DEFENCE LOANS BILL. (Hansard, 16 March 1939)

§ LORD TEMPLEMORE

My Lords, yesterday we had a most important and interesting debate in this House on our national defences, raised by my noble and gallant friend on the Cross Benches Lord Trenchard, which touched on various points of those defences. Those defences, like everything else in this world have to be paid for, and to-day it is my duty to lay before your Lordships in this Bill the proposals connected with the payment for these very large Defence Estimates which will come in for 290 settlement during this year and succeeding financial years. I am very glad that this Bill has come up for Second Reading on what is a fairly empty day in your Lordships' House, because, although the Bill is a certified Bill and your Lordships' powers over it are therefore limited, I think it is right on an important occasion like this that your Lordships as legislators—and indeed I might say as taxpayers—should have full opportunity of discussing this financial matter.

It is almost precisely two years ago that I asked your Lordships' House to give a Second Reading to the Bill leading to the Defence Loans Act of 1937, which it is the purpose of to-day's Bill to amend. The Bill, though it embodies a very large proposal, is exceedingly short. It is expressed in a few lines of print and it proposes to amend the Defence Loans Act, 1937, in two respects: first, in Clause 1 (1), to double the existing borrowing powers for defence purposes by raising the £400,000,000 authorised by that Act to £800,000,000; and, secondly, in Clause 1 (2), to extend the scope of the Defence Services in respect of which those borrowing powers may be used beyond the three Services already covered, so as to include Air Raid Precautionary Services and grants in aid of the Essential Commodities Reserves Fund. I will explain briefly the nature of the reasons for this proposed amendment.

It will no doubt be within the recollection of your Lordships that the decision was taken two years ago, on account of the unprecedented conditions of the time, that it was inequitable that the whole burden of the additional cost of rearmament should fall upon the taxpayers of this country during the next five years. After all, as your Lordships are aware, we have had three increases of Income Tax in three successive years, in addition to increases of indirect taxation, and I think no one can say that the present generation is not playing its part in this matter. Taking the programme as it then stood it was recognised that it would be imprudent to contemplate a total expenditure on defence during the five years beginning 1937–38 of much less than £1,500,000,000, and on the basis of that figure power was taken to borrow over that quinquennium a sum not exceeding £400,000,000. At the same time it was 291 recognised that the Defence programme was necessarily subject to change, and, as was emphasized in another place, that it might be that in the end we should find that even £1,500,000,000 would not be enough to meet the bill for the increased cost of our defence requirements.

For some time past it has unfortunately been no secret that this last anticipation has been justified by the event. The special urgency of some parts of the programme, and the necessity of its reinforcement in various ways, has accelerated the pace at which expenditure is being incurred in addition to swelling the total bill. These measures, involving enormous outlay, are designed to reach their completion within a limited period of time, but they are going to provide the main basis of national defence for years ahead. It follows that the rearmament programme, as it develops, throws an increasing strain on the financial resources of the country which cannot be met solely out of revenue; and that, as we approach the third year of its course, and the stage of preparation gives way to that of full-speed production, a greater resort should have to be made to borrowing in order to avoid too oppressive taxation.

May I illustrate my point by giving your Lordships a few figures? If we take as a measuring rod the original estimate of £1,500,000,000 for the cost of the five-year programme and the original estimate of £400,000,000 for borrowing powers, that would show that, on an average, the expenditure out of revenue was expected to amount to £220,000,000 each year, or a total of £1,100,000,000 in five years, and the expenditure out of loan would amount on average to £80,000,000 a year, or a total of £400,000,000 in five years. There was never anything final about these figures, and their proportion to one another, and as a fact the working out of the programme has been in round figures as follows. In the first year, 1937–38, defence expenditure (inclusive of air-raid precautions and food storage) cost out of revenue £200,000,000 and out of loan £65,000,000, a total of £265,000,000. In the second year, the financial year 1938–39, the figures are estimated to be £274,000,000 out of revenue and £132,000,000 out of loan—a total of £406,000,000. In the coming financial year 1939–40, the third of the quinquen- 292 nium, the total, including supplementaries already marked out, is reckoned to be no less than £580,000,000. Of this total my right honourable friend the Chancellor of the Exchequer has assumed that £230,000,000, approximately, will be available out of revenue, leaving £350,000,000 to be met out of loan. Accordingly the expenditure of the first three years of the quinquennium amounts to a total of £1,250,000,000, of which about £700,000,000 will be met from revenue and the rest from loan.

Your Lordships will realise from what I have said—and indeed the Chancellor of the Exchequer said this in the House of Commons—that £44,000,000 less falls to be found this year from revenue than was found last year. There was great relief in the House of Commons, and in other places as well, owing to the belief that there would be no extra taxes this year. In this connection I prefer to go by what my right honourable friend said later on in his speech—namely, that we should not take his words to mean more than he said. I have been accused of being a super-optimist over Budgets so often that, personally, I always prepare for the worst and hope it will not be so bad when it comes. In the light of these figures, the need for amending the Defence Loans Act of 1937 will be readily apparent to your Lordships. By the end of the financial year just finishing the Government will have made use of half of its existing borrowing powers—about £200,000,000—and it will be manifest that the amount requiring to be met from loan in 1939–40 £350,000,000—more than exceeds the borrowing powers remaining and has led to the promotion of the present Bill, to which I now turn.

If your Lordships will look at Clause 1, subsection (1), of the Bill, you will see that it is proposed that the maximum amount which may be borrowed shall be increased to £800,000,000. The effect of this subsection is, therefore, that the original authority is being exactly doubled. The additional figure of £400,000,000 is not really a precise calculation. The reason for that is that our future borrowing needs in connection with the defence programme depend on two factors—first, the future rate of expenditure on defence; and, secondly, the yield of the revenue in the years to come. It is clearly impossible to 293 forecast either of these figures closely, and in the circumstances it seems reasonable to repeat the figure which was provided for in the Act of 1937. I should like to remind your Lordships that the present Bill does not, by itself, give authority for the actual expenditure of any sum of borrowed money, however small, in any year. Since the Bill is an Amending Bill, any money borrowed under it will be subject to the provisions laid down in the Act of 1937, and in particular whatever is proposed to be spent out of borrowed money will require to be shown as appropriations in aid of the respective Estimates. In this way Parliamentary control on proper constitutional lines will be maintained.

The only other provision in the Bill is that in Clause 1 (2), which proposes to include what have come to be called Civil Defence services among the Services for which money may be borrowed. The Act of 1937 authorises the raising of loans to be applied as appropriations in aid only of the Votes for the Navy, the Army (including the ordnance factories), and the Air Services. But airraid precautions, and the acquisition of stores of food and the like under the Essential Commodities Reserves Act are just as much an essential part of defence as a whole as the three primary Services, and, with the Vote for A.R.P. Services assuming such large proportions, it would be both appropriate and convenient to allow the Government to borrow for all five Services connected with defence. No new question of principle is involved, and the fresh borrowing to be authorised by this Bill will, accordingly, cover these additional Civil Services.

That is the Bill. I have given the explanation of it, and your Lordships will agree that it is a most important measure and authorises borrowing powers which are, I think, unprecedented in time of peace. Let no one in your Lordships' House or anywhere else imagine that, although we may perhaps escape a major increase of taxation this year, we are not taking upon ourselves an immense burden. In this connection I would remind your Lordships of the remarks of my right honourable friend the Prime Minister in what I considered a very memorable speech which he made on the Financial Resolution of this Bill on the 21st of last month. In that speech the 294 Prime Minister reminded the House of Commons that even when this immense programme of rearmament has been finished there will still remain, for probably our lifetime and that of our children, the interest and sinking fund on this borrowed money to be repaid, and also the annual cost of maintaining all these increased forces. He wondered, if this scale of expenditure continued much longer, whether the annual cost of these increases of armaments in addition to the interest and sinking fund might not be more than it is possible to extract from the taxpayers out of our current revenue.

I have ventured, respectfully, once or twice to express my views on this expenditure to your Lordships' House. I am not by any means a pacifist, as that word is generally understood in this country. I do not hold the views which are so ably and fearlessly expressed by two noble Lords who sit opposite, Lord Ponsonby and Lord Arnold, or by Mr. George Lansbury in another place. I respect their views, but I consider them absolutely mistaken, and I think if we had followed them we should by this time have ceased to count as a great Power. But when that is said, I can only say that, personally, I consider this expenditure to be quite appalling, and I can tell your Lordships that I would not stand at this Box advocating this enormous expenditure and a Bill like this unless I was perfectly certain in my own mind that the expenditure is quite essential, not only for the safeguarding of ourselves and our Empire, but, as I believe, to keep the peace of Europe.

My noble friend the Foreign Secretary, in one of his memorable speeches in your Lordships' House one day last year, said something like this—I have not been able to find his exact words—that this people, when it is set on a certain course, never turns aside or lets go until it has achieved its object. He was referring on that occasion to an engagement in a possible war. Fortunately I am referring to-day in what I say to preparations for what we hope will keep the peace, but I think it is equally true of the people of this country that they have made up their minds with very few exceptions that this expenditure is necessary and they will see the matter through. Let us therefore vote for this Bill, but let us do so with a determination to do all we can to help the Prime Minister and the Foreign 295 Secretary in the task which they have set themselves—namely, the great work of pacification. There have been disappointments and setbacks, but this is not the time to dilate upon them. I am certain that this policy is the right one. Therefore, to a certain extent in what we say, and in what we do, let us do all we can to hasten the day when decent and peace-loving people in all countries can go about their daily work and recreations without the fear of ever-recurring crises, and relieved from the almost intolerable burden of vast military budgets. I beg to move that the Bill be now read a second time.