future shortage that is never likely to occur. In addition, therefore, to a definite plan by training for the absorption of those displaced, the Government should promote the continuance of such industries as cater for non-war and non-luxury productions so far as that is possible under war conditions. There is a wide field for the kind of survey I suggest, particularly in connection with the export trade. I ask my right hon. Friend, as soon as he has the present Finance Bill out of the way—and I look upon it, as he does, as an interim Measure—to devote himself to the consideration of some of the courses I have suggested.

If I may shortly repeat them, they are a system of taxation, universal in its application to all earned income above a stated minimum, and deducted at the source, with special attention to those who have benefited in the way of increased earnings as a result of the war; the issue of some form of premium bonds; a reduction of the Excess Profits Tax from 100 per cent. to 90 per cent.; further restrictions, if necessary, particularly on real luxury consumption; a survey of the existing non-war and yet non-luxury industries and an examination of their restrictions and difficulties; and, lastly, extended training, with other measures, for the incorporation of those unemployed. Unless we take action the necessities of the Treasury will force the Government to go to the Bank of England for Ways and Means advances, and this will result in the further creation of credit with a large increase in Treasury bills. Inflation has already begun; it is not dangerous yet, but it may soon be so if the problem is not dealt with at once. Our estimated expenditure is £3,500,000,000, to be set against an estimated revenue, after all that the Chancellor has been able to do so far, of £1,360,000,000. The two previous Budgets have produced increased revenue amounting to £400,000,000 against a gap of £2,000,000,000. This is simply nibbling at the problem and shutting our eyes to the dangers ahead.

5.26 p.m.

Mr. Owen Evans (Cardigan)

I am sure the House will have gathered, from the speeches to which we have just listened, that it takes greater note of the wider problem that faces the country than of an immediate revision of my right hon. Friend's Budget. The speeches of my right hon. Friend the Member for East Edinburgh (Mr. Pethick-Lawrence) and the hon. Gentleman who has just sat down show quite clearly that there is considerable misgiving in the minds of everybody who has given thought to this question as to the future policy the Government should adopt, if they have any definite policy at all. I do not suppose that any Budget has faced less opposition than this—there has been no real opposition to any of the detailed proposals—but, on the other hand, I do not remember any Budget which has had so many uncomplimentary things said of it. One has only to read the criticisms in the weekly and daily Press to see what the country is thinking about the Budget. It has been said that it is an interim Budget, a provisional Budget and a humdrum Budget, and one writer went so far as to say that the Chancellor's failure to face realities may be due to lack of imagination. I would not dare to go further than that and suggest that it may be due to moral cowardice, but at any rate it does seem to be the fact that the House is not satisfied with this Budget. Something more, and that pretty quickly, is needed.

The hon. Gentleman the Member for Kidderminster (Sir J. Wardlaw-Milne) suggested that the Chancellor is only just beginning and that immediately he leaves this Bill he must take no holiday but must devote himself at once to the wider problems. My right hon. Friend the Member for East Edinburgh faced this wider problem in a most interesting speech, although I very much hesitate to follow him into the realm of figures such as milliards. If he will forgive my saying so, I prefer to use the usual term in common practice in this country and instead of saying six thousand milliards, to say £6,000,000,000—

Mr. Pethick-Lawrence

Six milliards is £6,000,000,000.

Mr. Evans

The right hon. Gentleman made three points which I think are extremely important. One particularly was emphasised. He said that one of the things we must do is to see that the Government avoid waste. He is Chairman of the Select Committee on National Expenditure. It is extremely difficult to watch expenditure in time of war. Fantastic increases in staffs in London, where you have thousands of members of a staff, growing rapidly, in great confusion, with no real control or organisation, is a fact as it exists to-day in some of our new Government Departments. It reminds one of what was said of the Duke of York, who had 10,00 men and marched them up a hill and marched them down again. That is taking place to-day in Government Departments. Thousands of officials are going out of London, and thousands of them are coming back again. Large buildings have been commandeered in London, to the great inconvenience of people who are doing very important national work, half of them still empty and continuing to be empty. That is a subject which the Select Committee might very well look into. I heard an instance the other day of a large floor with a rental of £1,000 or £1,500 a year. It was empty, but I understand that the lease was still in the name of a Government Department. The man in charge of it told me that there had been nine evacuations in that lease during the last year, Government officials coming in and Government officials going out. While the House desires that all the money that is needed is to be spent for the sake of prosecuting the war to a successful conclusion, I think it will agree that we must have full value for the money that is being spent.

The right hon. Gentleman the Chancellor of the Exchequer, in looking at the wider problem, said that reorganisation is needed. It is clear to us all that he himself realises what the problem is, but the House would like to know what steps are being taken in the matter now. What organisation is taking place in order that no production other than for absolute necessities and for war purposes is going on? He said that long hours have now been done away with. In the building trade the maximum hours were to be 60, and we were to return to the provisions of the Factory Acts with regard to women and children. We are all glad to know that, because the experience of those engaged in the management of industry is that the long hours that have been worked during the last few weeks meant rather a loss of production than an increase. What is really wanted is to bring those people who are unemployed now into employment for national purposes. In the last return of unemployment the figures have actually gone up by about 60,000. That obviously would not be so to-day if there was proper co-ordination, and I hope the House will be able to hear something on that before very long.

I should like to ask some questions with regard to one or two of the proposals in the Bill itself. I thoroughly agree with the provision by which Income Tax is to be levied from wages at the source. I think that is an excellent piece of machinery which will be helpful to wage and salary earners, and it is a matter which those engaged in management for a long time have felt to be highly desirable. I have always believed in direct as against indirect taxation. I should like to have all indirect taxation abolished, because nothing tends more to cramp industry, business and trade.

Mr. McCorquodale (Sowerby)

Would the hon. Member wipe away all taxation on beer, spirits, tobacco and the like?

Mr. Evans

There are well-known established commodities for which indirect taxation has been adopted, but there is a wide sphere from which it might well be removed. For that reason I welcome this proposal, which to my mind is one of the most interesting features of the Budget. The Purchase Tax has also been accepted by the House in general. The late Chancellor promised that an attempt would be made in the Bill to meet the position of export traders. There are provisions in the Bill attempting to meet it, but I would point out this grave difficulty, in view of the encouragement which has been, is being and should be given as far as possible to the export trade. Let me give an illustration. The tax is 33⅓ per cent. on the wholesale value; therefore the price to the retailer would be 133⅓ per cent. As I understand the position, in exporting the commodity in question to the United States, Canada or Australia—I take those countries because I have looked up their Customs Regulations—the duty there would be levied on the 133⅓ and not on the 100. That is a very clear indication that, unless something is being done, the tax will have a tendency to hamper the export trade. I am sorry to say that I have not been able to find a way of avoiding it, but I should like to ask whether the Government are in contact with these Governments in order to enable them to agree that the import duty will be placed on the value of the goods and not on the value plus the tax imposed upon them. It is an extremely difficult problem, but it will have a material effect upon the export trade of the country to our Dominions and the United States. I should very much like the Chancellor to say something about that.

The only other point of detail to which I wish to refer is the application of the Excess Profits Tax to mining. I do not quarrel at all with the tax generally, but the base metal mining industry has largely departed from this country. Supposing that a British base metal mining company has made £100,000 excess profit, that profit can only have been made in one of three ways—by increased prices, by a decrease in costs, or by an increase in output. The prices of commodities have been very effectively controlled. The Government have done their work far better than during the Last war in regard to the control of prices of essential commodities. That being so, if a mining company registered in England makes excess profits, it will not be due to that cause, because the average price that it receives will not be greatly in excess of the pre-war price. Therefore, it must be a reduction in costs or an increase in output, and in most cases the increased profits of these mining companies are due to increased output. The result of that, in my submission, is that the whole of the profit comes out of a wasting asset, and there is in effect a confiscation of a capital asset which is wasting yearly. I think this is an extremely important question for the Chancellor to consider in relation to its effect upon the mining industry as it now exists in this country, and I hope that some consideration will be given to that aspect of the problem. Let me conclude by saying that I am wholeheartedly in favour of the proposals in the Budget, and I trust that the Chancellor will listen to the voice of the House and that the Government will pay attention to the very much wider and bigger problem than the mere proposals in the Budget which we have to face.

5.46 p.m.

Mr. Douglas (Battersea, North)

The magnitude of the problem which faces the Chancellor of the Exchequer and the House is measured by the fact that national expenditure is now estimated at something like two-thirds of the pre-war national income, and even with the most optimistic estimate of the increase of income due to more people being in employment, longer hours, and so on, this must mean that we are spending upon national purposes something like one-half of the income of the people of this country. The amount of taxation which it is proposed to levy, even when the full benefit of the increases in taxation which have been imposed in the present and the previous Budget are taken into account, is less than well under one-half of the national expenditure. That is not a satisfactory state of affairs. Attention has already been drawn to the danger of inflation which we are running at the present moment. The floating debt is already some £1,600,000,000 or £1,700,000,000. The note issue has increased by £100,000,000 over the average for last year. Both of those things point in the direction of inflation, and some part of the increase in prices which has taken place is also evidence of inflation.

If we lived in a community in which the incomes of every member of the population were equal, there would be no problem, because we could then take one-half of the income of every individual and use it for the purposes of financing national expenditure, and the problem would be solved. The real difficulty which the Chancellor has to face is the fact that we live in a community in which incomes are extremely unequal, and therefore, it is impossible to take half the incomes of a very large number of the population because their incomes are barely sufficient to provide for their necessary expenditure; and conversely, a very much larger proportion must be taken from the incomes of those who are on the higher levels of income. The reason the Chancellor of the Exchequer still has so large a gap between expenditure and income is that, on the one hand, there is the inevitable resistance, which every hon. Member, no matter to what party he belongs, must recognise to be justified, of those who are most poorly off to any further increase in the burden of taxation which they have to bear, and, on the other hand, there is the resistance of those who are better off to parting with a sufficient portion of their revenue to enable the Chancellor to balance his Budget. Evidence of the difficulty in which the Chancellor finds himself because of those two things is to be found in the fact that the present and the previous Budget have provided for increases in taxation which in a full year will bring in £367,000,000, and of that the increase in Income Tax and Estate Duties amounts to £162,000,000, whereas the increases in Customs and Excise, the Purchase Tax, and the increase in Post Office charges amount to £204,000,000. Consequently, a very considerably larger sum is being raised by the additional indirect taxes than is being raised by the increase in direct taxation, by Income Tax and Estate Duties.

That is a subject which calls for drastic alteration. It is extremely unfair. There is not a single person who does not realise that these increases in indirect taxation fall with greater severity on those who are least well off, and the most objectionable feature of all is the Purchase Tax, which is estimated to bring in no less than £110,000,000 in a full year. Undoubtedly the Purchase Tax has very large exemptions of purchases of necessary commodities, but in its nature it is a tax of an indirect character which is bound to fall most severely upon those who are unable to avoid making necessary expenditure. I do not think that anybody, on reading the classes of goods contained in the Schedule to the Bill, can say that many of these things are not of a necessary character. It is said that this tax is desirable in order to discourage people from spending so that they may have more money to invest in war loans. But any form of taxation which will take an equal amount of money out of the pockets of the people of this country will produce that effect; any kind of taxation which will raise £110,000,000 will diminish consumption to the extent of £110,000,000; and it is not necessary that that object should be attained by means of the Purchase Tax. I say again that it is the most unfair method by which the object can be attained. It is said that people can defer their purchases; that they can make clothes, furniture and so on last longer; that they can manage to economise to meet the burden of the tax. But that statement is in many cases incorrect. It is true that a person who is established, with a family, has his furniture and can make it do, but what about a young man who is marrying and has to furnish a house? Every one of the articles which he requires for that purpose is subject to the tax. Therefore, the tax is an unfair and indiscriminate one, which falls on some people and not on others.

Let me give another illustration of the unfairness with which the burden will fall. It is to be applied to a very wide range of articles which have to be purchased by the local authorities. They have to carry on their duties as hospital authorities, public assistance authorities, and so on, and to do so they have to purchase large numbers of articles which are contained in the Schedule to the Bill. The London County Council, of the Finance Committee of which I am chairman, have calculated that the effect of the Bill upon them will be to increase their expenditure to the extent of £500,000 a year. That additional expenditure will be thrown upon the ratepayers of London owing to the increase in the cost of the articles which the local authority have to purchase. I do not know what will be the effect on other metropolitan local authorities—the borough councils, the Metropolitan Water Board, the Metropolitan Police, and so on—but in the case of each one of those there will be increased costs which will be thrown upon the ratepayers of London. That increase, as everybody knows, is thrown upon them in a most unfair and unequal fashion, falling most heavily upon the poor and least heavily upon the rich. So far as this tax effects an increase in costs of that kind, it will have a doubly regressive effect, doubly unfair to those least able to bear it. Although it may be that hon. Members are prepared, for the time being, to accept the Purchase Tax as a means of meeting some part of the national expenditure, I hope the House will never consent to make such a tax a permanent feature of our system of raising national revenue. We want to have more direct and less indirect taxation.

When the Chancellor of the Exchequer introduced his Budget, he went out of his way to explain that there were some alternative sources of taxation which he was not prepared to accept. One of them was the taxation of land values. I noticed that the Chancellor did not devote himself to arguing that question upon its merits, and I was not surprised at that, because I think the merits of the proposal are well established and no longer need to be argued. What the right hon. Gentleman did was to say that such a tax could not be introduced at the present time because it would require the setting up of machinery which it would take some time to put into working order. Even if that statement were true—and I do not accept it, because there is an abundance of experience from all over the world to show that this thing can be done speedily, economically, and well—this is not the only Budget which has to be introduced. Provision must be made for the future. We have to look ahead. The level of national expenditure, now at £3,500,000,000 a year, may next year be at a higher level if the war continues, and the year after it may be still higher. Therefore, the Chancellor is not entitled to shield himself behind a flimsy excuse of that kind. He ought to look ahead, and he ought to make preparations for raising national revenue in a way which will be just, which will not bear unduly upon the incomes of the poor, which will not hamper production, but which rather will tend to encourage industry.

Reference has been made to-day—and very properly, I think—to the circumstances which we shall have to face after the war, because our troubles will not then be ended. One of the problems with which we shall then have to deal, no doubt, will be the ques- tion of putting into employment those who are taken off the production of munitions and implements of war, and the tax on land values, which the Chancellor has rejected, would be a valuable instrument in securing that the idle resources of this country were put into use in order that its idle people should be employed. I hope that question will yet be pressed to an issue, that the Purchase Tax will be repealed, and that better taxation will be placed in its stead.

6.0 p.m.

Mr. McCorquodale (Sowerby)

I find myself privileged to follow such an able and skilful maiden speech as the one to which we have just listened by the hon. Member for North Battersea (Mr. Douglas). May I be allowed to congratulate him heartily and to express the hope that we shall often hear him contributing to the Debates in this House? I should also like to apologise to the hon. Member for Cardigan (Mr. Owen Evans), who has just left the Chamber. I was so interested in an announcement of his, coming from the orthodox Radical bench of this House, that he was in favour of the total abolition of a tax on alcohol and tobacco that I thought he should have a chance to recant before he flabbergasted the Nonconformist conscience of this country, which in the past has given such support to his party. I am glad, however, that he did recant.

I should now like to say a few words on the proposed Purchase Tax. I will not quarrel with the tax or the principle behind it, although it will very possibly deal a death blow to much of that very sick industry, namely, the printing industry, with which I am associated. However good in war-time such a tax may be, when we return to peace, as some time we must, the Purchase Tax will become the most vicious of all taxes. Directly peace returns we shall have to do all we possibly can and devote all our energy towards re-starting peace-time civilian industry and getting civilian peace-time employment supplying civilian needs. This tax is designed to restrict production of civil peace-time commodities. I, therefore, submit to the Chancellor of the Exchequer that he should brand this tax as a "war-time only" tax, to be repealed as soon as possible after the war is over; otherwise I fear it may make immeasurably harder the formidable task, which lies before us when we have won the war, of winning the peace.

6.3 p.m.

Mr. G. Macdonald (Ince)

Throughout this Debate it seems to have been agreed that this Finance Bill is intended to be an instrument to carry the war to a successful conclusion. Before any Finance Bill can do that, it must do at least three things. In the first place, it must provide sufficient expenditure for the supply of all the armaments we need and I am not quite satisfied that the expenditure provided for in this Bill will do that. I should not be so concerned were I satisfied that present expenditure was not being wasted. I shall make no reference to any special munitions factory, but I have detailed knowledge of a number of munitions factories, and I am convinced that there is a great deal of waste and extravagance going on in every one of them. There are hundreds of people in my division employed in different munitions factories, and many of them visit me every week-end and give me specific information which they can vouch for, and which they will give to anyone, provided their employment is safeguarded. They can give information of sheer waste in the factories in which they are employed. I am not prepared to support any Finance Bill which makes provision for money to be thrown away.

I have drawn the attention of different Ministers to the waste which is going on. In fairness to those Ministers, I should say that they are new Ministers, and that they have not had very much time, but that they are doing all they can to investigate the allegations I have made. I have agreed to submit to them specific instances of waste, vouched for by men who have seen it take place. I am sure that a few million pounds could be saved in various factories if the investigation which ought to take place did, in fact, take place. I have an undertaking, however, from different Ministers that such an investigation will take place, and I am looking forward to good results.

In the second place, if this Bill is to prosecute the war successfully, it must also deal with consumption. I was very impressed by the clear, concise and convincing speech of the hon. Member for Kidderminster (Sir J. Wardlaw-Milne). I agree with him that in time of war consumption must be reduced, but I am afraid he was looking in the wrong direction for that reduced consumption. I quite agree that there are certain people working for wages who should and could reduce their consumption, especially in certain commodities. I believe that it would be in their own interests and in the national interest if they did so. We should reduce to a minimum the hazards which brave men have to face on the sea, and no man or woman is serving the interests of the country in spending a penny piece involving more work for those engaged in shipping. I should prefer a more rigorous form of rationing to try and reduce consumption. I do not think the present form of rationing is vigorous enough in some directions. From personal experience we know that well-placed people in this country seem to get out of the difficulties of rationing far better than those poorer sections of the community. It is surprising how money speaks and with what eloquence it does so in the sphere of rationing. The hon. Member for Leigh (Mr. Tinker) made reference to the fact that he had found people paying enormous prices for meals in the City. Perhaps they can afford it, but whether that is so or not, a man with substantial means ought not to be able spend such large amounts on food.

This Bill does something which, to my mind, is most objectionable. I find that more than half of the money required is coming from indirect taxation. There is something wrong about that. The hon. Member for Kidderminster referred to certain people employed in industry receiving substantial wages. I know that there are men to-day who are drawing twice as much as before the war, but they are working twice the number of hours. This morning on the train I met men going to a munitions factory. They had left their homes at about 20 minutes to eight and would not return until 10.30 p.m. When men are working like that they are entitled to decent pay, but they are working far too hard for them to keep fit, and they have told me that this cannot go on for seven days a week, because they will freak down. I agree that we need some equalisation. There is the case in my constituency of a family where two of the sons have been called up, and their next-door neighbours, the father, two sons and two daughters, are employed in munitions factories. I do not say that any of these five have been overpaid, but there is something wrong with a war which places so heavy a burden on the nation when one family carries so great a share of it and the other so small a part of it. I know that we, on this side of the House, may mince our words, and may be afraid of what we may say, but I spent this weekend among the workers of my constituency and people who are drawing these wages. They say it is unfair that they should be so much better off than in pre-war days while other families are so much worse off because their boys have been called up. It would not be very easy to equalise the burden of taxation throughout the whole nation, but some attempt ought to be made. Such a plan should not be confined to the working sections of the population alone.

I was rather staggered by the inference drawn by the Chancellor of the Exchequer from the figures which he quoted. He told the House that it had better know that a man with an income of £5,820 a year had to pay one-half in taxation. But that leaves that man with £2,910. I fully realise and appreciate the argument that he may have certain commitments, but can we argue that there is any equality of distribution in taxation so long as that happens? Again he gave a case of a man receiving £800 who would pay as a result of this Bill and previous Acts, one-fifth of his income. But even that man is not too badly off compared with those workers, referred to many times in this House as receiving big wages. I agree that a working-class family may be entitled to be better off than before the war as a result of the tremendous effort being put forward to-day to save this country and I ask the Chancellor of the Exchequer in designing future Finance Bills, to bear in mind that there are people in the higher ranks who can afford to pay more than they are doing.

I accept the proposal of the hon. Member for Kidderminster that direct taxation should bring in the whole of the revenue required. I neither drink whisky nor smoke, and, speaking for myself, I do not think that taxation should be used by any Government to sober the nation. I do not look upon taxation as a means of cutting down drink, although my division know where I stand. Revenue should be obtained from direct taxation. What is happening to-day? This Bill places the same burden on two different classes of families. First, there is the family which has lost two sons in the war, and then the family whose sons have been kept at home because they are working in reserved occupations. Each of those families bears the same indirect taxation from this Finance Bill. But is that fair? Should the same burden be imposed on the family which to-day has made so great a sacrifice, as on the other family gaining as a result of the war? Indirect taxation is a vicious method. This is an interim Bill, and I hope the Chancellor of the Exchequer will consider whether it is not possible to design taxation in such a way that the burden is increased according to strength to bear it. There is a tendency in all our financial legislation to continue these differences when the war is over. We are not going to continue these differences when the war is over. The Financial Secretary can be assured of that. The men who are fighting and devoting their lives to winning the war expect that they will be able to enjoy life after the war better than they did before. They are not fighting a war that will leave them where they were before. The miners are not fighting such a war, nor are the soldiers, sailors and airmen. They are fighting, first, to defeat Hitlerism, but they are fighting also for a better distribution of national wealth when the war is over. The adversity and suffering of war have taught every section of the nation that the wealth of the nation must be distributed in a more equitable way than it was before the war.

In going through the list of articles which will he affected by the Purchase Tax, I realise what it will mean to thousands of young couples who want to start furnishing a house. Every article they buy will be taxed. They will have to pay heavily to help meet the cost of the war, and I would ask the Chancellor to see that they are not called upon to bear more than their fair share. This Finance Bill does not contain the elements which ought to be in a Bill whose object is to provide for the nation's need in time of war, and I ask the Chancellor to keep in mind those who can afford to pay more than they are paying. Will anybody say that the limit of direct taxation has been reached? It has not. The Chancellor will get his Bill, and he will also get the Purchase Tax, but not because we agree with it. Many of us would like to fight it, but we will let him have it this time. We only ask him to label it as a war tax for the war only.

6.18 p.m.

Mr. Craik Henderson (Leeds, North-East)

We have had an interesting series of speeches this afternoon, starting with the Chancellor's illuminating survey and followed by the speech, which we appreciated, of the right hon. Gentleman the Member for East Edinburgh (Mr. Pethick-Lawrence). We have had many other interesting speeches, and the remarkable thing about them all is that they have approached the subject quite dispassionately. Party feeling has only occasionally crept in, and on the whole the subject has been approached as a vital problem which closely affects our interests. I much appreciated the speech of the hon. Member for Ince (Mr. G. Macdonald), and I hope to refer to it later. May I ask the Chancellor whether it is not possible for future Finance Bills to be drafted in simpler phraseology? The phraseology of Government Bills has been getting progressively worse. We all admire the skill of the draftsmen, but such things as double negatives make it very difficult for the commercial community to follow many Government Bills.

The problem to which all speakers have referred is that we have to meet an expenditure of £3,500,000,000 and that by this Budget we are proposing to meet only 40 per cent. by taxation. The balance obviously must be met by savings in expenditure, or by loans, or by inflation. The Chancellor has been a good deal criticised from both sides because he has not gone far enough. I think that he has shown moral courage in refusing to go too far at this stage. I will show by figures later how already, by the two Budgets of this year relating to Income Tax sometimes as far back as 1939, an enormous burden is being placed on the taxpayer. The country must, therefore, be given time to face that burden and to effect economies before the greater additional burdens are placed on them. I think I shall be able to show that at the present moment there is, in effect, a capital levy being imposed.

I would like to say a word about economy. It is a subject to which not enough attention is being paid. A pound saved is of vastly greater benefit to the country at this stage than a pound obtained by taxation or loan. I recognise the tremendous work which is being done by the Select Committee on War Expenditure, but I am convinced that great savings could yet be effected. They must be watched, and I would appeal to the Chancellor to consider whether he should not go to the length of appointing a committee to deal not only with war expenditure, but with all expenditure. One deals with this question with great reluctance, but we have the alternative of cutting down expenditure or taxation, and in these times we cannot afford to disregard any means of limiting the gap. The matter will sooner or later require to be faced, for expenditure which would be permissible in peace-time is not always justifiable in war-time.

Mr. Riley

Will the hon. Gentleman particularise what kind of expenditure he thinks is wasteful?

Mr. Henderson

That is a pertinent question. I could give a great many examples, but we all know the varieties of expenditure which we think could be cut down. If I had more time I could go into them more fully. There is a good deal of peace-time expenditure which might be cut down, and if one went Through various institutions one could finds a great many which might be safely cut down. One does not, of course, want it to be done unless it is necessary, but we must always bear in mind that the two alternatives are taxation and the cutting down of expenditure. I was delighted that my hon. Friend the Member for Kidderminster (Sir J. Wardlaw-Milne) took his courage in his hands and put forward the proposal that we should consider lottery bonds. I have raised this question before, and I did not get a very sympathetic reply from the Chancellor. At this tame we cannot afford to be too orthodox. The type of thing I have in mind is a loan paying 2 per cent. or less interest, 1 per cent. of which would be available for prize distribution.

Mr. Craven-Ellis (Southampton)

How much does my hon. Friend anticipate that premium bonds would raise?

Mr. Henderson

They could be made to raise a very large sum. People in munition works who have money in their hands would welcome an opportunity of investing in a scheme of this kind, and I hope the Chancellor will not close his ear entirely to this appeal. A good deal has been said about taxing the rich, and it has been stated that the limit of direct taxation has not yet been reached. I do not think it has been reached entirely, but it has been reached completely in the higher ranges. I would like the Chancellor to clear up one point. In his Budget speech he said: It is not always understood that if one took the whole of all incomes in excess of £2,000 a year they would only produce in extra taxation some £70,000,000 per annum."—[OFFICIAL REPORT, 23rd July, 1940; col. 640, Vol. 363.] Subsequently, on the Budget Resolutions, the hon. Member for Chesterfield (Mr. Benson) put that figure at £270,000,000, and the Chancellor did not dissent. I should like to know which figure is correct.

Mr. Benson

One was a calculation of the total amount of income left in the hands of Surtax payers after paying tax, and the other was a calculation of the amount if all Surtax payers had their incomes reduced to £2,000.

Mr. Henderson

I am obliged for the explanation. A point which is occasionally overlooked when we are dealing with Surtax is that the tax which has been proposed by the two Budgets this year is not in respect of this year at all. That is an important point which the House does not always appreciate. The Chancellor has raised the Surtax considerably in these two Budgets, but he is not raising it on the incomes of this year. He referred to Income Tax as being for the previous year, but Surtax is for incomes a year further back. Extraordinary results follow from that. A man whose income was £100,000 in 1939 would have believed he was liable to pay £67,000 in Income Tax and Surtax. By the first Budget this year that was raised to £80,000, and it has now been raised to £86,000. I would ask the House to remember that that is not in respect of this year at all. I will give an example. Assume that his income for the year up to April, 1940, was £100,000, that for this year it is £60,000, and that for next year it will be £60,000. That is a fair assumption, because, as hon. Members know, large investment incomes have fallen. What happens? On 1st January, 1941, he will be called upon to pay Surtax of £45,000, not in respect of his income of this year but in respect of the £100,000 that was his income for 1939–40.

Mr. Kirkwood (Dumbarton Burghs)

Tell us how much he will have left?

Mr. Henderson

He will be £10,000 out. [Interruption.] Hon. Members may dispute my conclusions but I am stating facts. Next year he will pay £45,000 in Surtax and £25,000 in Income Tax, a total of £70,000, whereas his total income for that year will be £60,000. In addition, he will be liable for a further sum of Surtax in January of the following year in respect of the £60,000. These are facts, and though my hon. Friends may dispute the conclusions to be drawn from them, they show, I submit, that already a capital levy is being inflicted, because the demands can only be met by the ordinary large Income Tax payer by borrowing. If things go on and on in that way, the effects may be very serious.

Mr. Kirkwood

The hon. Member, being a Scot like the rest of us here, knows perfectly well that you "can't tak' the breeks off a Hielan'man."

Mr. Henderson

I think they are making a good attempt to do it, and to do something a little more.

Mr. MacLaren (Burslem)

Take the sporran too.

Mr. Henderson

I have given these figures to show that, in my view, there is no hope of obtaining any increased revenue from the higher incomes. That source is completely dried up. We are going beyond what the Income Tax payer can pay out of income, because he has to draw on capital to pay. I am not making a party speech, but am trying to put certain facts before the House.

We now come to the next point, which has been mentioned by several hon. Members opposite, and mentioned with great fairness, and that is that we know—because I have the figures here worked out on a most conservative basis—that in the case of people engaged in munitions work, engineering, shipbuilding and so on, they have had an average increase in wages running from 50 per cent. up. I agree that in a good many cases that is due to the men working longer hours, and I appreciate that fact, but I am coming to the point of what margin of money they have. We have been talking about rich men and poor men. In my view, the only man who is rich to-day is the man who has a surplus of income over necessary expenditure. Hon. Members will recall Mr. Micawber's immortal remark—I hope I have it right—"Income, £20; expenditure, £20 0s. 6d.; result, misery. Income, £20; expenditure, £19 19s. 6d.; result, happiness. That is particularly true to-day. In the higher income ranges there is no margin between income and necessary expenditure. People have to cut down and cut down.

A great many workmen have not got increased wages, or only small increases of wages, but in many cases wages have considerably increased. What is the position there? Say that before the war a man had an income of £4 a week and that his income has been increased by 50 per cent. and to-day is £6. Say that before the war his expenditure was exactly the same as his income, £4. The increase in the cost of living, according to the "Board of Trade Journal," is 21 per cent. That means that his expenditure has risen to £4 16s. That man, without cutting down one penny of his expenditure on his standard of living as compared with pre-war, now has £1 4s. left in his pocket each week.

Mr. Sloan (South Ayrshire)

Is he better off than the £100,000 a year man?

Mr. Henderson

He is a great deal better off. In ordinary times one would be glad that the man had this additional spending capacity, but in war-time it is a great danger. It must be realised that if we multiply that surplus of £64 a year by the number of workmen to whom my illustration will apply—and these are conservative figures, because in many cases wages have gone up to £10 or £12—it comes to a very large total. In some way or another that money ought not to be available to create inflation. It must not be used for increased consumption. I would remind hon. Members that at present a man with £6 a week and a wife and two children pays nothing in taxation. I say that the surplus in these cases must either be taxed or it must he lent to the country; there is no alternative if we are to deal successfully with the financial problem. I should like to see the man who is working hard getting some credit, and I am surprised that my hon. Friends on the opposite side have come down so ruthlessly about loans, but the thing that has to be considered is that that margin must either be lent to the Government or it must be taxed, because, to my mind, there is no alternative.

6.38 p.m.

Mr. Benson (Chesterfield)

We have listened to a very ingenious speech by the hon. Member for North-East Leeds (Mr. Craik Henderson), in which he tried to prove that the man who now receives go a week is a good deal better off than a poor Surtax payer who has £150,000 a year and is paying £130,000 a year in taxation. I am afraid that we on this side of the House are not prepared to accept that point of view.

Mr. Craik Henderson

The hon. Member will realise that that was not my argument at all. My argument was that if a man whose income next year would be £60,000 had to pay away £70,000 he was in the worse position.

Mr. Benson

That may be true, but we know well that the normal course of a Surtax payer's income is not downwards. The hon. Member has only to look at the Inland Revenue returns to End that the incomes of Surtax payers go steadily upwards. I do not want to deal with the hon. Gentleman's speech, however, but with that of the Chancellor of the Exchequer. The right hon. Gentleman has been accused of various things this afternoon, from lack of imagination to moral courage—yes, he was actually accused of having displayed moral courage; but I think that what was definitely clear both in his speech to-day and in his earlier Budget speech was that he was greatly ashamed of that deficit of £2,100,000,000. If he is not ashamed of it, why does he try to explain it away? He said that it was an apparent deficit, but that there were other things to be considered—savings, the gold reserves that we are sending to America, and also what the Colonies are leaving here. He was careful not to give an estimate of what those items amount to, but he did try to minimise his deficit.

I am glad that the hon. Member for Kidderminster (Sir J. Wardlaw-Milne) gave £800,000,000 as his estimate of the real gap which has not been filled up by any of these methods. It confirms my own estimate. We cannot send more than £300,000,000 of gold and securities to the United States year after year. That is the maximum that we dare part with and we cannot put genuine savings at more than £1,000,000,000 a year. The right hon. Gentleman puts savings at £22,000,000 a week, but we know perfectly well that that figure contains not only reinvestments but certain amounts of inflationary money, and also that as the figure covers only the first nine months of the war it includes a reat deal of prewar savings. The maximum savings that we can expect, on present prices, is no more than £1,000,000,000, and we shall be lucky to get that. I do not think we can put at more than £100,000,000 the amount which the Colonies are leaving with us. That gives us, roughly, £1,400,000,000 towards the £2, 100,000,000, leaving an approximate gap of some £700,000,000 this year, and next year it may be greater.

This year £700,000,000 will have to be met by inflationary borrowing; there is no other source from which it can come. In his Budget speech the right hon. Gentleman read us a little homily on inflation. As I listened, it struck me as being rather theoretical and abstract. I got the impression that he had said to his typist, "Just run off a couple of pages on inflation. You will find something about it in the ' Encyclopaedia Britannica'." It soon became clear that his little homily had not the slightest relation to his Budget proposals, and I began to wonder whether he understood his own homily. It was not until the Chancellor started defending his Budget proposals that it became obvious to me that he had not the faintest grasp of the subject. How has he defended this Budget? He says, first, that he has taken as much in taxation as is reasonable, and, secondly, that he must give people time to look round and to adjust their expenditure. He has failed to realise that an inflationary borrowing of £700,000,000 is just as direct a tax upon the community as if he had put it on in the form of Income Tax, or Surtax, or Death Duties, or Purchase Tax. Where does he think the £700,000,000 is to come from? Does he think that it will come from thin air?

Does he think that when he has arranged for £700,000,000 to be entered in the ledgers of the banks that he has got £700,000,000 worth of goods, because that is the problem? It is not a question of getting £700,000,000 in the bank ledgers, but of £700,000,000 worth of goods which are to be extracted from this year's consumption—and they are not to be extracted from next year's. You cannot "pass the buck" in that way. If we inflate this year, we impose a burden this year, and the sooner the Chancellor realises that fact the better. Does he think that the inflationary rise in prices which has already started will give people time to look round, and that that rise in prices will be a reasonable burden?

The Chancellor of the Exchequer has not yet grasped the fundamental fact that it is not he who imposes the burden on the community but the spending Departments. They decide the size of the burden. The only thing that the Chancellor of the Exchequer does is to distribute the burden upon given persons and articles. He does not fix the size; all he does is to decide who shall pay. He has decided this year that a burden of £700,000,000 shall be fixed, not according to any plan and not adjusted to any given preconceived ideas, but thrown upon the community blindly, haphazardly, and, what is still worse, regressively, because it will hit the poorest most hardly and the rich least hardly. I do not know which depressed me most, the inadequacy of the Budget or the arguments with which the Chancellor defended it.

Sir Irving Albery (Gravesend)

I know that the hon. Gentleman cannot really be called upon to make alternative Budget proposals, but, in view of the argument which he has just put forward, it might be helpful if he could say just how he would raise the £700,000,000 by direct taxation.

Mr. Benson

I am not prepared to argue the details at this moment.

Sir I. Albery

It could not be done.

Mr. Benson

It could be done. It can be shown that our limits of taxation are by no means reached. I am aware that the Chancellor of the Exchequer has framed his present scheme out of kindli- ness. He has been attempting to temper the wind, by refusing to shear the lamb, but it is not in his power to temper the wind. The lamb will be shorn, for certain, in one way or another. The right hon. Gentleman has done this out of the goodness of his heart, but, when I contemplate the right hon. Gentleman's Budget I am reminded very much of that cynical adage which says that the preoccupation of the wise is to avert the harm done by the good. The right hon. Gentleman does not realise that inflation inflicts a burden on the community. This year's burden is £3,500,000,000. No matter what the Chancellor does, that burden will remain at that figure. When he says that he has raised all that is reasonable by taxation there is only one explanation, and it is that he regards a tax framed according to a carefully conceived plan, as unreasonable and the throwing of £700,000,000 of burden, blindly and haphazardly upon the community as a reasonable method. As a matter of fact, I am not sure what the word "reasonable" means in connection with taxation. We are not concerned with reason in the midst of a war but with taxation which is adequate. There is no other criterion by which we can judge our Budgets or our Chancellors. Does anybody suggest that the present taxation is adequate? The Chancellor made great play with the fact that a man with a wife and two children and £400 a year now pays £15 16s. 8d. in tax and he said that, according to the last Budget, that man paid only £11.

Sir K. Wood

No, only £1.

Mr. Benson

I am referring to the last Budget. In 1939 that man was only paying £1 but what would he have been paying in 1915 and 1916, when we were also in the middle of war? No one will pretend that taxation was adequate in the last war. As a matter of fact, we know that one criticism of the finance of the last war was that taxation was imposed upon a hopelessly inadequate scale. The same man whom the Chancellor now proposes to tax £15 16s. 8d. would have paid £25 in 1915 and £31 10s., exactly double the Chancellor's present taxation, away back in 1916. What is the use of pretending that our taxation is reasonable when, at the £400 level, which is by no means near the poverty level, the taxation to-day is only half of what it was in 1916?

Mr. MacLaren

The cost of living was different.

Mr. Benson

The cost of living had gone up but does my hon. Friend think that by refusing to impose direct taxation, the cost of living will not still go up? It is not a question of whether we shall bear the burden. My hon. Friend is falling into the same trap as that into which the Chancellor has fallen. The question is not whether we shall but how we are to bear the burden and who is to bear it. I was asked by the hon. Member for Gravesend (Sir I. Albery) what I would do. I will tell him. I would raise direct taxation from the very lowest level to the very highest level. I would bear in mind that, as regards the Surtax payer at the highest level, you might have a very large individual surplus left and that you cannot get very much in bulk, and that you have to bring your taxation right down the scale. I would slash the personal allowances. It is the only possible way, seeing that our whole system of graduation of tax is based on personal allowances. I would adjust the burden which the Chancellor is throwing haphazardly on the community. And although I increased the tax I should not be increasing the burden on the community or on the lower range of incomes. I should be adjusting the burden so that the lower range of incomes bore a less burden than they will bear under the inflation which the Chancellor will not be able to prevent. Let us get to the actual facts. I want to make a comparison. It will be an inadequate one because the statistics themselves are inadequate, but I want to compare what happened in 1931 in regard to direct taxation with what is happening now. I have chosen that year as a basis, because that is the first year in which the exemption limit was approximately what it is to-day. As a matter of fact, the exemption limit is higher than it was in 1931, and therefore this comparison is the more effective. If we take the Income Tax and Surtax of 1931–32 and remember that in that year we had two Budgets—

Sir J. Wardlaw-Milne

After the second Budget?

Mr. Benson

Yes. The actual amount of income left to the Income Tax payer was £2,274,000,000. I do not know the figures for the present year, so let us take those for 1938–39, which are the last figures published. I am taking them from what is known as the column of actual income in the Board of Inland Revenue's Return. If we take the income as shown there for 1938–39 and deduct from it this year's taxation—and I would remind the House the income is a great deal higher than it was—we get, not £2,470,000,000, but £2,820,000,000; in other words, direct taxation still leaves £350,000,000 more in the hands of the taxpayer than was left in 1931. And in that year we were not in the middle of one of the most desperate struggles we had ever had. What is the use of pretending? We are nowhere near the limits of taxation. If we are to raise £3,500,000,000 this year and if the spending Departments are to spend that amount, it is no use saying that we have reached the limits of taxation or of any given tax until the machinery of that tax has broken down. We are not lightening the burden, as I have said half-a-dozen times, by framing our Income Tax lightly, for we are not placing a burden upon the community in the Finance Bill but are distributing that burden. It is nonsense to pretend that our most effective, our most fair and most delicate tax, the Income Tax, is incapable of dealing with a great deal heavier burden than the Chancellor of the Exchequer is throwing upon us at the present time. It has done so in the past and must do so again. Some of my hon. Friends have been very worried about the Purchase Tax. I am not a bit concerned about that tax this year. It proposes to raise a mere £40,000,000. The inflation tax is to raise £700,000,000 by almost identical methods—by raising prices. The Purchase Tax is a flea-bite compared to the inflation tax.

Mr. Wedgwood (Newcastle-under-Lyme)

It is not selective.

Mr. Benson

The inflation tax is selective and, therefore, the balance is probably in favour of the Purchase Tax; but it is of course a silly and clumsy tax. What is to happen? Increased prices will lead to increased wages which in turn will lead to increased Estimates for next year. It is merely a muddleheaded attempt on the part of the Chancellor of the Exchequer to feed himself on his own tail.

Mr. MacLaren

There is not much of it.

Mr. Benson

There is no taxation at our disposal which can come anywhere near direct taxation for delicacy and power. The most tragic thing about the Finance Bill is the way the Chancellor is missing the boat. Ever since we had the change of Government and when we were faced with disaster on the Continent, the whole nation has girded up its loins, not merely in the munition works but as a nation of taxpayers. Everybody knows that the general feeling was that this Budget which has been dismissed as an interim Budget, was expected to impose swingeing taxation on the people, who were ready for it. I remember discussing this on the Saturday before we had the Budget. People were expecting really heavy taxation. They were expecting very heavy burdens to be placed upon them. They were expecting it, not with fear but with the realisation that it was the only sound method of financing the war. The country was ready for the taxation. What has happened? The Chancellor of the Exchequer has gone into labour and has produced this wretched mouse that we are discussing to-day, an increase of about £125,000,000, in face of an increase in the Estimates of over £800,000,000. The best comment of public opinion on the Chancellor's Budget is the fact that the day after it was announced there was an immediate jump in equity shares, which shows that even the conservative-minded Stock Exchange was expecting far heavier and more drastic taxation than we have had.

Frankly, this is the worst Budget of modern times. Sir John Simon budgeted for a deficiency of £1,400,000,000. The present Chancellor is proposing to budget for a deficit of £2,100,000,000. Sir John Simon raised 47 per cent. of his Estimates by taxation; the present Chancellor proposes to raise 39 per cent. As far as badness is concerned, the right hon. Gentleman surpasses Sir John Simon in every way. I want to give him a warning out of the friendliness of my heart. I want him to ponder on the fate of Sir John Simon and to realise that both his feet are on the slippery slope that leads to the House of Lords.

7.1 p.m.

Mr. Salt (Birmingham, Yardley)

We have listened to many interesting speeches, including those of the hon. Member for Chesterfield (Mr. Benson) and the hon. Member for Ince (Mr. G. Macdonald). They made suggestions, and I wonder whether, if they were on the Front Bench they would have put forward those suggestions. The suggestion which was made in the last speech was that Income Tax should be charged from the highest to the lowest, but I think most of us would agree that as regards the smaller incomes there is a minimum that should be left free. The hon. Member for Ince made a speech much of which was admirable, bold and wise, but I wonder whether he would have made it if he was the Minister of Labour. During the last war, when those of us who were in the ranks of the Army were receiving about 4s. a week with a separation allowance, we remembered those at home getting high wages£8, £10, £12 and more a week—men whose brothers were in the Army and getting so little. We said that if ever there was another war, there must be conscription of the whole country, so as to avoid a repetition of those conditions. Unfortunately, things appear to be continuing in the same way. I hope that the Government will seriously consider some of the points brought out by the hon. Member for Ince and others so that we shall prevent a tremendous increase in wages and general expenditure.

In the few minutes in which I propose to engage the attention of the House I would like to refer to the Purchase Tax. In passing, I would say that I believe that if that tax were levied on the retail sales, it would prove the simplest and most satisfactory method and one which would be appreciated by the public more than the present suggestion. It would certainly avoid any trouble as regards export trade. I hope that the last word has not been said on that matter and that it will be reconsidered. I would like to point to one particular set of commodities which is mentioned in the seventh Schedule—drugs, medicines and surgical appliances. I do not know whether it is realised, but I am told, on excellent authority, that 97 per cent. of the surgical industry is taken up by working for the war and Government Departments, and when we realise that the hospitals and other charitable organisations use such a tremendous amount of the remainder, it is obvious that the machinery needed to make the alteration and to calculate the amount of the tax will cost so much that it will destroy the value of the tax, almost if not quite in its entirety. I was pleased to hear at Question Time that spectacles are to be placed on the free list. It is stated in the Schedule that: medical and surgical appliances and essential drugs, being appliances or drugs of an exceptionally costly character (including insulin …). should be free. It leaves very much in doubt the question of what other commodities will be included. Most of the surgical appliances are needed for the results of industrial accidents, and the extra cost would come as a heavy toll on those who have already suffered in industrial life. There may be other commodities which could be left free in the Schedule, but I think it would be very difficult to assess the cost of all appliances which have to be manufactured specially—and they are the great majority—because a great deal of the cost is incurred in the fitting in addition to the manufacture. Until an appliance is completed no one can tell what alterations may be necessary. I think it would be well to leave those free and I hope that the Chancellor will decide to do so. There is one further matter which I would like to mention. In the free list the following are mentioned: Appliances or drugs of an exceptionally costly character. I do not think that one can easily assess what is costly, because it depends on the pocket of the person who is purchasing the article. Many people have to buy such things as belts and trusses, and it is well known in the trade that a man who works in an industry where the heat is great, must have an exceptionally costly appliance, otherwise it will not endure the heat. Matters of that kind which are technical make a great deal of difference, and therefore one cannot judge the exception merely by the cost of the appliance. I hope that this matter will be considered and that drugs and appliances which are almost entirely for use by the hospitals or the Government Departments will be put entirely on the free list.

7.9 p.m.

Mr. Leslie Boyce (Gloucester)

Hon. Members in all parts of the House realise that, if finance Bills are an unpleasant necessity under normal peace-time conditions, they are bound to be infinitely more unpleasant and necessary, and more frequent, when we are in the throes of the greatest war in history which is costing the nation between £9,000,000 and £10,000,000 a day. This staggering expenditure must be met somehow. But, in facing up to the new and increased burdens which the Chancellor now proposes to place upon us, we have that consolation which derives from a firm and rational conviction that they are all part of the price which we have to pay in order to achieve that victory which in the end will assuredly be ours.

In spite of what has been said this afternoon by the hon. Member for Chesterfield (Mr. Benson), borrowing must of necessity continue to play a large part in the raising of the money necessary to pay for the war; and in his broadcast appeal on Friday last, Sir Robert Kindersley urged industrial companies and their shareholders to invest in National War Bonds. It occurs to me that there is a very simple and effective way in which the Chancellor could supplement that appeal, and one which would give a great fillip to the War Savings campaign; and, consequently, to the national revenue. I suggest that he should announce that the Inland Revenue authorities would be willing to accept War Bonds for cancellation in payment of taxes, especially Excess Profits Tax, and of Death Duties. This would enable those companies which have the cash available to convert their reserves for taxation into War Bonds immediately. At the same time, it would release for war purposes considerable sums which are no doubt being held back against payment of Estate Duties, which in many cases probably will not fall due until long after the war. It should result in a large aggregate sum accruing to the Exchequer in the course of the war. Under such a dispensation, a continuous stream of Bonds would be issued at the one end, to take the place of those being cancelled at the other. I understand that something of the kind was eventually done in the last war, and would commend the suggestion to the early consideration of the right hon. Gentleman, who, when introducing his Budget, so forcibly impressed upon us that he was urgently in need of cash. I believe there is a large amount of cash ready to fall into his ample lap from these sources, if he will only say the word.

I should like to say a word about Clause 12, which provides, inter alia, that payment of premiums in respect of war risks insurance on industrial works, plant and machinery will be disallowed in computing the amount of profits for purposes of taxation. I have carefully studied the observations made by the Chancellor on this subject during the discussion on the Budget Resolutions. Nothing he then said could in any way alter the fact that it is wholly illogical, and, I suggest, unwise and unreasonable, that, on the one hand, the Government should make it compulsory for manufacturers to insure their stocks of raw materials against war risks under a Government scheme, while, on the other hand, they not only refuse to sponsor a compulsory scheme, but actively discourage any voluntary scheme to insure against war risks the very buildings, plant and machinery which are necessary to convert those raw materials into finished products.

The reasons for a compulsory scheme seem to operate even more forcibly in respect of industrial buildings, plant and machinery. Moreover, there is a growing demand for such a scheme, so that the manufacturer, who has the misfortune to have his works destroyed by hostile action, shall not have to discharge his workmen for the period of the war and go out of business himself. If some such compulsory scheme had been introduced at the beginning of the war, it would not only have engendered a sense of confidence and security among all those covered against war risks—which I suggest would be a very good thing in itself—but it would have resulted by now in the Exchequer, or the insurance companies, holding a very large sum with which to underwrite future losses. I hope that the Chancellor will review the position, in the light of more recent experience, and of the growing demand for such a scheme, to see whether present conditions do not warrant the extension of the principle of compulsory insurance to property, and especially to industrial works, plant and machinery.

I do not think that any British subject worthy of his citizenship would at this juncture wish to resist, or even adversely criticise, such taxation as may be necessary to pay for the war, even though it might take the whole of his income, and, if need be, the whole of his capital as well, provided that he is sataisfied that the financial burden falls with reasonable equity on the community. From what we have already seen of the Excess Profits Tax in practice, there can be no question that it fails in this respect. What is the meaning of the term "Excess Profits Tax"? It is a tax on profits in excess of, what? Presumably the Government aimed at taxing very heavily, and, as I think, very rightly, profits arising out of the war? Their object, presumably, was to appropriate to the national Revenue a part, or the whole, of that amount of profit, which was in excess of what the profit would have been over the same accounting period, if there had been no such conditions.

To arrive at a standard by which this excess can be measured is very difficult; some might think it impossible. But it is equally difficult to find any justification for the purely arbitrary standard which has been chosen, and which has already proved itself grossly unfair in many cases. What possible connection can there be, which will generally apply, between the profits of the calendar years 1935, 1936 and 1937 and war profits made up to 31st March, 1939? It is obvious that a number of concerns are now legitimately and quite normally making large profits, and will continue to make them, from pre-war-contracts, entirely divorced from the war and preparations for war, and, in spite of the fact that the businesses concerned have been adversely affected by the war. Yet, almost all that profit must be paid to the Crown, simply because the three years selected were, by some fortuitous circumstances, lean years. In some cases within my own experience, they were lean years simply because the business happened at that time to be still battling through a particularly severe and prolonged depression, from which it eventually and completely recovered, but not until after 1937. Because it was down then, the Chancellor has decreed, in effect, that it shall go down again, and shall stay down for the duration, not of the war only but of the operation of E.P.T. In some cases within my own knowledge businesses had large and profitable orders on their books during 1937 but, nevertheless, had a lean calendar year then, because the period was one of preparation—of designing, ordering materials, enlarging shops, installing additional plant, making jigs and tools and so forth—for dealing with those contracts, which proved profitable in the succeeding years. But simply because, in terms of profits, they were still down until after 1937, they are in effect told that they are to go down again, and to stay down for the duration of E.P.T.

On the other hand, a number of concerns which are to-day making large profits entirely out of war work are being allowed to keep their profits, because for them the years 1935, 1936 and 1937 happened to be fat years. In many cases they were fat years solely or mainly because they had the good fortune to secure Government contracts in the early stages of the rearmament programme. But, whatever the reason for their good fortune at that time, who is to say that had there been no war they would have continued to enjoy their fatness! Again, everyone knows that years of prosperity in one trade are often years of depression in another, and this frequently happens to concerns inside the same industry, owing merely to domestic arrangements, to the laying down of programmes or even to an alternating chance. One is therefore driven to the conclusion that the whole conception, or at all events the present conception, of the measurement of war profits is and must be capricious.

In the previous Debates on this tax, the House listened again and again to assurances given by the ex-Chancellor of the Exchequer, and by the Financial Secretary, that it was their desire and intention to deal equitably as between one concern and another. On the strength of these assurances, this House passed the second Finance Bill last autumn, which introduced the Excess Profits Tax. What has become of those assurances now? The tax has been increased to 100 per cent. and the last three lines of Section 13, Sub-section (7), of the second Finance Act, 1939, which gave discretion to the Board of Referees in dealing with exceptional cases, were deleted by the Finance Act earlier this year. Consequently, as the law now stands, and as it is still projeced by this Bill, those suffering the greatest hardship have been robbed of their only hope of equitable treatment. I suggest to the Chancellor of the Exchequer that it would have been far more equitable to levy an adequate general tax on all businesses which were assessable to Income Tax under Class I, Schedule D, before calculating Income Tax; and to assess Income Tax as chargeable under all the Schedules on the remaining profits; thus abandoning all attempts, which in many cases have already proved futile, to measure war profits. Could anyone justly object to such a proposal?

What right has anyone to say, "I must retain my profits even if they may be 100 or 200 per cent, because I made as much in x years"? What right has anyone to avoid or escape taxation on that account? Yet, that is what is being done to-day. Or what justice is there in the Government imposing on the tax collector the duty of saying: "You must pay over to the Exchequer all except 6 per cent. on your capital because you made little or no profits in x years?" Really, it is a fantastic proposition as it now stands. In many instances there is obviously a far greater case for imposing the heaviest taxation on those who have continuously made profits, and therefore at least had the opportunity of building up their reserves, than on those who, after an unduly long depression or after a period of careful preparation happen to be making profits during the accounting period only.

Moreover, as every industrialist knows, there is, from the standpoint of the National Revenue, a still more serious objection to the tax of 100 per cent. Whether you are an employer or a workman, it is always the hope of reward, however small, that sweetens labour. Without that hope, no matter how lofty or widespread are the feelings of patriotism, so long as human nature remains what it is, I fear that the National Exchequer must suffer.

Mr. Ellis Smith (Stoke)

Not as far as the workers are concerned.

Mr. Boyce

I said, "Give the manufacturer and the tradesman, like the workman, something for which to work in addition to his idealism, instead of stifling all endeavour, as is being done at present, and the Revenue will assuredly gain in the process." Otherwise carelessness, extravagance and inefficiency will inevitably be the result, and habits will be formed from which recovery will be slow, costly and difficult when the war is over. I therefore appeal to the Chancellor of the Exchequer to re-examine afresh both the principle and the incidence of the Excess Profits Tax, in the light of the experience which has now been gained, and of the representations made to him by hon. Members and myself.

7.26 p.m.

Mr. J. H. Hollins (Silvertown)

I do not think that I need apologise for troubling this House. I do not trouble it very often, and I do not keep it very long. Probably that is due to a pearl of wisdom I once heard dropped from the B.B.C.—it is not very often that you get them—by a music-hall artist, who is also a philosopher. He said to his partner, "Mother, this world would be a much happier place to live in if only the people who have nothing to say would not say it." I believe that I have a word to say on the Budget, or at least to give a little advice to the Chancellor of the Exchequer when he proposes his next Budget next month. I cannot claim to be a financial expert, and I have discovered that I am not alone in this, but I would like to hear a little less of the equality of sacrifice and a little more of the practice of it. I heard one hon. Gentleman say that he was £10,000 out, but he did not tell us how much he was in. And I have heard complaints of people being swamped by taxation, and I am expected to shed tears for them. I cannot shed the tears. My sympathies are reserved for the men who present their bodies as a bulwark against the enemies of this country for 2s. a day.

The present method of financing the war cannot go on. It is financially unsound. The late Chancellor of the Exchequer, after eight months of war, said that we had added £2,000,000,000 to the National Debt. I have only to apply the principles of arithmetic to the war to know that when the war is over this nation may be in pawn, and the men, who, I hope, will come back after a victorious result, will be faced with the knowledge that they themselves, their children and their children's children will have to spend the whole of their time working in order to pay off 3 per cent. interest. Sir Robert Kindersley made an appeal on the wireless, and it was said that they were waiting for a rise in the rate of interest. You did not appeal for the men. You fetched them. Fetch the money. Science has produced modern and most expensive weapons of war, and yet we are still financing this war on the basis of the days when the fighting men were armed with bows and arrows.

Quite frankly, we must look further. I have taken the trouble to get out some figures, which show that the estimated wealth of this country is £25,000,000,000. One-fourteenth of this sum is owned by one per cent. of the population, and £20,000,000,000 is owned by 10 per cent. of the population. All of this is not, I agree, liquid capital, but at least one twenty-fifth of it is reserves, and I suggest to the Chancellor that he should imitate his right hon. Friend the Prime Minister, who, when First Lord of the Admiralty, told the Navy to "Go and get them" when the enemy had 400 English prisoners on board the "Altmark." He should get this money. If men give their lives during the war, people who have money should lend it, and if the Chancellor and his advisers cannot conceive a scheme through which they can tap this source, then I believe the statement that the expert financiers in this country are either in gaol or on bail must be true.

7.32 p.m.

Sir Herbert Williams (Croydon, South)

We have just listened to an interesting speech, but, if I may say so with great respect, not a very informative speech.

Mr. Kirkwood

We shall get all the information from you.

Sir H. Williams

Take as an example the statement which the hon. Gentleman made that we can get all the money from the banks. I suppose the hon. Gentleman has seen so much money on deposit, but if he had taken the trouble to see the other side of the balance-sheet, he would have found that this has all been lent and that all you could get from the banks is through the process of inflation, which everybody has been denouncing. Therefore, I hope the hon. Gentleman will read a bank balance-sheet before he makes his next speech on this subject.

What strikes me about this Budget is the willingness with which people are accepting heavy new burdens. Many people have said that this Budget is not fierce enough, but I took the occasion last April of saying that I thought the taxes then imposed were about as much as could then be stood. What is important to realise is that you are suddenly im- posing on people—it does not matter what class—sharp new burdens to which they have to adapt their lives. If you examine the domestic accounts of almost any family, they will show heavy commitments, such as a house being purchased on a hire-purchase system and the making of provision for old age by means of life insurance premiums. On these, people can effect no economies at all. There is this element of the time factor, which those who are appealing to the Chancellor are entirely overlooking. So far as normal people are concerned, these burdens bear heavily, but I have had only one letter of complaint—I leave out the Purchase Tax—which has come to me from precisely the type of man I have been trying to describe. He is the father of a large family, with heavy commitments, and he is really perturbed as to what further adjustments he can make, because the bulk of his income is already pledged.

What I am rather surprised about, however, is that nobody has asked whether we are getting value for all the money we are spending. Last April the then Chancellor forecast a £2,000,000,000 Vote of Credit, and the present Chancellor has raised that by £800,000,000. He has done that on the basis of expenditure out of the Vote of Credit during the four weeks ended 20th July which is £57,000,000. That is roughly £17,500,000 higher than that contemplated last April. Why are we spending £17,500,000 more than was contemplated as the average for the year? It is not, I imagine, because the total number of men in the Forces has increased beyond the extent anticipated; it is, I take it, because we are spending more on munitions. I must be a little careful in this field, because I happen to be one of the members of the Select Committee on National Expenditure and chairman of the Supply Sub-Committee, and I do not want to say things which have come to me in that capacity and on which reports have not yet been presented to the House. It is common knowledge that in recent weeks a large number of men have been paid seven days' pay for six days' work. This scandal and folly of Sunday work and excessive overtime, which I have denounced at every possible opportunity, was reported on by the Select Committee prior to the attack on Belgium and Holland. Since then overtime has become much heavier and it is bad for the men. They are being paid much increased remuneration for a small increase in output. I am not blaming the men; naturally, if I could get double pay on Sundays I would take my day off on Wednesday, instead of Sunday, when the rate is normal. Vast sums have been poured out. I imagine that nearly £100,000,000 has been wasted in the last few months through this device of trying to get men to increase their output beyond their normal physical capacity.

On 10th May the Government decided to ask the people to ignore Whit Monday, and in a company with which I am connected this was the experience. The managing director called the men together, explained the circumstances and said that if they were paid time and a half, it would make no difference to the company because it was earning its standard rate and anything above was taken away by the Excess Profits Tax. Accordingly, if they were paid time and a half, it would be at the expense, not of the company, but of the State. Eighty-two per cent. of the men of the company volunteered to work on the Bank Holiday at the usual rates of pay, and by making that surrender of their normal rates they were making a gift, not to the employer, but to the State. But they reckoned without the Amalgamated Engineering Union, which demanded that time and a half should be paid. In that they had the support of the State Departments—

Mr. Kirkwood

How many men were involved?

Sir H. Williams

The firm employs about 300 men. Other firms did not necessarily ask their men to volunteer, as did the managing director of this firm, but everybody who worked that Bank Holiday was paid time and a half, so that the Amalgamated Engineering Union insisted on profiteering. It is just as well that this should be said, in spite of the many murmurings behind me from hon. Gentlemen who are members of the Amalgamated Engineering Union and who are quick to cry out, "Shame on others who are profiteering," but are inclined to wink the eye at anything done by their own members. [An HON. MEMBER: "It is not profiteering!"] I think it is profiteering. You are exacting money from the State without justification.

Mr. Kirkwood

On a point of Order. The Amalgamated Society of Engineers, of which I have been a member for 48 years, do not take advantage. No body of men have sacrificed more than this society.

Mr. Speaker

There is no question of a point of Order.

Sir H. Williams

I am fully aware of the normal arrangement that, if a man is called up to work on a Bank Holiday, he should get extra pay, but here was a case where a decent body of workmen belonging to the union thought it their duty to help the State when their brothers were fighting for their lives for 2s. a day and to make a sacrifice. They had that right of making a sacrifice taken away from them by the union. That is what I said, and it is the truth. It is just as well that those who cast aspersions at others should occasionally receive a little criticism themselves.

We have a Purchase Tax which will occupy a great deal of our time when we get into Committee. That is natural. We always criticise a new tax more than existing taxes. We are used to existing taxes. The new taxes introduce a great many difficult problems. I want to stake a claim out for consideration in Committee of one or two points. In Clause 19 the Treasury takes power to define articles with greater precision, because under the Schedule articles may be free of tax, they may be taxed one-sixth or one-third, and there will be questions of interpretation. Everyone will be uncertain at what rate a particular article is going to be taxed. The decision is to be made by the Treasury, subject to the control that we can pray against their decision. If the Treasury decide that an article which everyone thought was in the second column is to be put in the first column, you are increasing the tax from a sixth to a third, and I do not think a tax ought to be doubled without the House passing a Resolution approving the increase. I hope the Chancellor will be willing to consider an Amendment which my hon. Friends and I will table suggesting that it should be so altered that an affirmative Resolution of the House is wanted to give effect to an act of definition by the Treasury which in effect may increase the tax which will have to be borne. I regard the Purchase Tax, though it may be a necessary expedient, as nevertheless bad in principle. A tax should be a certain tax. There should be no difficulty in ascertaining your liability. This tax is to be uncertain. I think it will give rise to very considerable difficulties of administration. What is worse, the consumer will not know how much is the tax upon an article that he is buying. If I buy an ounce of tobacco, I know how much it is taxed. If I buy a shirt, I have no means of finding out how much tax was paid when it was sold by the wholesaler to the retailer. I think the consumer in general ought to know what is the burden of the tax. He will not know.

In the Schedule we are certainly going to have difficulties, because naturally it is not easy to draw up this Schedule. I am certain there were many headaches in the Treasury before they came to a final conclusion, and I hope they will be open-minded, because people will find features in it to which they take exception, and already Members are receiving communications from all quarters putting forward this or that reason why a particular commodity should be in the Second Column or on the free list. I understand that many Members have had an opportunity to-day of hearing an eminent person explaining why there should be no tax on books. The Chancellor naturally wants to get as much money out of it as possible. His inclination, therefore, is to resist all proposals to take anything out, or to put anything into a lower classification. But let us take the very first item. Ordinary garments will pay a, tax of a sixth. On the other hand, the tissues from which those garments are made will pay a tax of a third. There has to be added on to the tissues the labour of manufacture. It seems to me a strange thing to tax a semi-manufactured article at double the rate at which you tax the manufactured article, and if you buy the tissues, as so many mothers do to make their children's clothing, the tissues will be taxed, and so the clothing made at home will be taxed, but if you buy the children's clothing at a shop, it will not be taxed at all. That is going to be rather difficult to sustain.

I hope the Prime Minister had nothing to do with the next paragraph, because hats are to be subject to an Excise Duty, and it will obviously be a serious burden to him. There is one strange item. It is proposed to tax an article named "kapok." I was rather startled when I saw that and I went into the Library to consult what I was told is the finest dictionary of reference in the world, though it was obviously printed a long time ago. Kapok was defined as something used for stuffing pillows. That is not its present principal use. It is used for stuffing lifebelts. I really think that re-consideration should be given to a proposal to put a duty on lifebelts at a time like this when they are in greater need than ever before.

On page 44, there are some items which rather disturb me. I understand that the first column of the Schedule was regarded as for articles of a luxury character. It is proposed to have an Excise Duty—that is what a Purchase Tax is—on typewriters, dictaphones, calculating machines and other office machinery. It seems to me a very reactionary thing to propose what is regarded as a luxury tax on these articles, and it may bring in virtually no net revenue to the Exchequer. They are largely bought by Government Departments—at the moment very largely—and by firms engaged on war contracts of one kind or another which have had to expand their organisation—precisely the class of people who will be subject to the Excess Profits Tax at 100 per cent. When these are bought I understand that they are not regarded as capital expenditure. They will be a trading expense charged against revenue, and the only effect will be that the whole cost of this tax will come back on to the Treasury in a diminution of its receipts from Excess Profits Tax. The only effect will be that a great deal of labour will he undertaken in that direction. There is a number of other items, pens, pencils and the rest, which it seems to me rather absurd to bring into what is designed as a tax on luxuries. Pens and pencils are the tools of many people's trades, and to tax the tools of trade is unwise, and I hope there will be some reconsideration.

I want to get back to one other matter of importance in connection with the Purchase Tax. It is probably the most important item of all. At the moment we are very rightly doing all that we can to stimulate the export trade, and it is vital that we should do so, because unless we can maintain the export trade at the highest possible level, clearly we shall have difficulties in financing necessary imports of raw materials and munitions from overseas. In many countries the tariff system is differently based from Ours. Those countries do not impose their duties upon the price at which the articles are being sold, but upon the price at which those articles are sold wholesale in the country of origin. The United States of America, in particular, maintains a very elaborate organisation for ascertaining what is the wholesale price in this country—and the same applies in the case of any other country—of goods shipped to the United States; and for their purpose, under the existing law, the wholesale price includes any internal tax levied upon the articles. Therefore, all the articles in the Schedule to this Bill of kinds which we may export to the United States will have their value, for the purpose of ad valorem duties when they enter the United States, raised by one-third or by one-sixth, as the case may be; and if my recollection serves me correctly. I think that, in addition, the United States have a system of anti-dumping duties whereby there may be a surtax imposed upon these articles. Of course, the extent to which this will operate harmfully will be the extent to which we are in the habit of exporting these goods to the United States or the extent to which we desire to increase our exports to the United States; but it seems to me that probably the gravest aspect of the Purchase Tax is that it may undermine our capacity to export successfully to the United States of America.

The Purchase Tax has two purposes. One is to raise money, and the other, clearly, is to cut down the consumption of goods to which the tax applies. In view of this, if the Purchase Tax becomes law, there will be a very strong case for doing away with the Limitation of Supplies Order which has been published by the Board of Trade. I opposed that Order on the last occasion on which I spoke at any length from this Box in the Debate on the export trade. On that occasion, I drew attention to what I regarded as the evil of the Limitation of Supplies Order. That evil was shown only too clearly this morning. I was horrified when I learned that unemployment has increased by some 60,000 as compared with a month ago, partly due to the situation in the coal-mining industry, for which there is an explanation, but partly due to—and officially attributed to—the effect of the Limitation of Supplies Order. We are closing down production and throwing people on to the labour market at a time when the organisation for munitions manufacture is not sufficiently developed to absorb them. That seems to me to be foolish. We are spending money on these people in giving them unemployment benefits or unemployment assistance, and we are depriving their former employers of a great deal of their tax-paying capacity. I know of one company in whose case the whole of its liability to Excess Profits Tax has been wiped out by the Limitation of Supplies Order; it is only a small company, but the Treasury will receive several thousand pounds less than they would have received from that small company if this Order had not been made. When one sees an increase in one month of 60,000 in the number of those unemployed, and when one bears in mind that during the same month, according to statements made in the House, roughly 200,000 have been called to the Colours, it means that there are 250,000 fewer men in industrial production in this country. That is a very serious state of affairs. I know that the Minister of Labour explained the other day that he and three other fellows were the four greatest fellows who had ever been in any Government, and that everything was going to be splendid—

Mr. George Griffiths (Hemsworth)

From where did the hon. Gentleman get that?

Sir H. Williams

The Minister of Labour said it; he named the other three, and he was broadminded enough to include the Noble Lord the Minister of Aircraft Production. I hope that the Minister of Labour will apply his mind to this problem, which is depriving the Chancellor of revenue, and increasing his expenditure. I do not altogether judge Ministers by the rapidity with which they circumnavigate themselves. We see a great many people running round in circles and proclaiming to the whole world how well they are doing it. I think His Majesty's Ministers must apply their minds to the problem of unemployment far more than they have done and also to the problem of bringing into in- dustry those hundreds of thousands of women who are only too anxious to come in the moment the door is opened. So far we have not been too successful. The revenue is being prejudiced, the costs of production are being increased, and expenditure is being increased. All of these are matters which I think are appropriate subjects of discussion on the Second Reading of the Finance Bill, and although my remarks have not been quite in line with those of other hon. Members who have spoken, I hope I have not wasted the time of the House by drawing attention to these matters.

7.56 p.m.

Mr. Woods (Finsbury)

The hon. Member for South Croydon (Sir H. Williams) was very indignant about those workmen who are making their contribution to the war effort in the factories, whose work is vital to the prosecution of the war, and who, because of the machinery devised by the trade unions to prevent exploitation and long hours, received a day and a half's pay for a certain day, and, according to the hon. Member, are getting seven days' pay for six days' work. It amazes me that any hon. Member or any intelligent person should make a grievance of that when, at the same time, there are people who are getting fabulous annual incomes without doing a day's work. It seems to me to be a case of straining at a gnat and swallowing a camel. Millions of workers are fully alive to the fact that many parasites who contribute nothing receive fabulous incomes "beyond the dreams of avarice" of the average working-class family. It amazes me that anybody should complain because men doing honest, decent, and necessary work get the wages which it is only fitting should be paid.

Sir H. Williams

Does my hon. Friend think it is playing fair deliberately to work on Sunday and to stay away on Wednesday, so that on Sunday one gets twice as much pay as one would get on Wednesday?

Mr. Woods

My reply to the hon. Member is that where anybody deliberately does that sort of thing, he should be dealt with, and my experience of trade union machinery is that they soon put their foot down on that sort of thing. If the other people to whom I have referred were compelled to contribute to loans at 2½ per cent., I think there would probably be a much more efficient organisation and distribution of the wealth of this country. On this occasion, as on previous occasions, the Chancellor has referred to the astronomical figures of the Budget and the stupendous and unenviable task which he has, and I think we all appreciate that. When all is said and done, this Budget, which places additional and very grievous burdens on certain sections of the community, is only a drop in the bucket. When there are added to the figures of the Budget the contributions from Savings Certificates, bonds and loans, there still remains a very considerable gap to be filled. The problem of obtaining that additional sum must be faced and I suggest that the Chancellor might find a solution by relieving a burden of taxation which I think is unjust and inequitable.

I agree with the hon. Member for South Croydon that people who take a live and continuous interest in the prosecution of the war feel a grievance when public money is extravagantly wasted. Especially is this so when people see in their own districts works put up at considerable expense and then, because they do not comply in some slight respect, demolished and something slightly different erected. I believe that there has been experience of this kind of thing in Hull, where a local authority set up some construction which, because it did not comply in certain respects, was blown up. When people see this sort of extravagant waste of public money it does not incline them to a spirit of sacrifice.

The time has come when there should be organisation not only of man-power, but of the wealth of the country. We have interminable Debates and disagreements on the banking system and on frozen credits; a little heat might possibly make them liquid. The Debates get us nowhere, and all the time there is this vast potential capacity of wealth almost entirely unorganised. An indication of this can be seen in the increased unemployment figures which have just been announced. If we are to pay for this war out of current income, it is obvious that we cannot afford this vast number of people crying out for something useful to do, but doomed to be idle spectators. This potential capacity could be organised to produce increased wealth if the Government faced up to the problem.

The danger of the Budget is its innovations, and particularly the innovation of the Purchase Tax. It will only aggravate inequalities which already exist. The tax imposes burdens on specific individuals and families and takes no account of their commitments, responsibilities, the size of their families and so forth. It is utterly inequitable, and inevitably the repercussions will be on the Government. At this time, directly or indirectly, the Government are the largest employers of labour in the country. They cover all those in the Army and other war services, the auxiliary services, and provide allowances to old age pensioners, the unemployed and so on. Whether we agree with it or not, we are committed to a sliding scale for the fixing of wages, and this tax will increase the cost of living, bringing an automatic rise in wages to certain sections of the community. In the case of the old age pensioners, the Government legitimately will adjust their allowances, and so what the Government obtain on the one hand, they will have to give out on the other. Taxation of this kind seems to go round and round and get nowhere.

If this war is to be won, it will be won by the spirit of the people and the conviction that what is at issue is some great and just cause. Already some sections of the Government are concerned about the morale of the people, as is evidenced by the almost frantic efforts of the Ministry of Information. My own view is that there is not much to worry about at the present time, but I am certain there will be grievances when this tax comes into operation, and when every mother finds out what she is being asked to pay, in addition to that which she is already paying, and that other people are getting away with it and not making their extra contributions. People will be saying, "It is scandalous. This sort of thing ought not to be allowed." Opposition to the last Purchase Tax resulted in some modification, and in their innocence everybody believed that children's clothing was taken out of the scope of the tax. The impression was that a large family would not be called upon to pay anything extra, but when we go through the Schedule we find that a whole range of things, vitally necessary in every home where there are children, are included, and some of them at the rate of 33⅓ per cent.

The average working-class family of four can only afford winceyette or flannelette, but already since the beginning of the war, and because of this Bill, the price has one up by 40 per cent. to 42 per cent. And now there is to be added this tax at 33⅓ per cent. For many mothers the only chance of providing garments for children is to sit down and make them. Now they will be asked to bear this increase in cost, while the bachelor next door with a larger income, making no provision or contribution to the employment of this country, will look on and smile. No working-class mother can look on without feeling a sense of grievance and asking the question, "How can we fight for justice when this is the treatment we get at home?" That it is all eye-wash and a ramp, will be the conclusion.

Then, take the case of wool. Wool suitable for knitting children's garments costs about 6s. 8d. per lb. If the Financial Secretary to the Treasury can tell me that wool does not come within the scope of this tax, we shall be relieved, but I take it that wool is covered. The price has gone up to 8s., and there will be a tax on that figure. Part of the joy of a mother is to sit down in her few moments of leisure and knit small garments for babies, but every stitch she makes will remind her how much this Purchase Tax is costing. When people reflect on these things and realise the increased prices they are charged, which they are unable to pay because of their limited incomes, there will be a profound sense of grievance.

There is another case which will cause unsettlement in the hearts of the people. The young married couple will have to pay this tax because they did not get married a couple of years earlier. It was not their fault that they did not decide the year in which they should be born. Many people who have been evacuated have had to leave practically all their furniture, not because they have lost their affection for the household ornaments, but because they have been compelled by the necessities of the war to clear off with a limited amount of luggage. Either they or the people who are being compelled to provide them with hospitality will have to purchase additional furniture. People who take evacuees will, therefore, not only have to provide homes for the evacuees, but will be compelled to make an additional contribution to meet the cost of the war, while the person next door, enjoying comfortable means and with rooms full of furniture he has never used, will look on and smile. Thus another sense of grievance will arise, and it will be justified. A number of houses have been demolished by air-raid attacks. Although I have not seen any in this war, I have seen what happened in Spain when a house was demolished by aerial bombardment. The furniture is of no more use, and it is a case of picking out the bits or sending it to a destructor, but what can be salvaged from a bombed home is not worth writing home about. The family which loses the whole of its furniture, which in many cases represents a life's savings, will have to pay this additional taxation when it buys new furniture. There will thus be a fertile ground for grievance which will take away all enthusiasm for fighting for the things that we hold sacred and dear.

Another grievance will arise because of the statement of the Chancellor that things which are already taxed will not be liable to the Purchase Tax. That holds good about wine, but it does not apply to patent medicines. I understand that on a 1s. 3d. bottle of patent medicine the tax is 3d., which represents 25 per cent., and on top of that will be added the Purchase Tax. That is a case of something already heavily taxed which will have to carry the Purchase Tax. Let us see how this operates because of the application of our law. The chemist will be able to get the medicine at a certain price. There is a slight difference now between the price at the chemist and the price at the grocer's shop. That difference will be increased by the Purchase Tax. I do not know whether it is the intention of the Chancellor to allow the incidence of the duties on patent medicines to put many of them into the higher category of taxation. If it is, it will only further aggravate the evil. I suggest that patent medicines should, like other taxed commodities, be immune from the Purchase Tax. This may seem a small and unimportant item, but in many homes these humble patent medicines have been a family tradition for years and are looked upon as being just as vital as wine is in certain other households—and they probably do just as much good if people believe they do.

An innovation to which I would like to refer is Clause 12 of the Bill, which does not allow insurance for war risks to be counted as an expenditure. I can appreciate the Chancellor's concern that this should not become a device for escaping taxation. At the same time, there is a case for every prudent business concern making provision against war risks. This risk will affect businesses all over the country, but it will particularly affect those in certain locations. In many of the coast towns the incidence of destruction may be fairly high, and business concerns, many of them small local businesses, are in such a position that they will lose practically everything and will have to wait until the end of the war before they can receive any compensation. In the same town there will be a branch of a multiple concern which has branches from Land's End to John o'Groats. The branch in a dangerous area is automatically insured because it is carried over the whole range of the firm's businesses. That puts the multiple business in a postion of unfair advantage compared with those businesses which have only one location, especially if it be in a dangerous area. While we are as anxious as the Chancellor that there should be no jugglery with war risks to avoid payment of tax, he might cover himself by giving himself the right to approve insurance schemes which are in his judgment satisfactory and legitimate. We would prefer, if it could be done, a national scheme to which everybody made their contribution compulsorily to meet war risks. That would be a genuine scheme to meet the situation. While, however, the Government decline to take the responsibility of initiating such a scheme, no hindrance should be put in the way of organising a sound, wise and equitable scheme of insurance against war risks. I hope that the Chancellor before the Bill passes will make provision on those lines.

8.20 p.m.

Mr. Craven-Ellis (Southampton)

The hon. Member for Kidderminster (Sir J. Wardlaw-Milne) has put forward the proposal for a premium bonds issue. I want to say that I object to that method of finance, and I cannot conceive that even in war-time it would produce the money that is necessary or that it would be in the interests of those who took part in that semi-gambling game. The hon. Member for Chesterfield (Mr. Benson) has very properly stressed his alarm at the possibility of inflation. We should make up our minds that inflation is inevitable if we are to finance this war on the principles which have been announced in the interim Budget as well as in the previous Budget. My criticism of the right hon. Gentleman would be this, that if he is going to adhere to his orthodox methods of finance, he should say to us, "I want so much from taxation, I want so much from loans, I want so much in some form of controlled inflation." As things are now, we shall reach the vicious circle of inflation one morning and shall not be able to withdraw from that position. After all, I think the majority would say that this was an orthodox Budget and it has satisfied the orthodox mind. It has also satisfied the great majority of the people, not because they are supporters of orthodoxy but because they have one determination, and that is to make whatever sacrifices are necessary to win this war. But, make no mistake, those people are thinking very deeply, and I question whether orthodoxy will prevail at the end of this war as the dominating factor.

We have been at war for 11 months, and if there is one outstanding blunder, I should say it was the lack of foresight. The Government should have been thinking years ahead, and when the war started all should have known exactly where they had to go and what was their position. Man-power and wealth should have been immediately mobilised; prices and wages should have been fixed in this House on 3rd September at the level at which they were on 2nd September, and there should have been no variation. It is true that costs have risen as a result of war risk insurance and the increase in world commodity prices, but those increased costs could have been and should have been absorbed by the Exchequer rather than allowed to go all through the processes of production, at each point raising costs and giving a percentage of profit, and ultimately increasing the costs of war equipment, which in the end the Chanceller has to pay. Even though the war has been going on for 11 months, I do not think it is too late to decide that prices and wages shall be at a certain level from a certain date.

It is rather interesting to compare the method of financing this war with the method which was adopted in the 1914–18 war. In the last war we allowed high wages, and we allowed those wages to be circulated through the shops. Consumable goods were produced in quantities which enabled a large part of that additional purchasing power to be absorbed, and at each stage the legitimate profits were taken until, at the end, the major profits rested with the industrialist, the retailer, and the highly paid executive. By all outward appearances the country, although at war, was in a state of fairly high prosperity. To-day the whole plan has been changed and I am rather doubtful whether it is a wise change. What have we done? We have decided to finance this war mainly, in the first stage, out of the velocity of money, that is wages, and to restrict consumption—and very properly so within this principle of finance. But loans to any amount will not come from the industrialists or the retailers. Go into any city and look at the number of shops now standing empty because there is no trade.

We shall not get loans from the same section of the community as in the last war. We are going to rely upon wages, but let us not forget that a large percentage of the people who now are in receipt of high wages are people who, since the boom broke in 1921, have been suffering long periods of unemployment or under-employment, and we cannot blame those who are not buying National Savings Certificates. After all, what is their first consideration? Having come into a position where they are in receipt of more adequate wages, their first consideration is to restore the standard of their homes and of their personal wardrobes to that of 1921, before they entered on that long period of depression. Therefore, before we get to the peak of voluntary savings, which will not be before the end of 1940 or 1941, if we carry the financing of this war on orthodox lines, I am doubtful whether we shall get the money.

Before I finish I propose to give the Chancellor an alternative method of finance. Last week, as on a previous occasion, the Chancellor laid great stress upon sound finance. Exactly what does he mean by sound finance? One would assume that over the last years we have enjoyed what he terms sound finance, but what has been the result of this sound finance? We have had as many as 5,000,000 people unemployed. When war broke out we had more than 2,000,000 unemployed. [An HON. MEMBER: "And more millionaires."] I do not mind the millionaires as long as the other fellows get a square deal. We are told that more than 20,000,000 people suffer from malnutrition. Is that sound finance? That is what we are experiencing under so-called sound finance. My interpretation of sound finance would be that we reach that stage when the people as a whole are in receipt of adequate remuneration and industry enjoys a fair measure of prosperity. We have been at war for 11 months, but we are not even yet organised for total war. We must make up our minds that, if we are to win this war, we must be organised for total war. The delay, month after month, while victory is certain, merely means that the loss of life and of material will be greater than it need be.

On 3rd September I came to this House and took part in passing something like 23 Bills—I forget just how many. I should have liked to have seen among them a Bill to tell this House and the country what industries were to be fully engaged on war supply, what were necessary to carry on our export trade—which is so very necessary to pay for the enormous amount of imports which we have to bring to this country to help us to carry on the war—and, thirdly, what industries were to be fully engaged in home trade, on the basis of consumable goods. Nothing like that has happened, and we are still making suggestions. At Question Time to-day, Members of this House put forward points and received replies which clearly indicate that, after months of war, we are not yet organised. I say to the new Members of the Government of all parties "Go to it. There is a lot to be done. This House will find the money, to do it." I do not want it to be found, as it apparently is being found, in a way which is crushing one section of the community and, in due course, will crush the whole community. A Purchase Tax is provided for in the Finance Bill. It is a very admirable tax.

Mr. G. Griffiths

We do not think it is.

Mr. Craven-Ellis

Apparently I look at this matter from a very different viewpoint from that of hon. Gentlemen on the other side. May I remind hon. Gentlemen that each nation in this Commonwealth of Nations has a Purchase or Sales Tax, and the percentage to National Revenue is: Australia 14 per cent. and Canada 36 per cent. Germany and France have a Purchase Tax, and Russia has one as high as 86 per cent. I do not look at firs tax merely for raising money. It is a very important introduction in the finance of this country. I accept the Purchase Tax not for what it will produce during a time of war—it may be £40,000,000 or £100,000,000—but because it is a balancing factor in industry. It can be used to check industry where there is a shortage of demand. I look upon it as something which will be operated not only once a year, when the Finance Bill is introduced, but used at different times of the year to assist the re-employment of the people.

Reference has been made by the hon. Member for Gloucester (Mr. Boyce) to E.P.T. I tell the Chancellor of the Exchequer that the introduction of a 100 per cent. E.P.T. is a great mistake. First of all, it robs industry of enterprise and initiative. It undoubtedly is contributing to the higher cost of munitions, and I have been told—I should like my right hon. Friend to say whether this is right or wrong—that, in some cases, where employés are contributing to National Savings Certificates, the employers make a similar contribution, and are allowed to debit the contribution to the general expenses of the company. If that is correct, it means that the men contribute say, 5s. a week each, and the employer 5s. The payment has gone into the cost of his production, for which the Government are paying, and therefore the Government are paying 3 per cent. on nothing. It is nothing, because the matter has been cancelled out by that transaction. I would like my right hon. Friend to say whether that is the position.

A week ago, I asked the Chancellor of the Exchequer to tell the House the approximate amount of the national income. The Financial Secretary to the Treasury replied that we had no definite information. Later, when the Chancellor made his Budget Statement, he used the figure of £5,000,000,000, putting it forward as the generally accepted peace- time national income. Later in his speech, he proceeded to give the expenditure which the national income has to meet, mentioning first of all the amount of taxation. Then he went on to speak of tobacco, clothing, consumable goods and so on. If you total these figures, you find that he left himself, on his own national-income estimate, with £254,000,000 and that, together with the loans which he can get, mainly what we call institutional loans, he has to finance a gap of £2,200,000,000. I can see no hope of his being able to finance this war if the national income is not more than £5,000,000,000. I am using his figure. My estimate would be nearly £7,000,000,000, but even though it be that figure, the policy of finance which has been decided upon is to collect for war expenditure from the first stage of the velocity of money, which is wages. Under present arrangements, I therefore say that my right hon. Friend will not be able to finance this war without putting upon this country a most impossible burden.

I said I would give an alternative method of finance. I have always been a critic, but I have never felt that I was justified in being a critic if I was not able to substitute something for that which I was criticising, whether it was acceptable or not. The method which I put to the House is this, that the Government Departments which are incurring expenditure on account of this war should pay the manufacturers by a commercial bill, and that the industrialists receiving that in payment for the goods supplied would discount that bill with their joint stock bank. I would suggest that that discount rate should be one-eighth of 1 per cent. and it would be an obligation upon the joint stock bank to rediscount that bill with the central bank, the Government guaranteeing that bill, and that the central bank, being in possession of that commercial bill, would then use it as the basis for the currency of this country; and to the extent of the volume of these commercial bills for war purposes I should dispose of the fiduciary issue Treasury bills and also bank money. This does not mean that if we pay for this year's war expenditure by commercial bills there will be £2,000,000,000 of currency in circulation. They would do just the same as America does with her gold. She has over 70 per tent. of the gold of the world, but it is not in circulation. She does not require it in her monetary mechanism. She puts it underground, and it is not used. From a monetary point of view it is of no value to America. Therefore, there is no occasion for us to use these commercial bills in excess of what is required for immediate currency purposes.

What would be the position if we were to finance the war by commercial bills? Some people may say, "This will be a matter of inflation." As I understand monetary mechanism, I cannot see the first suspicion of inflation, because these commercial bills would not be subject to a rate of interest upon which the taxpayer would have to pay, but the taxpayer will have by taxation to reduce the amount of commercial bills in a period of years—I say 30 years—so that for each year the taxpayer will have to find by taxation one-thirtieth of the amount of commercial bills, and in 30 years the whole of those commercial bills which would have been used to finance the war would expire automatically. Suppose the war should cost us £7,000,000,000. The annual charge to the taxpayer would expire, and that volume of commercial bills would be in the neighbourhood of £270,000,000 per annum—about half the new taxation which has been imposed on us since the war started. I suggest to the Chancellor of the Exchequer that he gets out of that present orthodox attitude into which he has got, because we shall not be able to finance this war by the present method unless we put such a burden on the people that many might ask whether victory was worth it.

8.46 p.m.

Sir Richard Acland (Barnstaple)

I hope that the hon. Member who has just spoken will forgive me if I do not follow him, partly because I do not know that I am qualified to do so, and also because I particularly wanted to refer to two speeches which seemed to me to be the most outstanding we have heard this evening. One was by the hon. Member for Kidderminster (Sir J. Wardlaw-Milne) and the other by the hon. Member for Ince (Mr. G. Macdonald) who spoke from different points of view on the same problem, namely, the high wages which are being paid. I particularly admired, if I may say so respectfully, the extraordinary frankness of the hon. Member for Ince, who told us that from the point of view of the working man he resents the anomalous position in which a family, the members of which are engaged probably in engineering, draw high wages, whereas another family whose sons have gone to the war are living in circumstances of very great hardship. I am convinced that this anomaly—first because it is an anomaly, and secondly in order to meet the financial and economic situation—will have to be brought to an end before long, by requiring of those workers who are wealthy, a substantial postponement of a large part of the purchasing power now coming to them. I regard that as inevitable.

What I want to put to hon. Members, and particularly to the Chancellor, is: what quid pro quo must be given to the workers if they are to suffer this postponement of a substantial part of the purchasing power now given to them? That is the problem to which I do not think the Chancellor, or Mr. Keynes, or hon. Members opposite, including the hon. Member for Kidderminster, have really addressed their minds. What new principles are we to adopt, if people are to be asked to adopt this new principle of postponed purchasing power? I am going to make some rather drastic suggestions on my own account. What does the Chancellor expect this country to look like in 1942 after all these means of destruction, accumulated in this country and in Germany, have been mutually poured out on each other? Shall we really be able to continue this gentlemanly kind of finance which we are now undertaking? I think things will be so different as to be quite unrecognisable. I do not think the Chancellor could move to the new system in one bound, but he and his advisers would do well to think about it, and to show in the next Budget that they are making a move towards it. We must, first, give up the principle of equality of sacrifice and adopt the principle of equality of standards, which is quite a different thing. I want to see the soldier's pay brought up to a reasonable figure, and then I want to see everybody else put down to a soldier's pay, whether he is a skilled engineer or not, because I am sure that the skilled engineers would not resent going down to the level of the soldier's pay if the company directors and the landlords were going down to that level as well. Of course, such a principle would require the Chancellor to work out a very extensive system of moratoria. That is all right; for to whom are those payments owed, on which moratoria have to be made? They are owed to other people who are coming down to soldier's pay. We have to realise that it is all wrong to think that there is a private pool of income which each individual has a right and a duty to earn, so that the Budget may come along and take oat what is required for expenditure.

This time next year the budgetary problem will be that of how the whole population of the island is to be fed, clothed and sheltered, so that each person may get on with his job, whether it be that of a company director, an engineer, or a soldier. The budgetary problem will not be one of taking from the people something that they have got; it will be the instrument by which the Government, running the entire country—remember that the Government are now running about two-thirds of the country, and will be running the whole of it before we have finished with our war economy developments—will give the people their share of the supplies which the nation has at its disposal. This will require a complete alteration in our point of view. To-day, we assume that a man has some sort of sacred right to the income that he happens to be receiving, and, therefore, that to take something from him, involves sacrifice on his part. If you take 5 per cent. from a poor man, 10 per cent. from a less poor man, 25 per cent. from a fairly rich man, and 50 per cent. from a very rich man, that is talked of as being equality of sacrifice. The Chancellor of the Exchequer speaks of it as being terrible that a man should have to sacrifice half his income in taxation, leaving him with a mere £50 a week. But instead of the question being, "What is this man's income, and how much do we take away from it?" we should ask, "How much is this man's income, and how much does he need to maintain himself at what he is doing?"

I put it to the Chancellor that one principle, at least, could, and should, be accepted very quickly now. That is, that if you are to have deferred pay, the other thing you must have is deferred compensation for any property that this nation takes over, either permanently or temporarily. If a man can get along very nicely, as things are, you will not be in a position to put in his hands purchasing power which he can use immediately in terms of a demand on our purchasable goods. He will have to be told, "You will make out a claim, which we shall consider when the war is over, along with the claims of those who have lost eyes, arms, legs, and relatives." I want to end on a personal note. I spoke once on these lines before, and people said to me afterwards, "Why do you not do it yourself?" On this occasion, I can say that I have done so. Government Departments have requisitioned some of my property, and, as I do not think it right to receive what they have paid me in compensation, I have sent the money back. Let me say to the Chancellor that if any other Departments requisition any of my property, I shall send back what they send me. These sums are so small that I need not act anonymously in returning them, as was done by Lord Baldwin—then Mr. Baldwin—in similar circumstances.

8.56 p.m.

Sir Irving Albery (Gravesend)

I am sure the House will have listened with sympathy to the statement that the hon. Member has just made. The lot of the Chancellor of the Exchequer is always a difficult one. In peace-time he endeavours to impose as little taxation as is necessary to balance his Budget; and the efforts of this House are usually devoted to pointing out that he has imposed too much taxation, and in doing everything possible to persuade him to reduce taxation in one or more directions Now, in war-time, the Chancellor imposes as much taxation as he thinks he can reasonably collect for war purposes and, as far as I can see, most Members are trying to make out that he is not collecting enough. I share the view that we have to collect in taxation as much as can be collected without causing more damage than benefit in the collection of it. It is absolutely true that in the higher grades of taxation the upper limits have been reached, at any rate for the time being; and it is also true, as was pointed out by the Chancellor, that people must be given some time to adjust themselves to vary radically changed conditions. These things cannot be done at a moment's notice; and, in so far as they are done, they cause suffering, not mainly to the persons who happen to possess the means but to other persons dependent upon them. That has to be taken into account.

There has been a good deal of discussion to-day as to the proportion which can be raised by taxation and by loan, and as to the effects of inflation. It appears to me that as much as possible must be raised by taxation, with the qualifications I have just mentioned. One will obviously raise by loan as much as one can get. On the whole, the finances of the nation in that respect have been remarkably well managed, considering the rate of interest at which we are borrowing. I am definitely of opinion that we cannot get through a war like this without some measure of inflation. The main thing is that it should be controlled inflation, and should not be allowed to run away with us. It comes to this, that we have to meet the expenditure of the war as far as possible by much higher taxation and by maximum borrowing, and that the gap has to be filled by some degree of inflation.

That brings me to the next point. It is probably the only criticism I have to make of the present policy of the Chancellor of the Exchequer, and I do not know whether it is quite justified, because I do not know what his future intentions are. When you get very heavy taxation, it becomes more than ever necessary that the burden should fall equitably and fairly upon the whole of the population, and in my view that is, unfortunately, not the case to-day. From the rich you are entitled, as I said before, to take all you can get, provided that in getting it you do not damage the national economy. Nobody will be very sorry for the very rich, and the Chancellor of the Exchequer is taking from them to-day all that he can get at present. How is the burden spread over the rest of the population? There are many people who are worse off to-day than they were before the war; there are many people outside the Services who are earning much less than they did before the war, and the increase in taxation is naturally causing some hardship to those people. On the other hand, we have a very large section of the population who are, definitely, earning to-day more than they ever earned before.

Mr. Gallacher (Fife, West)

You mean the bankers.

Sir I. Albery

No, I mean all kinds of people. I am not talking only of those who are working in the armament firms. They are not the only people. There is, for example, the managing director, who might have been earning £2,000 a year before the war in an armament firm, whose services were so much in demand that another armament firm offered him £5,000 a year, who left the first firm and went to the second firm, and is now earning more than double what he did before. I am only giving examples, and there are many others. If the burden of the war is to be spread equally then, definitely, those who are better off to-day than they were before the war, and mostly through the war, ought to make a special contribution towards that burden. People have discussed this afternoon—and I do not want to repeat what has been said—the differences which exist in families where there is a husband, and possibly a son, both on active service, and next door, a husband, and possibly a son, are doing valuable and good service on armaments. There is no getting away from the fact that people are noticing and emphasising the difference between the positions of those two families.

That, again, is not confined to workers, to what are familiarly regarded as the working class. It exists also in the professional classes. There is the case of the young professional man, with a wife, and perhaps two children, who may be earning £1,000 a year and very likely has taken on obligations such as school bills and a flat at £250 a year in London. He is now called out on service—he very likely joined a Territorial unit a year or so beforehand—and he has lost the whole of his income, and is getting soldier's pay and soldier's allowances. On the other hand, next door, there may be a cousin of his, or a friend, who happens to be in some reserved occupation, possibly in an armament firm. He is earning better money than he ever earned before. These things are not equal, and as long as the war goes on, the more they will be noticed. If they are not remedied, they will cause ill-feeling and disunity in this country. I am convinced that in a later Budget, perhaps in the near future, the Chancellor of the Exchequer will have to take this into account. Many are of opinion that the simplest way to deal with this problem would be to put on an excess Income Tax, to be deducted from all incomes which are above those earned in what one might describe as a standard year, just as is already done with excess profits. While I am on the subject of the Excess Profits Tax I must say that it is by no means watertight. There are a good many loopholes. In a good many concerns to-day, incomes can be increased without the income of the company being affected. The House of Commons has decided to take the profit out of war; we have subscribed to that principle and we have agreed that the service and property of every individual should be for the State. Having done so, it seems to me vitally necessary to distribute taxation so that those who are benefiting from the war should make a substantial contribution out of that benefit.

As regards handing over property to the service of the State, I would like to make the point, with reference to the welfare of part of the community, that there is no reason to try to take, in yearly taxes, more than you can reasonably expect to gain. I think everybody is agreed that, when this war is finished, there will have to be a capital levy of some kind. Therefore, there is some sense in not unnecessarily damaging capital. On the policy of the country during the war and on the policy of the Chancellor of the Exchequer, the effect on capital and on capital value will be very much dependent. There is a good deal to be said for doing what we can to maintain capital value, not only so that we should get sufficient revenue from Estate Duties but also that a capital levy should be profitable. To come back to the point about excess Income Tax, it seems to me that it should be made on approximately the following lines: For the purpose of the Excess Profits Tax you take a standard year and I would take the same standard year for excess Income Tax. Everybody making a bigger income than he was making in the standard year, should make a contribution of 50 per cent to the State before any other taxes are levied—

Mr. Loftus (Lowestoft)

Fifty per cent. of the excess?

Sir I. Albery

Yes, of the excess although you would need some basis for that excess. You must consider the man who may have been unfortunate enough to have been out of work and I would suggest £4. or £5 a week as the basis. A man earning £5 a week to-day would have nothing to pay but a man earning £10 a week would have to pay the difference between £5 and £10 unless he could show that during the standard year he was earning a bigger income than £5 per week.

Mr. Glenvil Hall (Coffie Valley)

If I understood the earlier part of the hon. Member's argument, what he has just said should be £2 10s. and not £5.

Sir I. Albery

I said the difference. I ought to have said 50 per cent. of the difference between £5 and £10—unless he could show that during the standard year he was earning a bigger income than £5. But I am not tied to any of these details. I have only mentioned them so as to give the House an example of the kind of thing I have in mind. These things all require a great deal of careful consideration, and I have not been able to make the careful study of the question which would be necessary in order to put forward any definite proposition. I only want to put the general proposition before the House. I am convinced that that is the proper way to raise a further contribution towards bridging the gap. It is necessary not only with a view to raising the extra money, but it is equally necessary as being probably the best way to limit that extra consumption, which we cannot afford at present.

9.12 p.m.

Mr. Key (Bow and Bromley)

I am a new Member of the House and therefore not learned in the law of interpreting its mind, fathoming its moods or judging what it thinks or wishes, but as I sat here to-day I had to rub my eyes and pinch myself a little to appreciate that the scene before me was real and that what we were discussing was a Budget of a nation which was really in peril of its very existence. It seemed to me that the thing that we were discussing was a make-believe sort of affair and that this Bill embodies nothing like a victory Budget at all but merely the proposals of a timid, nervous little man called to great things faced with a great task, given a great opportunity, yet able to do nothing great, but make a great surrender to class privilege and class interest. What does all this talk about an interim Budget mean? It means that the Chancellor himself knows that the proposal that he has made is not good enough, that it is merely a makeshift affair, which must be made to serve until something better is forthcoming and someone bolder takes hold of the job and does it as it should be done. We cannot win this war on makeshifts. It is because we tried to do so that we find ourselves in the predicament that we are in to-day. For years we tried makeshift diplomacy—a so-called settlement which could be made to serve for the time being and little bits of peace which were the very means of shattering peace to bits. We tried makeshift organisation of supply and makeshift direction of our labour power and, as a result, found ourselves in the sea off Norway and beaten back to the beaches of Dunkirk. Some of us had hoped that the makeshift régime was ended and that we were really getting on with the business, but here again, we are faced with further makeshift finance.

Why is it that we are called upon to take off the gloves in order to deal effectively with the efficiency which we find abroad, and then must put on a pair of extra velvet for fear of dealing too harshly with the inefficiency which we find at home? This Bill is an indication of the inefficiency to be found in the Treasury of this country. Members of the Government make eloquent speeches about Britain being a beleaguered fortress, about everybody being in the front line now, about every Tom, Dick and Harry working and toiling and sweating to the uttermost, but when it comes to dealing with Algernon and Marmaduke, we must tread warily for fear of undermining morale in the presence of property and wealth, we must stand abash, and while asking for the most severe sacrifices elsewhere, we must be careful to preserve the privileges of capital and class. You cannot measure sacrifice by percentages on the Surtax. It is not what I give; it is what I have left after giving which is the measure of my patriotism at this hour. The working man who comes forward as a common soldier and gives all he has, his power to serve, to suffer, and to die, gets in return but hard keep for himself, and for his wife and children the munificent reward of 27s. a week; but the man with an income of £5,000 a year, who gives nothing but his money, even after the full effects of this bold Budget have been realised is left to struggle on in penury upon a paltry pittance of £50 a week.

Who dare talk about equality of sacrifice in circumstances such as those? If this be a beleaguered Britain, if we are really in this business, then let us be in it with all that we have and are. In those conditions, no question of privilege can arise except the proud privilege to give, to serve, and to die. We can go on fiddling here with farthings upon schoolboys' "penny dreadfuls," halfpennies upon cinema seats, and petty impositions upon lipstick and rouge, but all the time the horror of it is that it is not merely a miserable farce, but it is a base betrayal of those who sacrifice everything in the cause of liberty and love. I am not concerned to-night to argue the case of taxes versus loans, direct versus indirect taxation, more on beer, less on books; my purpose is to register my protest against the gross ineptitude in face of the problem which confronts this country which this Bill actually reveals. The poor, from whom I come and whom I am glad to serve, are in no mood to tolerate further paltering in this matter. Everything is at stake, and therefore, we must stake everything upon this issue. A Budget based upon that conception will command the support of us all. Give the people proof that nothing short of everything is the limit of our effort, and their response will bring overwhelming success to our cause.

How is that job to be done? First of all, any sane system of war finance must be based upon a wider, fuller and fairer system of rationing, bringing in everything necessary to maintain the people in health and strength, housed and clothed to give that essential national service which must become the main purpose of their existence until victory is complete. That rationing must be accompanied by a strict system of price control, not merely for the purpose of preventing profiteers from plundering the public—a practice they are very proud to follow—but in order to save us from the chase of wages after prices which not only will rob us largely of the benefit of our rationing, but will cause serious dislocation in our producing power. Then, in order that everybody may be able to purchase that necessary health ration, purchasing power must be guaranteed. That, alas, in this community will mean in many cases that income has to be increased, but since the raising of wages would start that chase which we wish to avoid, and at the same time might have very serious effects upon particular industries, especially those industries engaged in keen foreign competition, the end which we wish can be better secured by a system of family allowances. After that is done, and everybody is guaranteed that necessary health ration, whatever purchasing power is left over should become available for the national need for the conduct of the war.

We can and should allow certain recreation and amusement, and, as long as we can stand it, small and simple luxuries; but the rest should be taken wholly or in very large part from all parties and all types by direct taxation. That is an outline of a Budget for a beleaguered Britain. When it is said that even that will not give the necessary pounds, shillings and pence, let the Chancellor, and the Government, create whatever cash they require, because their rationing and their price control will prevent inflation. If it is said that that requires a good deal of courage, my reply is that, of course, it does. For that very reason I am afraid that the present Chancellor of the Exchequer is one of the very last persons from whom we can expect it, because it is this very quality of courage which the present Bill shows is so appallingly lacking. That lack of courage is really an insult to the people of this country, because it shows a lack of faith in them, and a lack of confidence in their determination to do or give all and suffer all in the cause of liberty, which for most men of our race is dearer, not merely than property and privilege, but than life itself.

9.25 p.m.

Mr. Brooke (Lewisham, West)

I do not often find myself in agreement with the hon. Baronet the Member for Barnstaple (Sir R. Acland), but he evidently agrees with me that during this evening we have listened to two outstandingly impressive contributions to the Debate—not contributions to our Debate only, but contributions to the whole problem of national finance, yes, and to victory itself. First, I would name the speech of my hon. Friend the Member for Kidderminster (Sir J. Wardlaw-Milne), under whom I am proud to serve as a member of the Select Committee on National Expenditure. In that connection I always find myself regretting it when hon. Members here or outside the House make sweeping charges of extravagance and waste against this or that Government Department and do not follow them up by giving whatever facts they know to the Select Committee. It has been something of a surprise to me, as a member of that Committee, that relatively few particular cases of alleged waste have been given to us by our colleagues in the House. The other speech to which I would like to pay my tribute is that of the hon. Member for Ince (Mr. G. Macdonald). I do not agree with all that he said, and I suppose that he and I are political opponents, but with respect I would like to congratulate him on the real British courage with which he addressed the House to-night.

I do not know whether I am representing the general sense of the House in saying that what we criticise in this Budget is not so much its contents but its timing. A Budget which would have been appropriate months ago is inappropriate now. The Chancellor has given us as a defence, and I think it is the only possible defence, that it is an interim Budget. Instead of hurling abuse at the Chancellor, instead of suggesting, as one hon. Member did, that the right hon. Gentleman has not the faintest understanding of his subject, is it not more useful for the House to try and discover the causes why at this stage of the war we have a Budget which strikes us as several months out of date? I think that there are two main reasons. One is that the Treasury is obviously more on guard than its critics against overestimating the rate of economic change which can effectively be brought about by taxation. That is right to this extent. If, in fact, we were to accept to-morrow the proposal of the hon. Baronet the Member for Barnstaple for equal incomes throughout, we should, even though he denies it, jam the whole economic system. Indeed, London Members must know from their experience of their constituencies that a great deal of unemployment has been created in London by the direct incidence of taxation since the war began. I am exceedingly glad that several hon. Members have laid stress on this phenomenon of continued unemployment in war-time as a matter very relevant to the national Budget. But I think the House must make up its mind what limitations it is to set on the Chancellor's powers. If he is to possess the widespread economic powers which many hon. Members have asked him to use, he must be a member of the War Cabinet. If he is not a member of the War Cabinet, he cannot be expected, as hon. Members have begged him to do, to give orders to others of his colleagues with whom he is on an equality.

The second reason why I think we are behindhand in the imaginative quality of our Budgets is the terrific strain which is exerted by the war on the senior officials of the Treasury. Most hon. Members, myself included, have said hard things about the Treasury at some time or other in our lives, but I certainly hold that the senior officials of our Treasury are among the ablest and most public-spirited servants of any nation in the world. I cannot help thinking that the sheer work of carrying on the war must have thrown upon them, in these opening months, an almost intolerable strain of detail and has not given them sufficient opportunity to devote their minds to that fundamental thought about new systems of war-time taxation which the situation has required. I dearly hope that the Chancellor will take such measures as he may to relieve some of his key men from that daily strain of routine work, so that they may be enabled to think out fundamental new plans of taxation in the manner which this House undoubtedly expects of him and the Treasury.

I am bound to say that when a Chancellor does respond to the strong invitations to exercise his imagination and devise a new tax, he seems to incur an undue amount of criticism. The one new notion that has been produced by Chancellors of the Exchequer since last September is the Purchase Tax. In my view our duty as a House is to lay the foundations of that new tax aright. Hon. Members in one part of the House or another may like it or may not like it, but this is not the time to turn down new proposals for taxation out of hand. My reason for believing that it can be made into a sound tax is because it is working acceptably in many other countries. If this House does its duty, it can forge that Purchase Tax into a very powerful weapon of war finance.

Now I turn to the Income Tax. Under the Income Tax as it stands two sets of people are definitely under-taxed, first, single persons with no family responsibilities, and, secondly, those to whom my hon. Friend the Member for Gravesend (Sir I. Albery) has so aptly referred, the people who are enjoying increased incomes since the war began. Let me take the first class first. Of two men with an income of £700 a year, the married man with two children will have left to him, after taxation, £595, and the bachelor will have left £525. If that sum of £595, for a family of four to live upon, is correct, and represents a fair incidence of taxation, the bachelor is getting off too lightly. Take it at another level; take two men each earning £1,250 a year. The married man with two children will be left after paying tax with £950; the single man will be left with £880. One or the other of those two residuary figures, left after taxation, is wrong, and out of relation with capacity to pay.

Why must we retain this traditional system of a standard rate of Income Tax which nobody, in fact, pays? Why continue to talk about an Income Tax of 7s. 6d., 8s. 6d., or 9s. 6d. in the £? I have been looking at the figures, and hardly anyone with an income under £3,000 a year actually pays as much as 8s. 6d. in the £. To put the argument the other way, in order to have a net income of £10,000 an individual—and I do not envy him—has to possess a gross income of not less than £70,000. That position is largely concealed from public understanding by this continued talk in terms of a fixed standard rate of tax. Why cannot we give up the complex system of allowances? Why have we to maintain the Surtax as separate from the Income Tax? Why should we keep these tabulations in the White Paper which show people who pay tax at 1s. or 4s. 11¾d., or 9s. 1d. in the £? Why cannot we have simple rates for different income levels as we have for Death Duties on capital values—one scale for bachelors, another for married men, with further scales for married men with one, two, three, or more children? That system would be intelligible to anybody, and meet the point which was made by my hon. Friend the Member for Kidderminster that we should impose direct taxation and make it felt and accurately understood by as many people as possible, from the basic minimum level right up to the top. If we could do that, and accept this new presentation of direct taxation, the Chancellor would be free to devise a better graduation of tax all through, completely unhampered by these traditional allowances and by the fetish of the standard rate.

I was intending to put forward, in conclusion, a proposal in reference to which I should like to congratulate my hon. Friend the Member for Gravesend on preceding me. He made the suggestion far better than I could have done. I am certain that the Chancellor of the Exchequer must devise, before his next Budget, some system of personal excess Income Tax. Let us look at it in this way: to live on £300 a year—£6 a week—may be penury or it may beriches. It is penury for the family that has been accustomed to living on £20 a week; it is riches to the family that has been accustomed to living on £2 10s. a week. In these times we cannot afford to ignore this very important fact of movement of income. Our existing system of taxation entirely ignores it. The one principle universally accepted is that no one should be rendered better off by the war. I hope that the whole House will appeal to the Chancellor to plan a new tax of this kind in time for his next Budget.

9.41 p.m.

Mr. Deputy-Speaker (Colonel Clifton Brown)

Captain Crookshank.

Mr. Sloan

On a point of Order. Is the Financial Secretary closing this Debate?

Mr. Deputy-Speaker

The Financial Secretary is rising to take part in the discussion. I cannot say that he is closing it.

Sir Henry Fildes (Dumfries)

On a point of Order. When the Financial Secretary gets up we all know that the time is going on, and we have a lot to say yet. If he could defer what he has to say until he has heard the speeches from the rest of the House, it would be a matter of advantage.

Mr. Deputy-Speaker

This is not a point of Order. The Financial Secretary caught my eye. [An HON. MEMBER: "We do not want to hear him."]

9.43 p.m.

The Financial Secretary to the Treasury (Captain Crookshank)

I never like to hear my own voice, so I can sympathise with the hon. Member. There may still be some speeches undelivered, but, of course, this is not the end of the financial business connected with this Budget. It is hoped, however, to get on with some other business of considerable importance before we rise.

Mr. Sloan

May I point out that we have heard speeches which have already been delivered?

Captain Crookshank

I am very sorry that anybody should have repeated his previous speech and that I missed an opportunity of hearing the hon. Gentleman, but there are other occasions. We are working under considerable pressure in war time, and I hope that I shall not be doing anything wrong in the opinion of the majority—

Mr. Sloan

May I point out—

Mr. Deputy-Speaker

The Financial Secretary did not give way to the hon. Member, and therefore he cannot interrupt except on a point of Order.

Mr. Sloan

I want to know why the Financial Secretary is now taking part in this Debate. He said that he is doing it with the permission of the House. When did he have the permission of the House to do anything of the kind?

Mr. Deputy-Speaker

The Financial Secretary rose, he caught my eye, and I called upon him.

Mr. Sloan

It is done by arrangement.

Mr. Deputy-Speaker

Certainly not. It is done by catching my eye and not by arrangement.

Captain Crookshank

I hope I may be allowed to answer some of the points which have been raised up to now. My right hon. Friend has received many suggestions which it will be his business to consider in the days to come, whether in connection with this Bill as some of the points were, or in connection with the larger matters of finance of the war. The right hon. Gentleman who followed him was good enough to give us for the first time the use of the word "milliard." I am not sure that I approve of it, but, of course, the figures which he used are very large, and I can assure him at any rate, without commenting in any way on what he said were mere conjectures, that the Government are certainly alive to the very large problems which would be involved in a long war. In this House we bandy about these figures of £1,000,000,000 this and £1,000,000,000 that, and I wonder whether hon. Members have any conception of what that sort of thing means. I dare say that in our own constituencies, or in connection, perhaps with charities in which they are interested, they sometimes make a practice of appealing to the generosity of the public by contributing to a "mile of pennies." I have worked out what £1,000,000,000 if laid out in pound notes would extend to, in miles. It may seem a rather schoolboy kind of calculation, but actually a pound note is approximately six inches in length, and if you stretched out 1000,000,000 of them like a ribbon, the result would be a ribbon which would cross the Atlantic 31 times or go round the world nearly four times. That calculation is of no importance or value, but it does remind people what these colossal figures mean. That was the sum involved in the last financial Debate.

There have been running through the speeches again to-day, from several hon. Members, allegations of waste here and there in connection with the Government's expenditure. I can only say once more, as I have repeatedly said in financial debates since the war started, that the Chancellor of the Exchequer, I myself, and the Treasury are vitally interested that that sort of thing should not occur. It was for that reason that my right hon. Friend's predecessor was glad when the suggestion was made that a Select Committee should be appointed to go into the question of national expenditure. That Committee is doing very valuable work. I would beg hon. Members not to make allegations at large in this House, but rather to follow the advice of my hon. Friend the Member for West Lewisham (Mr. Brooke) and either to take specific instances to ourselves at the Treasury or, considering that our colleagues have been charged with this particular duty, to take to them any cases that may be tracked down, so that the evidence may be sifted. Then, if there is anything in it, not only Parliament, but also the spending Department concerned, will be acquainted with it.

The right hon. Gentleman also made a suggestion that there should be a cut in the short term rate of interest from ½ per cent. to ½ per cent., or perhaps ¾ per cent.; and he raised, once again, the question of Treasury Bills. As this is a matter of some importance, which has been raised in the House before now, it may be as well if I give on that point the considered view of my right hon. Friend. It is a well-known fact that it has been the policy of the two Governments which have been in office since the war started that we should try to raise the vast sums required for the war on terms which place on the Exchequer as low a burden as is reasonable in the circumstances. That is an agreed policy, and I think the right hon. Gentleman will say that we have been successful. He has never made any grave criticism of the general structure of interest rates on which we have been able to borrow so far, and I need not remind the House that the series is greatly lower than obtained in the last war. The Treasury bill rate is itself related also to a structure of interest rates upon short moneys. First of all, the rates normally paid by banks on their deposits—not, of course, on current accounts—is ½ per cent. The clearing banks rate for short-term loans is ½ per cent., and the rate on three months' Treasury bills is a few pence in excess of that rate. The natural rate for Treasury bills, which is fixed by competitive tender, depends on many complicated factors, of which the volume of Treasury bills is only one. The short-term money market is a very elaborate machine, but it is essential that its working in war-time should be effective in order that we can raise the enormous sums that we need. My right hon. Friend certainly thinks that he would not be performing a service but a very great disservice by taking any ill-considered action which might derange it.

When we have gone over the criticisms which have been made in this House, some of them in the recent Debate on the Vote of Credit and some in earlier speeches, we have detected what are in fact two objections in the minds of critics about the present position. The first line is to say that the banks, from whose deposits much of the money directly or indirectly comes, should not pay interest on the deposits they receive. Of course, the banks do not pay interest on current accounts, and on ordinary deposit accounts their normal rate, as I said just now, is ½ per cent. It is true that it has been the practice in some parts of the country to pay rates of interest up to 2½ per cent. on special deposits—I think the right hon. Gentleman is aware of that—and that custom is in fact a legacy from the practice of local banks before the large amalgamations took place. Steps, as far as that is concerned, have recently been taken to arrange that for future deposits a maximum of 1 per cent. should prevail where previously higher rates had obtained. My right hon. Friend does not see any adequate reason for going further at the present time, and I think it would generally be accepted that the payment of interest on deposit accounts is useful to the extent, that it is a deterrent against spending and against people taking their money out of deposit and using it in current expenditure.

The second criticism, which was much more bluntly put by hon. Members who are not here at the moment, is that the I per cent. lending rate of the banks yields them an excessive profit, and that a very large part of it is ultimately at the expense of the Exchequer owing to the volume of Treasury Bills. The right hon. Gentleman and others should realise that other people beside the banks take up Treasury Bills. Still, that is the argument, and that question too has naturally been considered by my right hon. Friend, and, in doing so, he has had the assistance of the banks themselves, and it is not the first direction in which he has had their assistance during the war. The fact remains, as far as the banks are concerned, that their profitability depends not just on one factor alone but upon the results of all their operations, which are now being undertaken in times of great difficulty and risk that we are all passing through, and in times in which they have not increased their general charges to their customers. And so, looking at it from that point of view, my right hon. Friend is satisfied that the criticism on that score is not founded. All the critics can take consolation in this reflection, that, if he is wrong and the banks do in fact on balance make largely increased profits, these profits will fall to the Exchequer under the 100 per cent. Excess Profits Tax. So much for that point.

Another point dealing with the larger financing of the war was raised by my hon. Friend the Member for Kidderminster (Sir J. Wardlaw-Milne), who made a most interesting speech and raised many important points, and he will excuse me for dealing with only one point. He asked that there should be a survey, as I understood it, of non-essential industries. That is not in my direct purview, but I always understood that that is being done. I think my right hon. Friend in his opening speech dealt with some aspects of that. Then my hon. Friend raised the question, which he has raised before, of his desire to have lottery bonds. I suppose that like some other things in the world this is one of the things about which people feel strongly one way or the other and about which their views never get reconciled. But taking it from the Exchequer point of view, my right hon. Friend has looked at it, as, indeed, his predecessor looked at it, and I expect as did his predecessors for many years past, but they came to the same conclusion—that it really is not a suggestion which they could put before the House and the country. In fact, it is felt that in present circumstances it would not be helpful but very likely would be harmful, in some cases, to the campaign for small savings being successfully carried out. So I leave it there, so far as my present right hon. Friend is concerned, but I have no doubt that so long as my hon. Friend is in the House he will deal with it as the years go by.

Sir J. Wardlaw-Milne

I think perhaps my right hon. and gallant Friend did not do me full justice. I did not put forward the idea of lottery bonds as being a tremendous advantage in itself but as a possible alternative, in these times of stress, to forced loans.

Sir H. Fildes

Will my right hon. and gallant Friend indicate whether he intends that shrouds and coffins shall be open to the luxury tax?

Captain Crookshank

Life, of course, is a lottery, but I was dealing with some form of premium bonds. I hope I was not doing an injustice to my hon. Friend, but even so I wanted to indicate to him that the idea would not be acceptable. A similar point, which has nothing to do with the lottery aspect, was that made by my hon. Friend the Member for Gloucester (Mr. Boyce), who asked whether National War Bonds might be allowed in payment of taxes. He thought that that might be a good plan, but whether it would be or not it would not help us to get any more cash. What would happen would be that more bonds would be sold because of this facility, but at the same time we should be getting less in cash from taxes, and I think that that suggestion, too, is not one which is likely to be accepted.

Much of this Debate, apart from the matters with which I have dealt, has been about the Purchase Tax, and perhaps I had better say something about that. The hon. Member for North Battersea (Mr. Douglas) was, I think, in a maiden speech the first one to open out, and I would like to congratulate him on the confident way in which he addressed the House and also on the observations he made, although I cannot say that I must necessarily be taken as accepting all of them. The Purchase Tax is, no doubt, the part of the Bill which will be most discussed, if only for the reason that it is a new form of taxation in which people are more interested than in the older taxes, although they are far more burdensome. My hon. Friend the Member for Sowerby (Mr. McCorquodale) asked whether this would be a "war-time only" tax. I am afraid it is not usual for Chancellors of the Exchequer to bind themselves even in war-time as to what they may or may not have to do, and I hope no one will want to bind a future peace-time Chancellor as to what form of taxation may then be required. Certainly it would not be safe for me to make any promises; I do not think they would be of any value if I did. But I do say that if this Purchase Tax were to be a long-term permanent tax, there would probably have to be many adaptations in order to achieve a form of taxation more sensitive than the rougher form in which the tax is bound to be at the present time as an urgent war tax. I am not going to discuss again the suggestion whether or not it would be better to have this tax in the form of a sales tax. We have had that out before, and those who differ will probably go on differing. But I do not think there can be anything in the argument that we should get more out of it by having a retail tax. Whether you get more or less depends on the rate at which you do the taxing. If you set out in the hope of being able to raise £110,000,000 in a full year, if you started collecting tax in another way the charge would be at a different rate, but it does not follow that you would get more or less. There are many other reasons against a retail tax which have been already discussed.

There has been some anxiety in some of the speeches about the possible reaction of the tax upon the export trade. Of course, the President of the Board of Trade has been in these discussions, and I am able to point out at this stage something which I think hon. Members are very apt to overlook. That is that what is in the Seventh Schedule is what is within the field of taxation, and there are three columns even there, so that not everything is at the highest rate. But, just because you see in the first and second columns of the Schedule what seems at first an alarming list of chargeable goods, perhaps you are apt to overlook the enormous number of things which are not in the Bill and do not come within the field of the tax at all. Raw materials are exempt, as are all the machinery in industry and in agriculture—hon. Members can see what a vast amount that is, and as I mention these things perhaps they will try to think how the export trade would be affected by the withdrawal of the tax from this group of commodities—food and drink are free—I think I am right in saying that. as far as the United States are concerned, which is one of our most important export markets, something like a third of our exports come under the drink category—tobacco, coal—another export commodity which is not connected with this Bill at all—oils, fuels, commercial transport, packing materials. So I could go on. but I do not want to give a string of things. What I want to impress on Members is that there is a vast amount of the things which go into the export trade which have nothing to do with this Bill or this Schedule at all. What is within the Bill and might be exported is a comparatively small field.

On the other side we have the advantage that in these export markets we no longer have the fierce competition from many parts of Europe during war. A great many of the commodities which the Americans used to take from Europe either they will not get at all or they will more or less have to get from us, because exporting from the West of Europe is not a practical proposition with a number of Powers to-day. But, of course, we cannot dispute that, if a country charges an import duty based upon the open market wholesale price of goods in the country of origin, it is likely to consider that the Purchase Tax is included in the wholesale price. I would impress on the House that the tax does not apply to exports; the goods which are exported do not have to pay the tax. But I appreciate that that is not the difficulty which has been raised to-night. The difficulty is whether the importing country considers the wholesale cost as being what it is without the Purchase Tax or as what it would be in this country cum Purchase Tax. That is the point at issue. We are already making, and will make, certain representations of a suitable kind to the countries concerned, which may wish to consider the effects of this new tax before they take a decision as regards their own tariff laws and tariff practices.

Sir J. Wardlaw-Milne

Have those representations been made to America?

Captain Crookshank

Yes, they are being made. My right hon. Friend the President of the Board of Trade is not unduly alarmed about the position.

I should like now to turn to another point which it might be useful to clear up at this stage. The hon. Member for Finsbury (Mr. Woods) spoke about children's garments, made at home, and was afraid that knitting wool might come under the tax. I can say that it is not intended that knitting wool should be caught, and we are advised that, in connection with the definition of "haberdashery" in line 17 of the Schedule, there is no possibility of wool being thought to be haberdashery. Wool as such is not mentioned and, therefore, is clear of the Bill, but if there is any fear that because it is sold in haberdashers' shops it may be considered to be haberdashery, we will insert an Amendment to make it quite clear. As at present advised, however, we are under the impression that, like all the other things which are not mentioned, knitting wool is not caught. If there should be any doubt about it, we will see that the doubt is removed by an Amendment at the proper time.

Mr. Ellis Smith

Does that not apply to other matters?

Captain Crookshank

I cannot answer off-hand about other things.

Mr. Woods

I understand that when the wool is sold on cards in small quantities as mending wool, it becomes haberdashery. The question is when it ceases to be haberdashery and becomes wool.

Captain Crookshank

That may be the question, but the point is that it should not come in.

Another point with which I should like to deal now, in order to save controversy and unnecessary discussion, is that raised by my hon. Friend the Member for Yardley (Mr. Salt), who asked about drugs of "an exceptionally costly character" which are included in the Schedule, in page 44, as goods which are to be exempted from the tax. The hon. Member did not think it possible to get any definition of what we had in mind. We have been able to do so because a list of drugs of "an exceptionally costly character" has been drawn up by the Ministry of Health, with the help of very eminent medical men. All of them happen to have agreed on this, so I hope the House will not want to disturb what is a somewhat unusual thing—complete medical agreement. The list includes drugs which are themselves costly, such as special injections for rheumatism and preparations known as M and B 693 for pneumonia; it includes also sera as well as expensive drugs which have to be used for very long periods, if not for life. That is why hon. Members will notice in that column particular reference to insulin and liver extracts. They are costly but might not come under the "exceptionally costly" definition. But once they are used, they have to be continued and that is why they are included. As regards appliances, the list includes artificial limbs and spinal jackets. So hon. Members can rest assured that it is possible to define a list which will come in that list. The Ministry of Health have very great experience in this matter from the administration of the Health Insurance Act, and I do not think there will be any difficulty on that score.

I think I have dealt with all the important points raised, but, as I see my hon. Friend the Member for South Croydon (Sir H. Williams) is present, I will interject something which, I think, will satisfy him, although it is outside the Purchase Tax. He was afraid that the imposition of the Purchase Tax might lead to anti-dumping duties in foreign countries for exported goods. But he will see from Clause 29 that there is no possibility of that because there will not be a tax on the goods as exported. We are advised that there is no possibility of it under that Clause, and, if he studies it, he will see that there is particular reference to the problem of allowance under Subsection (2)—"of an allowance for tax paid…."

Sir H. Williams

It does not matter in the least what we put in this Bill. What dominates the matter is the Act of Congress of the United States, which deems the home consumption value of goods—goods sold wholesale and including tax.

Captain Crookshank

I think the Clause does cover anti-dumping. It is not a question of tariff with which I am dealing but a question of special anti-dumping. I think he will see it is met as far as we can see.

I should like to go back and say a word or two upon the Purchase Tax. Of course, it is admitted everywhere, and by my hon. Friend—and no one speaking on this tax could do otherwise than admit it—that the tax must, in the very nature of things, press to some degree on all households in this country, but by the way it is now presented to the House in this Bill it does avoid hardships to those with the smallest incomes, and particularly those with children. I would remind hon. Members of the great mass of commodities, goods and services which are not covered by the tax. I would refer them to the Budget speech of the Chancellor, in which he pointed out that something like 80 per cent. of the goods which came within the cost-of-living index are not affected by the tax, and that the expenditure on the lower rate of the Schedule represents about 12 per cent. of the household expenditure which comes within the cost-of-living index. So that, granted that the cost-of-living index is reasonable in the circumstances of to-day, we find that out of 100 articles, 80 have nothing to do with this tax at all, 12 come within the reduced rate, and eight only within the higher.

Mr. E. Smith

On what basis have these articles been selected?

Captain Crookshank

I should say that they are selected from the point of view that my right hon. Friend put in his Budget statement: first, that the Exchequer requires more cash to carry on the war, and, second, that it is necessary to reduce civilian consumption. He has kept out of the sphere of the tax 80 per cent. of what comes within tie cost-of-living index, and the Schedule deals with other articles in a way which makes the tax a consumer's tax on personal and domestic expenditure which one can reasonably expect should be limited in war-time.

Hon. Gentlemen say that this is a serious tax for those who are about to get married. They are going to set up house and will have to pay more than they would otherwise have done for the articles of furniture they require. I am not one to give advice to those about to get married, but I think it is probably true that in war-time the great bulk—I have not asked the statisticians, but one's observations show it—of marriages are those of men serving, and there, naturally, the question of setting up households does not really arise on anything like the scale it would in peacetime. I should think that is common knowledge. That being so, those who insist upon setting up house in these times will, I am afraid, have to pay more for doing it because some of the articles of furniture will be more expensive as a result of the tax. That may well be, but again, it might be wiser not to rush into setting up house; marry if you like, but save what you can until the time when peace has come and the household may be all the more happy and contented, if for no other reason than the fact that the couple have been able to choose their furniture together.

There is another point which it is necessary to emphasise now. Last time I spoke I dealt with the question of forestalling and gave a warning to wholesalers and retailers who may feel tempted to purchase outside their normal scale and thereby bring themselves within one of the Clauses of the Bill. I should like on this occasion to point out that if the Bill passes in anything like the present form, which I have every hope it will do, it will be necessary—indeed, it will be a statutory duty—for those who are concerned to apply for registration, when they have the full instructions, which will be published. Under the Bill there is a heavy penalty, for not applying in due time, of a fine of £100 and £10 a day for every day they fail to register. Once the House has accepted the scheme and it becomes law, it is important that we should get it into operation as soon as possible for reasons I have indicated. One of the essential steps is that those who should do so should register. So I give that warning to all concerned.

That, I think, is all that I need say at the moment upon that subject, because we shall have other opportunities of discussing it, but I should like, if hon. Members opposite would take it in the way that I put it to them, to say that my right hon. Friend and I do recognise that in accepting the principle of this tax they have made a real concession in the national interest. We do realise that at one time they were not inclined to consider it at all, but they have come to see that in order to bring this war to a successful conclusion everyone will not only have to give a great deal of money—this Bill will see to that—but have to concede a lot in the sphere of opinion. They have accepted the principle, and I can assure them that we recognise what they have done, and I can only hope that in a similar way they will help us to get the Bill on to the Statute Book as soon as possible. I also ask them to recognise that in the Schedules, as in the provisions of the Measure itself, which have been the result of a great deal of thought and consultation, we have done our best to do what we set out to do, that is not to impose any more hardship than was unavoidable and to take definite steps to see that people who can restrict their purchases of these articles—which, incidentally, may be in short supply for other reasons—do so. If they do not, we shall get something from them by the Purchase Tax; and if they do restrict their consumption, following the advice which has been given to them from every quarter, I hope that they will lend their savings to the State in order to fill the financial coffers which it is so necessary to fill in order to win the war.

10.23 p.m.

Sir Joseph Lamb (Stone)

I know that it is unusual to continue the Debate after the Minister has spoken, but my excuse, if excuse is necessary, is that although I have sat through nearly the whole of the Debate, I have been unable to get an opportunity to make the two points which I wish to put before the House. They are points which I believe to be of great importance, and neither has been touched upon previously. The first point is the effect of the increasing Estate Duties upon large agricultural estates. In the Sixth Schedule we find the amount of the duties upon these estates, but it was in the introductory Budget that the Chancellor told us there was an increase of 10 per cent., and that does not appear in this Schedule. I am not asking for the exemption of agricultural estates—that is one of the reasons why I could not put down an Amendment on the Committee stage and why I must ask the indulgence of the House now—and I am not attacking the principle, which is a very big one, of the over-taxation of landed estates, but what I am asking is that due consideration should be given to agricultural estates in the application of this taxation. I was struck by what an hon. Member said earlier, that it is not what we collect but the manner in which we collect it that is important. Unless we are careful these duties will have a deleterious effect upon food production in this country—I hope the Minister of Agriculture will pay attention to what I am saying. We have experience of what happens at death owing to the heavy duties which fall upon a large landed estate. Undoubtedly large estates are more economical to manage than small ones, because there is a greater concentration of management expenses and of the costs of upkeep and repairs. There is a good deal that could be said about that, but I will not go into that matter now.

In the Schedule, Estate Duty ranges from 1 per cent. to 65 per cent. I admit that the 65 per cent. is on an estate of £2,000,000, which would be a very large one, but 65 per cent. is also a very large percentage. The percentage of 55 is on an estate of £1,000,000. There are very large estates which sometimes come to that sum. Even so, no less than half the value is taken on those estates. Those are very big charges to place upon land, because of the results. In actual practice it is found necessary to sell the estate. I am not taking the point of view of the landlord, but am concerned about the production of food. Such sales take place at forced prices, which are not always financially sound for the land. The value is affected very largely because of those who are not producers of food who will use the land for that purpose, but wish to invest in land and put the price up higher than is legitimate for food production. Some farmers will compete for the farm of a neighbouring farmer because it has been well farmed and is in good condition. The farmer who is in possession of the farm has to buy it; if he does not, he loses his home and the benefit of all the improvements which he may have made. There are many cases of an estate having been broken up, and of farmers being forced to buy their farms. It means that they lock up capital which ought to be used for the production of food. If he does not use his own capital, he has to get it from a financier. That means that, in almost all instances, the amount of interest which he has to pay, plus repairs which the landlord would do in the ordinary way, amount to his being saddled with a higher rent.

I ask the Government, not for relief, but that they should endeavour to find some method of application which will not have the results that have accrued in the past. Could not the Government take over a certain amount of land, instead of cash? That would mean that part of the estate would not be sold. I believe the power to do so exists, but that the Treasury refuse to accept land, saying that what they want is not land but cash. That causes a great deal of hardship. There is a rule whereby payment can be made over eight years. It has existed for a long time, and has been operated, but it does not prevent the sale of land and the break-up of the large estates. I hope I shall be able to convince the Minister. If I have not done so, it is not because I am deficient in material but because I am speaking against time, which is always difficult. I hope I have convinced him that the ex- traction of this money from the land can be done in a way that will not have the ill effects that it has had in the past. I hope that he will find some way to help me.

The other point will not take much time. I may have to put down an Amendment on it on the Committee stage, but I do not wish to do so: I refer to the inclusion of china in the first section of the standard Schedule. I promised not to take up much time, and I will not break my promise.

10.30 p.m.

Mr. Molson (High Peak)

I make no apology for speaking at this hour, as the Financial Secretary rose to reply to the Debate some 35 minutes before the customary time in spite of the fact that a number of hon. Members had indicated that they wished to address some observations to him. I should be grateful if he would do me the kindness of listening to what I have to say now.

I should like to associate myself with the general arguments of the hon. Member for Kidderminster (Sir J. Wardlaw-Milne) on this side of the House and the hon. Member for Ince (Mr. G. Macdonald) on the other side. I think there has never been introduced into this House a Budget that has been so little opposed and so much criticised as this. The reason is that not only in this House but also in the country there is a widespread feeling that it is not in keeping with the intensity of the war effort which is necessary at the present time. There is a feeling that the Treasury is falling short in its policy compared with what is being done by the other Goevrnment Departments.

I think the Chancellor of the Exchequer confused two of the great difficulties of conducting this war when he spoke of our foreign resources as being capable of being used for making up for the deficit on the Budget. As I see it, in conducting this war we have in the first place to balance our expenditure inside this country, which is relatively easy to do, and at the same time we have to maintain our purchasing power in foreign currencies in order to import food, raw materials and munitions from abroad. That is a vastly more difficult undertaking and one which will he discussed by this House to-morrow. I feel that it is entirely wrong to suggest that our resources in foreign exchange can be used to make up for a deficit in our internal war expenditure. We have had forced upon us something in the nature of a closed economy; and, so far as our expenditure in this country is concerned, it is to a very large extent a transfer from peace expenditure to war expenditure, and our industries and our men are now being employed upon war purposes where previously they were employed upon purposes of peace. It is for that reason that the taxable capacity of this country has been very greatly increased by the war activities and the intensification of the production of arms.

If we are to avoid inflation in this country, it can only be by taking out of the pockets of the consumers, either in taxation or in loans, an amount equal to what is being expended upon armaments. It was of great interest to me that the hon. Member for Chesterfield (Mr. Benson) from the opposite benches should have emphasised so strongly the fact that the burden upon the people is set by our expenditure, and we can choose as to whether that burden is to be spread in an unscientific way by inflation or whether it is to be spread more fairly and justly by taxation and by loans. I hope that the very interesting speech which he made carried conviction to hon. Members on his own benches, who must be prepared to accept on behalf of the wage earners a very great burden for paying for the war. It is, indeed, more in the interest of the workers than anyone else that the cost of this war should be borne by taxation and by loans, and not by inflation. If anyone has any doubt on that point, I would refer him to the table in Mr. Keynes's book on the financing of the war.

Because all our expenditure on the war is, in the true sense of the word, uneconomic, one would prefer that the largest possible proportion of it should be raised by taxation. But because, even in war-time, you cannot expect men to work for nothing, it will have to be paid for to a large extent out of loans—which means, by the promise of enjoyment to be deferred until later. We should lay it down as a principle that at least half of the total expenditure upon this war should always be met out of taxation; as the cost of the war increases, the burden of taxation must be raised proportionately.

I ask, however, that finance shall not only be made to keep step with our war effort, but that it shall be used to assist the diversion of our man-power and industry from the pursuits of peace to the pursuits of war. By reducing the standard of living of the civilian population and thus reducing domestic consumption, the tasks of the Minister of Supply in producing armaments and of the President of the Board of Trade in stimulating our exports will be made easier. This reduction in the consumption of the civilian population should be brought about by taxation, by taking purchasing power out of the hands of the people, rather than by some elaborate and rigid system of rationing. The taxes upon which the Chancellor of the Exchequer is relying at present are, in a large number of cases, taxes upon luxuries. As he succeeds in eliminating the consumption and production of those luxuries, he will tend automatically to reduce his income. Therefore, the taxation should not be confined to luxuries, desirable as it may be that luxuries should be taxed; there must also be taxes upon necessaries if we are to continue, as I think we shall have to do, with indirect taxation. At present neither taxation nor saving is on a sufficiently great scale. The Chancellor should see that both are increased. If they are not sufficiently increased, the effect will be inflation and a rise in prices, which will not be to the advantage of anyone in this country, and will be most harmful to the wage-earners. I entirely agree that the Purchase Tax should be solely a war-time Measure. As soon as we get back to peace we shall want to increase consumption, to prevent an automatic increase in unemployment. To have a Purchase Tax in time of war, which can be removed upon a return to peace, will facilitate the transfer back of industry from a basis of war to a basis of peace.

I hope that this Chancellor of the Exchequer has not finally rejected, as his predecessor did, Mr. Keynes's scheme of compulsory savings. I hope also that hon. Gentlemen on the benches opposite, especially those who have found themselves in agreement with the arguments of the hon. Member for Chesterfield (Mr. Benson) will feel that there is a great deal to be said for that scheme. I was impressed by the speech of the hon. Member for Ince (Mr. G. Macdonald), who said that if munition workers are obtaining large incomes they are also working extremely hard. If it is impossible, as I believe it is at present, to maintain the full consumption of the civilian population while, at the same time, intensifying our production of armaments and maintaining our export trade, then I would urge that there is a great deal to be said for the system of compulsory savings advocated by Mr. Keynes which will postpone until a later time the enjoyment of the fruits of the labour which is being given now.

There are two insurance funds under Government control at the present time which can be used for smoothing out those fluctuations of industrial prosperity and depression which have been the cause of so much unemployment. One is the Unemployment Insurance Fund, and the other is the National Health Insurance and Pension Fund. At a time like this, when unemployment is very low, largely due to an entirely artificial stimulus given to industry by great Government expenditure, those two funds should have an income greatly exceeding their expenditure, and should build up reserves, so that afterwards, when peace comes and there is a danger of a return of unemployment, it should be possible for these funds to pay out much more than their income. That I believe to be one of the few practical proposals which have so far been made for evening out the hills and valleys of unemployment. I hope therefore during the war that the Labour party will not urge any reduction in the contributions that are now being paid to those insurance funds and that they will welcome the building-up of a large surplus for reserve purposes.

I would also urge upon the Chancellor that this is a time when a real effort ought to be made to reduce the volume of local debt. For the last 30 years or more the public debt of local authorities has been steadily increasing. Even during the financial crisis of 1931, the increase was not wholly arrested, and with the prospect of a declining population and of great economic difficulties after the war, and with a vastly increased National Debt, it surely would only be a measure of reasonable prudence if the Government brought some pressure to bear upon local authorities now, by an increase in their rates, to pay off, at an increased rate and increased speed, the very heavy debt which they have contracted during the last 20 or 30 years. All such repayment would be available for lending to the Government.

I now come to the question of taxation, and I make no complaint about the high level of Income Tax and Surtax. I would only point out that when the rich have made the largest contribution that they can make, even to the total confiscation of their income, that will still be only a small proportion of the cost of the war. I hope, therefore, that hon. Gentlemen opposite, who are as anxious as anyone else in this House to win the war, and to win it in a way that will avoid the danger of inflation, will be prepared to accept the need for direct taxation of the wage earners. Whether that should be done, as I would advocate, by increased contributions to the Pensions Fund, of which the Treasury is at present bearing 60 per cent. of the cost, or whether there should be some contribution to direct taxation, and perhaps in the form of a stamp on the weekly insurance card, I express no final opinion. I do believe, however, that, if we are to pay for at least half the war out of revenue each year, an entirely new and much wider source of taxation will have to be found. I am convinced that the wage earners of this country must and will be willing to make their contribution towards that. If there, were some proportionate tax upon all receipts, whether wages or any other kind of payment, it would, I believe, open up a new and almost illimitable source of income and one by which, by maintaining the purchasing value of the £, would not only be very beneficial to the country as a whole, but serve to maintain the purchasing power of the workers of this country.

Question, "That the Bill be now read a Second time," put, and agreed to.

Bill read a Second time. Bill committed to a Committee of the Whole House for Thursday.