HC Deb 02 August 1918 vol 109 cc864-79

The matter I have to bring before the House is of a totally different character from those which have occupied the House during this afternoon sitting. I want to raise the question of undisclosed trading profits. It is, I believe, a constitutional axiom that this House alone has a right to impose upon the people the burden of taxation. I take that as my first premise. I venture to put another one before the House. It is this, that to-day the Government is asking that the House should give it a War Credit, and we find ourselves compelled to ask those who want this money—for we desire to know—what they have done with the amounts which by this time must run into many, many millions, about which they have said nothing, and the burden of which upon the persons who have contributed them has been a very real and a very heavy one? I lead up to my subject by reminding the House of the very large number of articles of which the Government, for proper reasons—reasons which I do not canvass or disagree from—have felt it their duty to commandeer the total supplies. Such, for instance, as wheat, wool, leather, iron, steel, and I am told that presently timber is going to be added, and perhaps a number of other things. These, by the urgent needs of the fighting forces of the Crown, both afloat and ashore, at home and abroad, are being drawn in enormous quantities, and in order to meet these vital times the Government have arranged to make themselves perfectly secure, and the whole of the supplies have been taken over, have been commandeered, to use a common expression. I do not propose to-day to go into the Government's dealings with all these things. It must be understood when I refer to only one that it carries with it an illustration of the main point of my argument. At the same time I am by no means unconscious of the fact that by the Government's dealings in some of the articles, say, wheat, wool and leather, there are differences in the method as there may be differences in the disposition of the undisclosed profits to which I refer.

5.0 P.M.

Let me deal, first of all, with leather. I express regret to the House for returning to this subject as soon again after having mentioned it in the House. When I did so before, I had the advantage of having on the Government Bench the right hon. Gentleman who faces me now and his colleague, the greatly respected Financial Secretary to the War Office. My experience when I raised this question and made some cogent inquiries was that I was met by a blank look of astonishment on the faces of the two right hon. Gentlemen to whom I have referred. They rose from their seats and left the House, and had it not been a point concerning matters of real and national gravity, I am sure that would have been a source of amusement to those who saw it. I believe I am to be favoured to-day with a statement of the results of the efficient inquiries of the right hon. Gentleman who faces me (Mr. Baldwin), and we all know how closely he goes into the various details of his Department, and I hope more light will be thrown upon this question than I have been able by the most industrious questions and inquiries so far to elicit.

The subject is leather. The Government commandeers the whole supply, and it is obvious that they have a right to do so because a large demand is made upon them. The demand for leather is vitally important, and the Government takes possession of an enormous quantity of this material, always largely in excess of their requirements. They take from it what they find is necessary for their immediate call, and then they have a large balance immediately remaining. This they market, but they do so under peculiar circumstances. They put it on the market at a price greater than that at which they bought it, and whether the leather passes into the hands of the currier or the leather merchant, or directly into the hands of the boot-makers, it starts on its journey with a largely added increment to the first civilian representative into whose hands it passes. I am told in one particular case that no less a profit was placed as a minimum upon the leather intended for the use of officers' leggings and boots than 70 per cent. I am bound to say if that is the idea of His Majesty's Government as to what business men are entitled to charge, they have very rosy ideas which will have to be disillusioned sooner or later.

This profit has to be paid by the man who buys the article. There is not only the original cost to the Government, but there is also the profit of 70 per cent. in the case I quoted, and every successive hand through which the article passes before it reaches the consumer will demand, and rightly demand, a further profit. So that by a method of arithmetical progression the cost to the consumer may very easily be doubled by the time he gets the article, and we find, as the outcome of this procedure, that we get a species of tariff reform under a veil under which the public, as a whole, all being users of footwear and leather articles, are being, as it were, flogged in the dark, feeling the whip, writhing under its blows, but yet not able to see the hand that wields it. The profit, whether it is 70 per cent. or more or less, goes back to the Department that made the sales. I have to ask, What is done with that profit? I have not seen any figure which shows that this profit is disclosed or that the House has any knowledge of its magnitude. In view of the enormous undertakings of the Government, who have become by far the greatest trading company in the whole world, it must run into large numbers of millions. But it comes back into the Department, and I have evidence given to me that this profit is paid over into the Government Department—in the case of leather into the War Office Contracts Department. What happens to it then neither my informant nor certainly I myself have any knowledge. The War Office has no right to levy a tax in that way on the civilian—no constitutional right whatever! The Treasury has no right to do it; only this House has a right to make these charges, and I do not believe that that position can be contested.

I am not saying here, nor would I for a moment say, that the Government is doing an improper thing by taking over a far larger amount of raw material than it can immediately use. It ought not in any circumstances to run any risk of shortage, and it must therefore, have balances to sell; but the business point is that it should sell those balances, and hand over, in toto, all the profit made to the Treasury, and then demand a return from the Treasury of the costs it has incurred in connection only with those margins, and not with the amount dealt with for the purposes of Army or Navy supply. A further reason is this. I have not the smallest confidence in the War Office at any time with regard to its business methods, and to-day, in a matter of this kind I should have, if possible, even less. That may seem an ungenerous thing to say, but the House will bear with me if I point out how, in this time of national emergency, we have brought to the assistance of all the Government Departments all sorts of business men from every walk in life, and I admit they are doing their best. On these technical matters, however, you want experience, and you want men whose life has been spent in dealing with these things. You have here a Department which has taken over gigantic commercial undertakings, and which has the slenderest technical knowledge of them, almost wholly confined to the experience picked up as they have gone on. They are dealing with these countless millions of property, and this is a sum that is wholly undisclosed. I have good reason for believing that they take a certain proportion for working expenses, and if they hand any amount over to the Treasury at all the public knows nothing about it. I have called the attention of the House to this because I feel that when they are asking for money, as they are doing today, we have a right to expect that they will inspire the confidence of the House that they are dealing with these great public funds in a thrifty, economical, and sound business manner. Surely none of these methods can be employed here if anything like what I say really takes place in regard to their dealings in all these various articles, the total supply of which they commandeer. I feel that the Treasury ought to defend itself against this or, if there be no defence, that it ought to give a full and clear explanation. The sums involved are enormous. The methods adopted are forced upon us to a large extent by the pressure of the present crisis in our national affairs, but there should be a careful husbanding of the rights and privileges of this House in matters of taxation and of personal burden upon the taxpayer; and, further, there should be a most open declaration of all dealings in matters of business. These great Departments, in many details, are the laughing stock of the business community, who know the right way and see the wrong way obstinately and persistently taken. I ask to-day for a declaration of these profits and for some explanation of the position as it really is. I would rather be proved hopelessly wrong than right. I would rather it be shown that I have discovered a mare's nest here than that there should be the slightest shadow of truth in what I have said; but I fear that my complaint is too well founded. At this time, when money is being spent broadcast, you need to make people feel that it is well spent, and I urge this claim upon the right hon. Gentleman, trusting that he will be able to give us some clear light upon it.


I am sure that the Financial Secretary to the Treasury will give the speech of the hon. Member that consideration which it deserves. The case which he presented is certainly one which deserves the closest investigation. It is most interesting and one of the greatest importance. I would like to offer a few observations on the Vote that we are about to pass, and more particularly with regard to what the Chancellor of the Exchequer said yesterday. He spoke of our great achievement in lending something like £1,000,000,000 to our Allies. He said that we had lent to Russia £568,000,000, to France £402,000,000, to Italy £313,000,000, and to the smaller Allied countries £119,000,000. He went on to speak of what we have done more particularly with regard to Italy. He said that we had stabilised the Italian Exchange by creating credits from time to time, which had enabled us to supply Italy with a considerable amount of goods. The right hon. Gentleman the Member for Monmouthshire (Mr. McKenna) pointed out that while that was a very remarkable achievement there was another side of the picture, namely, what we ourselves owe to the United States of America. It follows, of course, that if you wish to maintain the exchange, more particularly of these countries where we have established these credits, that you will have to continue these credits. This difficulty of the exchange in Italy is not likely to decrease in the future, but rather to increase, and what I have to say to-day has reference more particularly to what was said by the Chancellor of the Exchequer with regard to the future fiscal policy of this country. He has specifically said that the Government is now committed to the schema of Preference. I wish to show the connection between the question of exchanges and that policy. In order to correct the exchanges with Italy, France, and Russia, we have lent them considerable sums of money, in the same way as the United States have maintained the exchange with this country by the continuous credits they have given to us. If that continues, it follows that we shall be in a very embarrassed position if the War were brought to a speedy conclusion this year. Therefore it is of value to consider the matter, because we ought to look ahead and take measures in preparation for peace. We shall have to rectify these exchanges somehow or other. There are only two important ways of doing that. We stabilise the exchange with Italy to-day by giving Italy ever and ever increasing credits. We do not anticipate —it is a fair assumption—being asked to do that after peace and for ever. Therefore, in what way can Italy rectify that exchange? She must either send us gold or goods. The same applies to our other debtors, such as France and Russia.

If the Government should attempt to put into force, as they have indicated it is their intention to do, a policy of Preference and interfere with our present fiscal policy—I am not going to argue the merits or demerits of Preference—I would respectfully suggest to those Tariff Reformers, of whom there are some in the Government and in the country, that apart altogether from their views on Tariff Reform they should pause before endeavouring to put us in a very critical state when we resume peaceful and normal conditions. In the nature of things, if those countries to whom we have lent a thousand millions altogether are to repay us some of those debts, and if we are going to rectify these exchanges, those countries must either send us gold or goods. I do not think Russia is in a position to send us gold or that Italy is. Therefore, we ought to do nothing now which, when normal conditions return, will interfere with the free flow of trade. Whatever may be the merits of the fiscal policy of which the Government, and more particularly the Chancellor of the Exchequer is enamoured, if they were to introduce it clumsily or prematurely—any alteration in our fiscal policy must necessarily create a certain disturbance of trade—when War comes to an end, it would be a most unfortunate thing to do, and would lead to embarrassment and possibly to serious panic and disorder. Therefore, I should like to emphasise the fact that our continuous credits have brought us to this pass. I am not concerned to discuss whether it was wise to do it. I have often protested against this more or less artificial method of stabilising the exchange. We now have an excess of imports this year which may run into £1,000,000,000, as compared with exports, and the difficulty of rectifying it is accentuated by the continuous process to which I have referred. I wish particularly to draw attention to that point as one which might possibly receive some consideration from the Treasury, quite irrespective of their views on the fiscal question.

Another point to which the Chancellor of the Exchequer drew particular attention was with reference to our loan policy. He drew attention to the great success of the War Bonds policy, and showed that in 1917 the total amount of the War Loan amounted to some £948,000,000. He gave some details with regard to War Savings Certificates and pointed out that War Bonds, of which he is particularly enamoured, came to £917,000,000. He has always rather taken credit to himself as a strong advocate of that form of borrowing, and with some pride he was able to give these figures and, as he thought, congratulate himself and the country upon the great success of that policy. The borrower has to have some regard to the character of the security which he offers, because, if he does not offer a security that is popular the Loan will not be a success. War Bonds have a duration till 1922, 1924, and 1927, whereas the long-term loans have a duration till 1929 and 1947. The State has to consider not altogether what is likely to be popular with the investor, but what is likely to be a sound investment from the Treasury point of view. If the War should happen to come to a close you will be faced with a great demand for capital, and these enormous short-term obligations will very likely be presented for repayment. Therefore, if you have endeavoured during this period, when the class of investments is more or less limited, to fund your operations into a long-term loan, you give the country more time to recuperate and to return to health than if you have a large amount of short-term investments which may be presented to the Treasury and which may cause embarrassment when you have, as you are bound to have after such a war, a great scarcity of capital and a great difficulty in funding these operations. I therefore suggest to the Treasury, what they are no doubt bearing in mind, that the mere success of their short-term loan operations should not incline them to forget that while with a greater effort—because it would require a greater effort to get out a long-term loan—it is of enormous advantage to the Treasury and the country if you can fund a great deal of this short-term indebtedness and place it, as it were, behind you so as to give you a longer period for recuperation.

We have had during these two days most valuable Debates on the necessity for economy, and references have been made to the Select Committee's Report on expenditure, but the greatest economy of all would be if there were some prospect, as we believe there is, of bringing the War to a speedy close. The hon. Member who has just sat down has referred to the question of leather and the operations connected with leather. In the Committee's Report there was some reference to a company which made enormous profits. We have had Debates in this House in regard to excess payments made by the Ministry of Munitions. All these things appeal to everyone who has the interests of efficiency and economy at heart, but in the nature of things we are apt to have them in such a great war as this. Therefore, the greatest economy of all would be if we might hope that we were within some reasonable distance of the War being brought to a conclusion.

We had a statement the other day from Lord Lansdowne which merits consideration by all of us. Many of us may not agree with the Noble Lord in everything he says, but at any rate he is regarded throughout Europe as one of the greatest masters of diplomacy and statecraft, and he suggests that this country and the Allies should explore every honourable avenue of peace. He does not suggest in any sense of the word giving way on what is fundamental or vital, and I think when we consider the very grave financial position which we are in, when we have regard to the great waste of human life, we must desire an end of the War. When we read descriptions of men brought from the other side of the Atlantic knifing and bayoneting, although I am no Quaker, and I recognise that you cannot have war without bloodshed, yet I think the world is beginning to realise what an enormous tribute of human life has been paid in this War; and when we know that the flower of our youth has come forward, and are still prepared to come forward and do their part, we who have some responsibility should support any statesman or any Government who will do something to shorten this terrible War. Next Sunday, as you have informed us, Mr. Speaker, in St. Margaret's and in many other churches throughout this land, we shall ask the blessing of Almighty God upon what we believe to be our just cause. I hope and pray that we may mingle with our observances there and in other churches a deep and earnest prayer for a speedy and honourable peace.

Mr. BALDWIN (Joint Financial Secretary to the Treasury)

If my hon. Friend (Sir W. Essex) saw any fleeting expression of surprise on my ingenuous countenance the other evening it was not surprising that he had introduced this subject, but surprise how he had managed to introduce it on the particular Bill under discussion, and what I said was, "How did the hon. Member succeed in bringing the matter under discussion?" I propose to deal very briefly with the points raised, and I hope to be able to say something that will bring satisfaction to him. My only regret is that, on a subject like this, in which there is an enormous mass of detail, he has picked out for special comment one article—leather—which is dealt in by the War Office and on which, if I had known he was going to choose that particular article, I might have been able to get more details, and I might have taken up the challenge on that particular point. But in the remarks which I am going to make I propose to speak generally on this question of the trading and on the point which the hon. Member raised about what he called the undisclosed profit. I myself, as much as the hon. Member or any Member of this House, would be only too pleased if it were possible to publish in detail statistics connected with every form of trading that the Government does. But there is an obvious reason why this has not hitherto been possible, although after the War it will, of course, be possible to lay bare a great deal that has to be concealed at present. The reason why in the Estimates given by my right hon. Friend in introducing the Vote of Credit so many things are lumped together as miscellaneous, is that we dare not run the risk of letting our figures appear in such a shape that our enemies may be able to glean information as to the expense we are put to and as to various details of our expenditure on such necessary things as ships and food and various articles which are used for common and general consumption in this country.

If such details were available it might have been possible for them at various times during the campaign to have got very much more definite information as to the progress and value of the submarine campaign than they would have got in any other way. I am sure that my hon. Friend and the House realise to the full how successive Governments have been driven to control the purchase of raw material and the manufacture of certain articles one after the other as the War has progressed. And I am sure, equally, that it must be apparent to them how rapidly the demand has increased at various stages of the campaign, so that sometimes at short notice large amounts of material have been procured from all parts of the world. In the case of many of these articles it is impossible, as my hon. Friend admits, to have too much of the raw material for this reason. We have to remember that this country has been up to the present very largely the reservoir for the whole of the Allies, and from time to time, from the beginning of the War, enormous demands have been made on this country as the one European country, at any rate, that can help to make up supplies for other countries for various things of prime common necessity, such as woollen clothing and boots, quite apart from munitions. I think that what I have said is self-evident. What I am going to say now, I think, will be self-evident if hon. Members will give it a moment's thought. My hon. Friend complained that no profits were handed over to the Exchequer. He would like to see the profits handed over, I suppose, as they are made or at specific times. I think, perhaps, I may make what I have to say more clear if I use ordinary plain commercial language on what is an ordinary plain commercial subject. If it were really a trading transaction like trading transactions in ordinary businesses, there would be balance-sheets periodically, every six months or twelve months, and the profits would be divided among the shareholders and the cash would be paid out.

But the position of the Government is entirely different. In the first place, speaking generally, over the whole period, as to the raw materials with which the Government deal, the intention of the Government is to make no more profit than will cover the expenditure. Therefore, speaking generally and broadly, the question of profit does not arise; but more than that, the business which is being carried on is a continuous business, and stocks are constantly being replaced. Some of the stocks which come along are seasonal stocks, only coming at certain times, so that at certain periods there are larger quantities of them in this country than at other periods. But, in all cases, the business is a continuous business, a business in progress, and which must be continuous until the time of liquidation comes, which is the time when the War ends and the necessity ceases for the Government to control these materials. Then the liquidation, to use a commercial term, will take place. The business will be wound up, and we shall then see, at the close, whether on the continuous trading there has been a profit or not; and if there has been a profit, then, of course, it is an asset, and will be returned as such to the Exchequer. After all, even if it were possible in these multitudinous transactions to ascertain with accuracy, as we go along, what was being made, and we found that we were making a profit, and paid it into the Exchequer, it would only mean paying in a credit one day and having to draw out the money again the next to finance purchases as we go along. If there are profits being made, those profits are being kept in the business and are being used for the purchase of further raw materials, and to that extent they are available for being used without drawing on the Vote of Credit. That is the theory of the State's trading in raw materials, and I hope I have succeeded in making that plain to the House. One word more with regard to a subject as to which I have apologised to the hon. Member opposite for not being able to deal with it—one item of the many items into which I have not gone into the detail I would have liked. If the hon. Member cares to discuss the matter with me I shall be only too happy to give him such detailed information as I can, and I hope and believe he will find that the figures he stated are considerably wide of the mark. I hope the House will feel that I have dealt adequately with this subject, and will now allow the Report stage to be taken.


Can the hon. Gentleman say whether there have been paid into the Treasury any profits at all on any of these trading operations?


I cannot give a definite answer to that, but I should doubt it very much.


There was one statement made by the Chancellor of the Exchequer yesterday, which was so important that I am surprised it has not received adequate attention—in fact, there has been no mention of it at all—in this discussion. The right hon. Gentleman told us the amounts which had been advanced to foreign Governments, and we can congratulate him on being now able to tell us what assistance we have given to our Allies. We have reason to congratulate ourselves on this statement, first, because we have been consistently refused information up to the present, and second, because the amounts are less than we anticipated. We were told that Russia had been advanced £568,000,000, and the information was conveyed to us in a rather curious form. The words used were that the debt was "from the Russian Government or the Russian people." I can quite imagine there is good ground for thinking that the old Russian Government, if it existed still, or if it were to be re-established, would acknowledge that debt. But to tell us that it is due from the Russian people is very remarkable, and on the earliest possible occasion I want to say that from such information as I get the Russian people is a very different thing from the old Russian Government. I rather regret, therefore, the peculiar form of words used. I hope very much that the time may come when the Russian nation—I will not speak of the Russian Government or the Russian people—may recognise that their liberty has been won through great tribulation and many vicissitudes with the assistance of the Allies. I trust also that this debt, enormous as it is, may be left aside without any suggestion that it is owing to us from the Russian people—that it may be left aside until better days. We may all hope to see the time when the Russian people will have nothing but the friendliest feelings towards us, and will in some substantial way be able to make amends for the huge expenditure and great sacrifices we have made on their behalf. But if that day is to come, and if it is to come soon, we ought to make our position with regard to the Russian people clear.

For my part I think two great mistakes are being made now by our Government and possibly by the Allies. The first is that they do not recognise that Russia is absolutely exhausted and that that exhaustion dates at least a year and a half back. The exhaustion of Russia, materially, financially and militarily, was complete before the Revolution, and the great mistake of our Government was that even when Mr. Kerensky in the early days of the Revolution, told them that Russia was absolutely worn out, they did not face that fact. You cannot go on extracting help from a dying man, you cannot extract it from him in a bitter and prolonged struggle like this, and to imagine that you can do so is simply folly. The second fact that the Government will not face is this, that after a year of revolution Russia has attained a certain stability in one respect, in that it has adopted, I believe more or less permanently, a new form of democratic organisation. That organisation is based on what is called the Soviet. It is not parliamentary, and it is not constitutional in the sense that we are constitutional in having parliamentary institutions as the foundation and fibre of our national existence. All the other democracies of the world are based on parliamentary institutions, but Russia has established a democracy based on the Soviet. The Soviet principle is something quite new. It is in effect this, that each small locality establishes a standing committee which is renewed every three months, the members of which standing committee may have their authority withdrawn by the vote of the people at any date and for any reason, and these local Soviets are united through a machinery rising to the highest authorities in the land. They are based, not on elections in the ordinary sense, but on the principle of the permanent mandate of the people authorising its representatives. [An HON. MEMBER: "To shoot the upper classes!"] They certainly do not shoot the upper classes. Many of the upper classes are now finding their place in the Soviet Government.

Only on the 8th of last month a new constitution was adopted by the Russian nation. The fact of this adopting of a constitution has been previously kept out of every Allied newspaper. It is known in the neutral countries, but it is not known here, that on the 8th July a new constitution, based upon the Soviet principle, was established throughout the whole of Russia, and that in this adoption of a constitution were concerned not only the Bolsheviks, but the other Socialists, and especially the Social Revolutionists, the very party to whom we attribute—and some of their members are able to take that to themselves, I daresay, the assassination of Mirbach and Eichhorn, and a definite attempt to take up arms at the moment against Germany. Therefore, though the Bolsheviks may fall, and though we may have a different Government coming into power, yet I believe that the Soviet form of Government is better established to-day than any other Government has been since the War, because it has much more prospect of lasting even than the Czarist regime. I regret that the Government and the Allies refuse us the knowledge of these facts. You cannot face the position in the East of Europe, on which so much depends, without knowing and facing the facts there. This, the Government, as I understand, has refused to do. I am, of course, quite willing to admit that we are opening a new campaign on the Murman coast, and, personally, I have no objection whatever to military measures being taken against the Germans dominating the Murman coast and the whole of the province of Archangel, and making it a base for submarines. I certainly think it is a most desirable and an obviously reasonable object to take measures—even military measures—to prevent that. But we have now developed a campaign there, and we are not allowed even to be told which of the Allies are taking part. We are not allowed to be told who the general is in command—and this is a very important matter—because if a Russian is in command we ought at least to know to what party he belongs.

There has been an unfortunate statement put about—I hope it is not true—that General Gourko, the leader of the Monarchist party—a very small party, it is true—is in command of that expedition. If so, we ought to be told, and, of course, the fact will be known in Russia long before it is known here. But if that is the case, this expedition can only appeal to the great mass of the Russian people as an attempt to set up the monarchy again. I ask again and again for some moderate information which will reassure us, and, even more important, reassure the Russian people. You are not going to succeed in this Murman expedition if you are going to have the whole of the Russian people against you, and you run the risk of having the whole of the Russian people against you if you allow statements to be made which are most detrimental to the Allies, and most suspicious to ninety-nine out of every hundred Russian subjects, if you do not take the trouble to deny it. I believe you can deny it, but I certainly think some statement ought to be made upon the position. It could be easily made without giving away any military secrets. It could be easily made in such a form as to reassure hundreds, thousands, and millions of the Russian people who are anxiously waiting on events, and I cannot let this occasion pass without voicing my protest, which I am sure will be shared by many in this land and by millions in Russia, against a policy of secrecy and suspicion. This matter, at any rate in my mind, is so overwhelmingly important that I should not be doing my duty if I did not call the attention of the House to it.

Question put, and agreed to.