HC Deb 29 January 1918 vol 101 cc1437-522

Motion made, and Question proposed, "That the Reports of the Select Committee on National Expenditure be now considered."—[Lord Edmund Talbot.]


The Select Committee on National Expenditure have requested me, on their behalf, to open this discussion, and knowing, as I do, that many Members of the House desire to take part in the Debate, I shall do so with due brevity. With respect to the general position of our national expenditure, it is necessary for me to say very little. The facts are familiar to the House; they have been summarised in the first paragraphs of the first Report of the Committee. It is not merely the heavy burden of present. taxation, onerous as that is and necessary as we all know it to be that it shall before long be further increased, but it is also the vast burden of national debt which we are rapidly accumulating which constitutes the most serious feature of our financial position. In this connection I would quote to the House a single figure for the purposes of illustration. The last great international struggle in which this country was engaged was of course the Napoleonic Wars, and it may be interesting for a moment to consider what was the financial result of that conflict, which lasted for a period of twenty-three years, from 1792 till the battle of Waterloo. At the end. of that period of intense national effort, when the whole energies of the nation were engaged for a period so prolonged, the financial outcome was that our National Debt was increased by a sum of £621,000,000. Now we add a sum greater than that to our National Debt every four months. Each year that this War continues we add more than three times as much to the National Debt as was added to it during the whole period of the Napoleonic Wars. In the presence of figures so vast as those it is, of course, but little that any Committee, considering the details of Departmental expenditure, can effect by way of economy. Large savings must depend upon policy, but still, although comparatively and in ratio the savings which we may propose may be small, in total, in amount of round figures of money they may be in sum very considerable. I think the Committee may claim without undue lack of modesty that in approaching the task confided to them by the House they have dealt with it with energy and with assiduity, and, of course, with an entire absence of anything in the nature of partisan spirit.

The terms of our reference are so wide that we have found it necessary to deal with our work through a series of Subcommittees, most of them consisting of five members each. Six Sub-committees have been actively at work examining the expenditure of the several Departments of the State. One is investigating the form of the public accounts presented to Parliament, and the form of the Estimates, with a view to suggesting possible changes, and one is examining the question of the procedure of this House in matters of Finance, which also forms part of our reference. The Committee and its Sub-committees have held a total now of over 160 meetings. We have examined about 220 witnesses from the various Departments and others, and have examined masses, of course, of official papers. We have presented to the House two Reports which are in the hands of Members, and the materials are quickly accumulating for a third. Our inquiries are far from being completed, and, if the House approves generally of our work, we would recommend that the Committee be reappointed next Session to continue its investigations. The Government have been good enough to state, in answer to questions, the action which they have taken on specific recommendations in our Reports. Those recommendations are fifty-two in number, and I find, on analysing the replies given by the Chancellor of the Exchequer, that thirty-four of them hive been accepted by the Government and are now being acted upon; eleven are still under consideration; and from seven of the recommendations the Government dissent. But the effect of our proposals cannot, of course, be measured statistically, or the effect of our work. The value of the replies given by the Government depends entirely upon the spirit and the energy which are put by the Departments into the effective application of these recommendations. It is not enough to accept them in principle. It is essential that the recommendations shall be applied with energy and effect. The Committee continuing, as it expects to do, in being, will not lose sight of its recommendations, and will keep a careful watch upon the actions of the Departments with respect to each one of them. But, apart from the specific recommendations, and the course taken by the Government, we would suggest to the House that the mere fact that this Committee is in being with its Sub-committees, that it is engaged week by week in the Departments themselves, hearing witnesses, watching their proceedings, forming conclusions as to the efficiency of their administration—all that has a very salutary influence upon the day-by-day work of administration. A chiefs amang ye takin' notes, And, faith, he'll prent it. I must apologise to my hon. Friend opposite for any deficiencies of accent, but the sentiment is one which has a valid application in this connection, and the existence of the note-takers and the prospect of printing has, I am sure, a considerable effect day by day on the course of administration.

One of our principal recommendations is that the Government should furnish to this House fuller financial information with regard to the projected expenditure of the Departments. We recognise that in time of war it is impossible for the full Estimates, to which we are accustomed, to be presented with respect to all the Departments. The changes consequent upon the rapid alterations of warlike conditions make it essential that there should be a very considerable measure of elasticity in the powers of the Government in the expenditure of money; and, further, secrecy is of capital importance in many of these matters, and the presentation of precise Estimates would be fatal to secrecy. But there is a vast part of the field of expenditure to which neither of these considerations could be applied 'n any important degree, and with respect to that we nave suggested that there should be full financial information laid before Parliament at the beginning of the Session as in normal course. It is unsound in principle that the Executive of the day should have, except when the occasion imperatively requires, uncontrolled access to the public purse. The mere framing Estimates, the effort to keep within them, the knowledge that they will: be publicly discussed — all these things tend to economy within the Department itself. The Government, in response to our recommendations, and also to a similar recommendation made by the Committee on Public Accounts, have undertaken that in the coming Session they will present a fuller financial statement to Parliament in connection with the Vote of Credit, and, further, that they will put down Token Votes for all the new Departments, so that a Parliamentary opportunity may be given for a general review of their proceedings. But I am not quite clear why this fuller statement should not, at all events in many cases, take the form of Estimates of the normal kind. I think that that would be more convenient to the House, and unless the Chancellor of the Exchequer has strong reason to urge why the ordinary course should not be adopted in these cases, I think the House would probably desire that the normal Estimates should be presented. For example, in the case of the Ministry of Pensions, which is one of the new Departments whose expenditure now rather exceeds the whole cost of the British Army before the War, I, for my part, cannot see any reason why a definite Estimate should not be presented before Parliament.

Many of our recommendations refer necessarily to Treasury control. The Treasury during the War has been passing through deep waters. We live in an era of supermen, or alleged supermen. They have, no doubt, by their energy and capacity in many directions, achieved great things, and I think it is true to say that hustle and frugality are not good yoke-fellows. But, after all, the ablest administrators have always had a careful regard for considerations of finance, and have, indeed. realised that a close financial review of their proceedings is one of the very best means of ensuring efficiency in administration. I cannot conceal the fact that the Committee as a result of their prolonged and detailed investigation, have formed the conclusion that the act on of the Treasury during the War has been of a somewhat disappointing character. I think every member of the Committee feels that in many directions the Treasury might have displayed, and should have displayed, considerably more activity than has, in fact, been the case, and we have formed a kind of mental picture of the super-men actively engaged in pushing their administration in every direction, and the Treasury wringing its hands in the background at the colossal expenditure which is involved.

The admittedly somewhat careless methods of finance of the Ministry of Munitions during the period of extreme stress in the earlier part of the War was not rectified by the Treasury in due time. There has been in that Department, and in some others, a certain laxity of control in fixing the terms of contracts. There has been in many cases an active competition between the various Departments of the State, both in obtaining supplies and in securing labour. It is notorious that the staffs of some of the new Departments have been swollen beyond all measure, and that their organisation has been far from satisfactory. Recently, in most of these respects, there has been very considerable improvement. In the War Office a very able administrator has been appointed, the present Surveyor-General of Supplies, and he has introduced a more businesslike spirit into many of the operations of that Department. A new Director of Contracts has been appointed at the Admiralty. At the Ministry of Munitions, however, the proposals of the Committee with respect to closer financial control and reorganisation, in some respects, of financial administration, are still met by the Government by the use of that consecrated phrase, "the recommendations are under consideration." With respect to contract prices and a more effective Treasury control of the principles on which they are based, the Government have now, on our recommendation, appointed a Committee, presided over by Lord Inchcape, to advise them—a small but very capable committee of business men. We all hope they will be able to effect some necessary reforms.

Again, with respect to the staffs of the new Departments they are also following the recommendations of the Committee. A Committee has been appointed to go in detail into the organisation of these staffs with a view to effecting economies. That new Committee will consist of two of the ablest civil servants in the employ of the Crown and two outside business men; but I am somewhat surprised to note that, although those staffs consist largely, indeed mainly, of women, that no woman has been appointed to that Committee. I would suggest to the Chancellor of the Exchequer that it might not be inadvisable to add to its membership, now consisting only of four persons, one capable woman accustomed to the organisation of large staffs. In respect to all those various committees it is, of course, necessary for us to watch in order to judge by results. The administrator—I speak from some experience—is always a little inclined to think that if you appoint a committee you solve a problem. The mere appointment of a committee is a matter of small moment in itself. The important thing is the report of the committee, and still more important—far more important—is the specific action taken upon such recommendations as that report may include.

The Select Committee had not proceeded far with its inquiry when it found that it must necessarily enter into the complex and difficult problem of the rise in prices. We found that in a score of directions the increase in prices of commodities affected vitally our national expenditure. We found, on examining figures, that if there. is an all-round 10 per cent. increase in prices and in wages that the State would be involved in an increased expenditure of £130,000,000 a year; if the rise in prices goes on to 30 per cent. it would involve an expenditure of close on £400,000,000. We felt, therefore, we should not be fulfilling the terms of our reference if we did not consider the causes which were now operating to contribute to a continuance of the rise in prices. Our conclusions will be found set out in a number of paragraphs in our Second Report, in which the subject is examined with some thoroughness. One of the chief causes of a rise in price has been the inflation of credits, the financing of the War by various expedients other than taxation and the raising of loans drawn from the savings of the people. I do not propose, however, to-day to enter into the question of the methods of taxation, or into the subject which is summed up in the phrase "conscription of wealth." The Select Committee is very anxious that this Debate upon its Reports should turn mainly upon the subject of expenditure, and not upon the large question of taxation, though we fully realise that the Chancellor of the Exchequer, when he comes to speak later in the evening, may find himself obliged, in accordance with the announcement already made, to dwell to some extent upon this particular subject.

We were inclined to come to the conclusion that the increase of paper money, which in the eyes of many persons is a main factor in the rise of prices, has, in fact, played a somewhat subordinate part. The problem is an exceedingly difficult one, and different views are held by various students of the subject. Most of us, however, were disposed to the conclusion, with some diffidence, that in the case of this country at the present time the printing of currency notes has not played, by any means, the leading part in the great rise in prices which has taken place. In Russia, for example, notes are printed in order to meet Government payments. If money is needed to pay troops, or to discharge the bills of contractors, the printing press is set to work, and the necessary number of millions of roubles having been provided in that way the paper is distributed to the creditors of the State. Nothing of the kind has happened in this country. Notes are never printed for the purpose of making Government payments. Notes are only printed for issue by the banks to meet the needs of their customers, and the banks have to pay for these notes in exchange by presenting valid securities, or in other ways. That being so, the currency note issue of this country stands on quite a different footing to that in which it stands in some other countries. It may, in any case, be interesting to the House, to compare for a moment what, in fact, has been the issue of paper during the War in the United Kingdom compared with the issue of paper in Germany. In the United Kingdom the note issue of all kinds had increased up to December last from £45,000,000 to £277,000,000, a large part of the latter figure being represented by the paper issued in exchange for gold withdrawn from circulation. The total increase of paper has been, therefore, £232,000,000. In the same time the paper currency of Germany, of all kinds, has been increased from £100,000,000. which it was just before the War, to £841,000,000 in December—a total increase of £740,000,000. In other words, their paper in circulation has been increased by more than £500,000,000 worth more than in this country, or about three times as much.

The CHANCELLOR of the EXCHEQUER (Mr. Bonar Law)

Since December it has been increased by another £50,000,000.


The Chancellor of the Exchequer says that since December it has been increased by another £50,000,000. The Second Report of the Select Committee considers also the increase in the cost of living as an clement in the rise in prices, both as a consequence and as a cause of the rise in prices. It is a consequence because wage increases are demanded to meet the increased cost of living. It is a cause because wage increases themselves give rise to further expenditure, and to further rises in prices. We found, with sonic surprise, that the figures officially published, first by the Board of Trade and now by the Labour Department, of the percentage increases of the cost of living during the War rest upon no very sound basis.

4.0 P.M.

We found that the foundation on which they reposed had not been reconsidered in view of war circumstances, and that they really depend upon a number of budgets of the household expenditure of the working classes collected five years ago or more, and in no way modified by any consideration of changes of diet or consumption owing to war conditions. If such modifications were made, an incidental paragraph in the "Labour Gazette" tells us that it might be divided by two. How great the confusion is may be seen by the fact that Lord Rhondda, the Food Controller, a few weeks ago, stated that the cost of living had gone down in the previous six months by something like 10 per cent., while the "Labour Gazette," published by the Government, in a number issued a few days later, stated that in the same period the cost of food had gone up by 3 per cent. I put a question to the Chancellor of the Exchequer to ask how this contradiction could be explained, and which was correct, and he frankly stated that it was a question which he was not in a position to answer, but the Government would appoint a Committee. That is in fact the wisest course that they can adopt, and it follows one of our recommendations, for the whole subject demands expert and detailed examination; that is now proceeding, and when it is completed the country will be able to judge whether or not the figures quoted, and which form the whole basis of the arguments when wage increases are under consideration, really correspond with the facts or not. The Report in this connection also dwells upon the importance of the limitation of profits in various directions, and in an appendix, covering many pages, we set out the action taken by various Departments to limit the profits of Government contractors. I wish that statement bad received more attention than has yet apparently been devoted to it by the public. We turn to the subject of wage advances, and to the inevitable effect of those competitive and cumulative advances in causing a fresh increase of prices. The facts of the ease have been well expressed by the hon. Member for Blackburn who, writing in the "Labour Leader," used these words: The consumer always pays. These increases of wages and prices work in a vicious circle. The workers get an advance of wages: the capitalists raise prices: the workers demand a further advance to meet the increased cost of living: Then the capitalists again advance prices: wages increases are again demanded, and so the process continues. To those. bodies of workmen who are able to secure wages advances to meet to some extent the increases in the cost of living, all this, perhaps, matters very little; but there is a very large proportion of the community to whom the increase of prices is a very serious matter indeed, because upon them falls the whole burden. for they are unable to compensate themselves by an increase of income. Those are very cogent words which, I think, deserve the attention of hon. Members, and still more of the parties outside who are interested in this matter. The fact is, as our Report states, the producers, week by week, are raising prices against themselves as consumers, and the longer this process continues the higher prices must necessarily rise. That is one element—I do not say it is the only element—in the rise of prices and in -causing the vast increase of national expenditure which is still proceeding.

I turn for a few moments from these matters affecting expenditure in general to those recommendations of the Committee which relate to the War Office. as I have the honour to be Chairman of the Sub-committee which has been examining War Office expenditure. I need say little on this head because the War Office has accepted almost the whole of our recommendations. We lay the greatest emphasis as a means to economy in Army expenditure upon extending the use of comparative returns and cost accounts. All our other recommendations, perhaps, are unimportant compared with those. We regard them ac the chief means of securing economy. The observa- tions of the Sub-committee on that head are, of course, applicable to the work of many other Departments of the State. To get to know what the cost of each establishment really is, to be able to compare one with another in similar conditions, to know who is your good administrator and who is your wasteful administrator—all this is the first step towards bringing the bad administration up to the level of the good, and is the first essential step in sound business management. Therefore we have pressed upon the War Office the urgent necessity of applying the system of comparative returns, and we have urged also that the system of cost accounts should be applied to the various establishments of the Army.

There are three of our recommendations that have not been acted upon to which I should like to draw attention. We suggested that there should be an inquiry by a general officer of high standing into the number of persons employed in military establishments at home. I do not now refer to the larger question of the strength of the forces which has been under consideration, but in France a most useful inquiry was carried out by General Lawson into the various Army establishments from the point of view of economy of man-power, and he was able to recommend a large number of detailed economies in regard to men, which also resulted in economy of money, in the various administrative establishments behind the lines. Similar inquiries were also instituted in Egypt, Salonika, and elsewhere, and the results have been exceedingly valuable. We recommended in our first Report that a similar investigation should be set on foot in this country by an officer perhaps of similar standing, and, although we referred to this matter again in our second Report, so far as we are aware this matter is still under consideration. We also suggested that there was some unnecessary duplication of staffs in this country, but this is a matter which does seem to have received the full attention of the Army Council.

Thirdly, we discovered that there was in France and in this country an immense accumulation of many thousands of tons of empty shell cases and wooden boxes for holding shells, representing the value of an exceedingly large sum, running into millions, and we suggested that these ought to be used again as was intended, and that the Munitions Department and the War Office should not simply go on ordering fresh supplies without returning these to the manufacturers to be re-used, as can be done, and as they intended to do. The Government's reply says that these difficulties are now largely overcome, but we have reason to think that the accumulation is still very considerable. I think this is a matter which relates primarily to the Ministry of Munitions, but it is a matter which still requires the attention of both Departments.

On examining into the number of military officers employed by the War Office we made a rather surprising discovery. With regard to the War Office Staff during the first two years of the War, when the Armies were undergoing very rapid expansion, the number of officers employed in the War Office increased from 218 to 544, an increase which we thought not by any means unreasonable in the circumstances; but when that expansion was nearly complete, and when the War Office had adapted itself to war conditions, in the following period of fourteen months from August, 1916, to October. 1917. the Military Stair of the War Office, which had previously been doubled. was during that later period multiplied again nearly threefold, and in that fourteen months it increased from 544 officers to 1,504. It is true there had been various directions in which the work had greatly increased. There had been an enormous increase in regard to the Air Service, but still the Sub-committee dealing with War Office expenditure did not feel fully convinced that all these officers were fully employed on necessary work. Here, again, following our recommendations, the War Office has appointed a small and authoritative Committee, which is now engaged in reviewing each of the directorates one by one with a view to effecting a reduction.

I do not propose to say anything with respect to the recommendations of the Committee in regard to other Departments of the State, because I have no doubt that the chairmen of the Subcommittees dealing with those other matters will be able to take part in the Debate, and they will deal with those topics. But let me say this in conclusion. While in these various directions the Committee has been making proposals for economy, at the same time in other directions fresh increases of expenditure are continually proceeding, involving greater demands upon the taxpayers and greater additions to future debt. Since the Committee was appointed last August there have been twelve or thirteen specific increases of national expenditure sanctioned by the Government to which, I think, the attention of the House should be directed, because many of them involve very large sums. There was the subsidy given to reduce the price of bread, involving an annual expenditure. of £45,000,000, in order to enable the loaf to be sold for 9d. There was a subsidy subsequently given to growers of potatoes to fulfil the pledge given by the Government of a guaranteed price last year amounting to £5,000,000. Then there was a bonus given to bakers to encourage them to use potatoes in the baking of bread, and this amounted to £150,000. Increases in the pay of soldiers and sailors amount to £65,000,000, and in that connection I would point out that while it is often suggested that the private soldier serves his country for 1s. 6d. a day, as a matter of fact the cost of the private soldier to the State, including food, clothing, and such lodgings as he gets—if he gets any, in view of the hardships of the campaign—together with separation allowances for his family, but excluding pension rights, the average cost of the private soldier to the State is 40s. 6d. per week. When we see a battalion of men marching past, every ten of them represents a cost to the public purse of over £1,000 a year.

Additional sums are being paid in increased pay to the officers of the Army and Navy, and this amounts to £7,350,000. Bonuses or wage advances to miners cost £20,000,000 a year; to munition workers, direct and also indirect—that is to say, to those who are employed by contractors and not paid directly by the State, but whose increased wages will ultimately appear as a charge upon the State as higher prices in contracts—these munition workers together, directly and indirectly, receive £40,000,000; railway workers receive a further £10,000,000; the Civil Service receives £3,000,000 in this way.; the Irish teachers £170,000 and the Irish police £100,000. Then there is an additional Grant to the National Insurance Fund of £400,000. The total of those twelve or thirteen in- creases, all granted since the Committee was appointed last autumn, is £196,170,000 a year, or close upon £200,000,000 a year. Some of us cannot help feeling, when we are engaged day by day in suggesting fresh economies in various directions, that we are merely baling out water with a sieve so long as in other directions such large increases are continually being granted. The Budget Estimate of our expenditure at the beginning of this financial year was that it would be £6,250,000 per day. It is now £7,500,000 per day, an increase of about 20 per cent., or equivalent to £500,000,000 a year. I know that further proposals are now before the Treasury suggesting further increases in different directions.

It is right that this House should take its share of responsibility for these increases. The House of Commons strongly advocates both economy and expenditure, and in that perhaps it corresponds to the ordinary forces of human nature. We all of us, when we are ordering the things that we would like to have or presents for our friends, attach the utmost importance to the virtue of generosity, and regard anything in the nature of niggardliness as the meanest of vices. When we come to pay for the goods which we have ordered, we are then much impressed with the supreme importance of a wise economy and of the necessity of a frugal husbanding of our resources. So it is with this House. There is nobody so kind-hearted as the House of Commons in Committee of Supply. There is no assembly so close-fisted as the House of Commons in Committee of Ways and Means. I wish that the spirit of Ways and Means could to some extent permeate the Committee of Supply, and that the atmosphere which I have no doubt. will pervade this Debate to-day will also to some extent. prevail when fresh proposals for expenditure in various directions are pressed upon the Government. We must, however, also look for our defence in these matters to the Chancellor of the Exchequer. His is the unpleasant duty of combating proposals, continually made, frequently with much force, and with many arguments in their support, but which ought to be resisted in view of the present conditions of public finance. It is for him on proper occasion to dig his heels into the ground and not to allow himself to be dragged easily along by those who would add to the financial burdens of the State. He can do this only with effect if he has the active support of the Cabinet as a whole. This problem of national expenditure is not really a question of committees or of machinery. It is a question of men, and of the views taken by individual men on particular proposals as they come before them one by one. The main responsibility for the great burdens which are now being laid on our generation and the generations that will follow rests with the War Cabinet, and this House will not be effective in its efforts to promote economy unless it is able to impress upon them the supreme need of husbanding the pubic resources. For our part, in helping to secure that any action that the House may take shall be based upon careful and painstaking investigation and upon full and trustworthy information, the Select Committee on National Expenditure are proud to play the part entrusted to them by this House.


My right hon. Friend has covered several points in the Report presented by the Committee to this House. The movement in connection with national expenditure has fructified, and these Reports are now before the House, and, as he tells us, further Reports are in course of preparation. I desire to take this opportunity of thanking the Chancellor of the Exchequer for having met us very fairly and very fully, especially on the recommendations regarding Treasury control. This Committee is the offspring or child of the House Commons. It is for the House of Commons either to attack the recommendations of this Committee, or, failing that, to support the Committee with their recommendations against the Government. As the House knows, the Committee have worked bard on this subject. Before asking the House to consider one or two questions in connection with the Report, may I remind them that the figures of our national expenditure and its inevitable debt are so large that it is difficult to form a true conception of the magnitude of the ultimate burden, and how it will affect the man of a moderate income. I am anxious to give -le House one figure on this point. If the War ends six months hence, then, allowing a moderate figure for the expenses of demobilisation, our present revenue, excluding the Excess Profits Tax, will only slightly exceed the interest on our debt at that time and the cost of pensions. In other words, nearly the whole of the present revenue of the State will be required to pay the interest on the debt at that time and the pensions. Further taxation will be required to pay for the needs of the State, and the needs of the State in pre-war times amounted to £173,000,000. In these days apparent prosperity is apt to mislead the country in contrast with real prosperity which is made out of private profits, private savings and private expenditure.

As our Chairman has very rightly said, the recommendations of this Committee are two-fold. They are direct and indirect, and the House will agree with me that the power of this Committee will be greater in. its indirect influence if the recommendations of the Committee are not only accepted by the Government but also welcomed by the various Departments of the State to-day. The Report, speaking broadly, divides itself under two headings. It first of all refers to certain aspects of Government policy which create expenditure, and secondly it refers to certain principles of administration in Government Departments today. The right hon. Gentleman, in his closing words asked whether the Chancellor of the Exchequer receives the full support of the War Cabinet. The problems which the Chancellor of the Exchequer requires to face daily are threefold. The expenditure has never been so large as to-day, taxation has never been so oppressive as to-day, and borrowing has never been so difficult. We ask the Chancellor of the Exchequer: Does he receive the full support of the War Cabinet. in these three difficult subjects? Do Ministers daily show a true appreciation of the present financial and economic position in which we find ourselves? Our Report raises questions of first-class political importance. Let me enumerate one or two. It refers to the question of the policy of the Government in financing the War, either by the creation of credits, loans, or taxation; it also refers to the rates of profits and the rates of wages. These two subjects affect nearly every individual citizen in this country. To what extent is the policy of the Chancellor of the Exchequer overruled by the War Cabinet? Does political expediency guide their action, or is sound finance their only guide? The Report shows that the expansion of credits has raised prices, and raised the rate of cur national expenditure. The Government have increased the supply of money and the ability to buy, and at the same time there has been decreased production of food. The supply of money has increased; the supply of commodities has decreased. Therefore, the price of commodities has risen very greatly. Can the Government arrest this upward rise? If the ability of the public to purchase is lessened by increased taxation, the upward rise of prices will be checked. Two years have elapsed since new taxation was imposed by the Government of the day. Since then nearly £3,000,000,000 have been raised either by credits or by loans. During this period prices have risen to a dangerously high level. If economic principles are overruled for political or other considerations, they retaliate and they rebound with compound interest against those who violate them. My argument, briefly, is that a sound economic policy in the long run is advantageous to the working classes of this country, and I urge that in future the Government should finance the War more by taxation and less by loans.

While referring to the Chancellor of the Exchequer and the Treasury, the Committee point out that the staff of the Treasury has not increased in numbers. We appreciate the fact that the Chancellor of the Exchequer, on our Treasury recommendation, has met us very fully and very frankly, but we are conscious that the staff at the Treasury at the present time cannot exercise the new duties which we press upon them, and we urge that the principle of dilution should be. applied to the Treasury. The staff of the Treasury should be increased by the assistance of men from outside sources, men with experience and ability of the matters which will come before them. The second general consideration outlined in these Reports refers to the rates of wages and the rates of profits. As the House knows, soon after War was declared competition broke down, and since then the State has rapidly become almost the universal buyer, either in a direct or indirect manner. In peace time competition keeps down prices. To-day the position is the reverse. There is little or no competition between individual firms for Government work, or between individual workers. We are rapidly finding ourselves in a semi-socialistic state. I know that the Government have taken definite steps to control prices in these matters, but so far as I can learn the State has no definite policy on either of these two points.

Some months ago I threw out a suggestion in this House that the Government should attempt to solve by agreement the rate of wages with the trade unions in this country. At present attempts are made to settle those questions as and when they arise. The result is constant friction in all the industrial centres. Although it might not be Possible to reach agreement, I hope the Government will take steps to solve this difficult and delicate subject by agreement with the leading trade unions in the country. At present these two difficult subjects are settled by the numerous Controllers. Each of these Controllers is very much a law unto himself. To permit high profits on the one hand and large wages on the other is an easy task. The line of least resistance leads to high prices, and our gigantic national expenditure today. The Committee have not shirked either of these two questions. They have laid down, or, rather, suggested, a definite policy to the Government. When speaking on this point we seldom realise how far-reaching is the result of the rate of profit on Government contracts. The standard of living. is largely determined to-day, or has been influenced by, the rate of profit on Government contracts. In that connection I desire to quote the words of the Prime Minister, which seem to me very apropos of the situation. Speaking in this House in May, 1915, he said: The standard of living in this country for all classes will perforce be reduced in one way or another…. Had not we better face it at once?… You can do it in a great war, and I think this is the lime for us to do it… We hear of men making great fortunes in certain businesses dependent upon the fortunes of the War and instantly beginning to spread themselves out''—[OFFICIAL REPORT, 12th May. 1915, col. 1712. Vol. LXXI.] Those words were uttered in 1915. Has the Government adopted that wise doctrine in the expenditure of public money Undoubtedly many have suffered during this War, while, on the other hand, the Excess Profits Duty takes a share from those who have made increased profits. In view of the general line of my argument this afternoon, especially as we are living under a semi-socialistic regime, the ultimate responsibility for settling, first, the rate of profit on Government contracts and, secondly, the rate of wages of those employed rests with the Chancellor of the Exchequer, and I trust that we may later on in the Debate, hear the views of the Government on this point. As my right hon. Friend stated, we are anxious to bring before the House certain points in connection with the Reports dealing with the various Departments. If I am not wearying the House, I should like to refer to a Report which was published three months ago dealing with the Ministry of Munitions. It was a very short Report which my colleagues and I issued, but it dealt, however, with the main channels of expenditure. We pointed out that there existed then a serious lack of proper financial control. In the absence of closed Estimates, the House of Commons would agree that strict financial control is all the more necessary. and to appoint a finance branch of that Ministry and neither to give that, officer a proper position or adequate duties is apt to mislead the public, and also not to safeguard properly public money.

The Ministry of Munitions is probably the largest spending Department in the world. It is governed by a Council, consisting of some thirteen members. On this Council there is only one member representative of finance. The Minister himself, we understand, is responsible for finance. We all readily admit that with his many duties, he is unable to undertake that task properly. We therefore recommended, and we put it in the forefront of our recommendations, so as to bring finance into its proper relationship to the other members of the Council, that there should be someone responsible to this House for the finance of that Ministry. That Report was issued three months ago, and, so far as we understand the matter is still under consideration. We there pointed out that the officer responsible for fixing contracts was not a member of that Council, and that he was simply a mere controller. The Ministry assured us that the Department responsible for economy in the Ministry was the contracts branch, yet we find that the contracts branch is only represented by a controller, and not by a member of the Council. Putting that point on one side, the question has recently been raised whether the. supply branch or the contracts branch should settle prices. The Chancellor of the Exchequer in his reply on this point, told us that in settling prices under the general administration of the Ministry the duties connected with contracts are divided between the Departments of finance, supply and contracts. There appears to be some dual responsibility in this matter. As to whether it should rest with the contracts officer or the supply branch, this question, although it is a technical one, is a matter of great substance, and affects large sums of money. The supply officers in the Ministry to-day have little or no information as to the cost of supplies. We have found that the costing system which has accomplished great things for the public purse, is not in some cases welcomed by the supply officers, and that even if the supply officers knew the cost three years ago the radical changes in manufacture since then have been so great that the cost three years ago is no guide to-day. We urge, therefore, that the position of the contracts officer should be improved, and that it should be finally settled that the price for munitions of war should be settled and the sole responsibility should rest with the contracts officer.

May I ask the House to consider another point in connection with the administration of that office? We stated that finance is in no way represented on the Committee which considers the programme of demands. The programme of demands practically means the yearly expenditure of the Committee. Since we made that statement. we have been advised that finance was going to be consulted at a later stage, but we are of opinion that if finance is to do its proper duty it must be consulted in the very earliest stages. What would he the duties of a financial officer? He would take steps to see that no more munitions of war were ordered than were demanded; he would take steps to see and to review the size of stocks of munitions of war in this country; and he would take steps to satisfy himself that the necessary capital expenditure and no more was authorised. -Under the present administration in the Ministry, the finance branch cannot properly perform any one of those duties. In view of our limited resources in raw materials and in men, over-supply to-day is a danger to the State. If one Department over-orders, another Department must go short, and to-day the criticism by a finance branch is of assistance to the State.

My last instance refers to the national factories which have been erected since the War began. As the House knows, large sums of public money have been expended, and rightly so, in the erection of those factories. They have been equipped with the very latest machinery and they are staffed to-day by thousands of men and women. To-day those factories make the same munitions as private firms, generally at a lower price. The House of Commons will expect to find that the finance branch would be consulted in the allocation of orders between the national factories and private firms, and, in addition, have the power to satisfy themselves that these factories are wisely utilised. To-day in the management of these factories the finance branch is brushed aside. Three months ago we drew attention to these points. To-day we are told by the Chancellor of the Exchequer, no doubt at the instigation of the Ministry of Munitions, that arrangements for improving the machinery of financial control and making contracts are under consideration. We have come in contact with the financial administration of that Ministry, bat we have found the position unsatisfactory. How far that position is unsatisfactory, say, in the production of aeroplanes, is another matter. The Ministry have violated in too many cases the sound canons of administration. Since its inception it has been a law to itself. It has been free from control, either by this House or by the Treasury. I agree that a large measure of freedom was necessary in the early days of that Ministry, but in view of our resources and the arguments I have advanced, surely the conditions which existed in the first twelve months, or twenty-four months, should not exist to-day. In that Ministry bureaucracy is in full swing. Whether the new type of bureaucracy is more dangerous than the old is open to consideration. This Report is the first outside Report dealing with the Ministry. Our object throughout has been to assist the Government and the Ministry in the execution of their work. Our task has been a thankless and an unpleasant one. Although perhaps we have tightened up certain details of administration, my colleagues and I are not satisfied that the Ministry has accepted our recommendations either in the spirit or in the letter, and I appeal to the House of Commons for their support in this matter.


It is one of the misfortunes of the War that the country has become accustomed to think in financial matters in such enormous figures. We have become so accustomed to the expenditure of millions where we used to think in thousands, that we are now every day in danger of a proposal for what is now a comparatively small sum of expenditure being accepted on the ground that it is only a little. This ground has been fully and amply covered by my right hon. Friend, and therefore I propose to devote my remarks to that branch of the inquiry with which I have been more especially concerned—the Admiralty. It seems to me that the questions involved in this matter of economy arc far more questions of tendency than proposals for direct economy in definite cases. If we can discover certain tendencies towards extravagance and make suggestions which will reverse those tendencies and turn them in the direction of economy, we may effect a good deal. But so long as we only deal with definite proposals to economise on certain particular items we cannot expect to obtain very visible results, although we may sometimes obtain invisible results which are worth our while.

The right hon. Gentleman (Mr. H. Samuel), in opening the Debate, made some mention of the question of more accurate Estimates as against Token Votes. The Sub-committee over which I had the honour to preside went into this question in the ease of the Admiralty with some care, and we came to the conclusion that, in that Department at any rate, the number of important Votes which obviously can only be taken in token form is so large that practically all the important Votes at the Admiralty come under that category, at any rate in times of war, and for obvious reasons, and we do not think any advantage would be gained by having more accurate Estimates in those cases. In a great number of Votes in that particular Department the Estimates have always been very approximate ones. I agree there are some minor cases in which one can expect a fair amount of accuracy, but in other cases the Estimates necessarily would be so rough and ready that they would amount to a Token Vote, and the only difference would be that instead of the shortage being made up from the Vote of Credit it woud involve continually coming to this House with Supplementary Estimates. In that direction, therefore, I do not feel we can usefully claim any very large abandonment of the present system. At the beginning of our investigations we were struck by the fact in comparing the number of men employed now with the number employed before the War that the amount spent on pay and victualling had increased out of all proportion to the increase in the number of men. I must say that the explanation given showed that these increases were all due to increases in pay sanctioned by Parliament, to separation allowances, and to the higher cost of living and clothing, so that really there is no ground of complaint on that score.

The next point to which I would like to draw the attention of the Committee is paragraph 46 of the Second Report, which deals with the powers of the Controller of the Admiralty—powers differing very considerably from those given to similar officials in other Departments with regard to the appointment of higher-paid officials. In all Departments, I believe, with the exception of the Admiralty, appointments of higher officials; than those receiving £400 or £500 a year has to receive Treasury sanction, but in the case of the Admiralty a special exception has been made, and appointments to posts with salaries up to £1,000 a year, limited to a certain number, are in the hands of the Controller without reference to the Treasury. I do not suggest there is any danger which calls for interference on the part of the House, but I think it is to be regretted we should have given up the control we have over other Departments and should have set a precedent which is likely to extend considerably. Therefore I think the House should take into consideration whether it would not be desirable that the Treasury should have control over these appointments, at any rate during this period of inflation of expenditure. At the beginning of my remarks I mentioned that the question was one of tendency. We have found, so far as our investigations have gone, that the most important Votes which we had to deal with were those connected with contracts and shipbuilding. The great difference in the question of contracts and ship- building, as between our present position and that which existed before the War, is that the element of competition has disappeared, and so far from shipbuilders having to compete with one another, we, require them to produce to the utmost extent of their yards, and therefore no competition is possible in regard to building ships. That being so, a system has been adopted of taking the cost of the contract, plus the profit, and producing in that way without any specific contracts. At the beginning the profit was based on a percentage of the cost, an old system of contracting which we know is extremely likely to lead to extravagant management and expenditure of money on the contract, because it is to the interest of the contractor to spend as much as he can. In the case of these contracts a great improvement has been brought about and instead of having a percentage of profit based on the expenditure of the contract, an estimate is formed of what the contract will amount to and the contractor is given a fixed profit which does not increase even if the expenditure increases. That is very satisfactory so far as it goes. But I am very touch of the opinion that we might proceed a step further. The Committee thought that some inducement in the shape of a bonus might be given to contractors who were able to reduce the expenditure, as the effect of economy. We made such a recommendation, and I am sorry to say, so far as I gather from the replies given, that the Admiralty does not see its way to adopt this system of bonus for saving on contracts. I regret it, and I hope some means will be found of so arranging the profit of the contractor that he has a direct inducement to economise in regard to these contracts.

The last subject with which I desire to allude, and which I consider to be by far the most important, is that raised by the Second Appendix of the Second Report of the Committee, which deals with the lack of co-ordination between Government Departments on all questions where materials or labour have to be supplied. We have been impressed with this lack of foresight by seeing the effect which the action taken by one Department very often has upon another Department. It will be sufficient, I think, to quote one specific case, the rise in wages which was given by the Minister of Munitions to certain classes of workmen recently. I do not want to labour that point. I will only say I am sure that the effect of the action taken by the Minister of Munitions was not foreseen, and that he did not realise what the results would be on other Departments of state, and on other classes of labour right throughout the country. I think one direction in which we should proceed is the securing of an understanding between Departments on all questions connected with wages. That is one of the most important directions in which the Government might effect great saving to the State. I need hardly point out that all these advances, whether in prices of materials or cost of labour, one reacts on the other, and they are enormously increasing the burdens falling daily upon this country by reason of the War.

Another point concerning the question of wages arises where one Government Department undertakes work in a particular district, which it is now doing on a large scale, and pays for labour, or, rather, says it does, at the district rates. It does nothing of the sort, and my objection is to its continuing to maintain that claim. What actually occurs is, that if it moves men from one place to another it pays them, not at the rate current in the district to which they are sent, but at the rate obtaining in the place from which they are sent. For instance, if a man is sent from London into the country he is paid the London rate, which, in many cases, is more than double the provincial rate. Perhaps a more serious difficulty occurs in the way in which overtime and Sunday work is paid for. We all know that they are paid for at higher rates than ordinary time, and there is no objection to that, providing that the man who gets the overtime works his ordinary time as well. But where men deliberately come to work late and then put in their full number of hours, charging for the latter portion at overtime rates, it is not fair that that overtime should be allowed. Yet that is the position which obtains in many places, and it is undeniable there are a great many cases where a man deliberately stays at home one weekday and then works all the other days of the week, including Sunday, thereby getting full pay for seven days, although he only works six. Again, there are cases in which large Government Departments sometimes compete for the same labour. This is probably due to lack of control. There are cases mentioned in the Report in which two Government Departments established new works in a particular district. There was great difficulty in securing unskilled labour, and they deliberately competed against each other by raising the rates they were offering.

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We have quoted several eases of that kind in which the Admiralty has carried on work in a particular district, and where another Government Department comes into that district, and, in order to get labour, offers a penny an hour more than the Admiralty is paying, with the result, of course, that the men leave the one Department and go to the other. That shows a want of agreement between the Departments, and a want of control over contractors to prevent them doing that sort of thing, and it is a matter which requires attention, and to put an end to which I am sure the Government will do all they can. It seems to me that the whole question of the employment of labour and the purchasing of material for all Government Departments concerned must be very much more closely co-ordinated than it is now. If the whole question of labour, and the fixing of prices of labour, could be concentrated in the hands of one Government Department. say, the Ministry of Labour, it seems to me a great deal more would be done towards proper, co-ordinated, and economical management than has been done at present. In the same way, although I do not suggest that the Admiralty should have its purchasing done for it by the Ministry of Munitions—I know that has been suggested by some people—because in many cases the articles which are purchased by the Admiralty must be left very much to the judgment of Admiralty men, I do say that the whole question of the purchase of materials must be as far as possible co-ordinated in some central hands so as to avoid anything in the shape of competition in material or wages between one Government Department. and another.


I wish to say that I cordially appreciate the very valuable work done by this Committee. The hon. Member for Greenock (Colonel Collins) rather put it forward that their labours had been a thankless task. Certainly, I, for one, desire to thank them, and I think it will be the general sense of the House that their work is a very valuable one, and one that will be appreciated the more because it is not a partisan work. It has examined our system of financial control in relation to an unprecedented war, and to a large extent it has shown that that system has broken down. Perhaps that is not surprising, because unprecedented circumstances sometimes. produce unprecedented results. It is true that in 1915 the Public Retrenchment Committee was set up, and it did something, I venture to believe, towards. calling a halt in the rather reckless expenditure that was then being authorised by this House. The good that it did was,. however, largely temporary. It persuaded public offices, for instance, to issue circulars to all concerned to be very careful as regards general waste, and these circulars had some little weight at the time they were issued; but very soon they were forgotten or overlooked. More pressing circumstances came forward, and the result of the Committee was, therefore, only ephemeral. There is a constant need of keeping all Government offices, in this matter of national expenditure and the saving of extravagance, thoroughly up to the mark in watching all expenditure that is incurred. One of the two points that conic out, perhaps, especially in the Report of these Committees is the essential need of greater and more effective Treasury control, and a breaking away from what I may call the bad habits into which the Treasury got, more particularly in the years 1908 and 1911, when they started on a career of being partially a spending Department. I think there was also another cause at work which brought about the disposition on the part of the Treasury not to watch over offices with sufficient care. I think that the Chancellor of the Exchequer of that time was very much disposed to budget for a shore war. It was considered that if the War lasted so long as, say, March, 1917, it would be a long war, and that it would not be likely to exceed that limit. If Budgets were drawn upon that basis, no wonder that the general tendency of the office teas to budget in the same kind of way, and that the tendency of all Departments was equally to go in for every expenditure somewhat recklessly, because they did not think it would last beyond a certain limited time, rather than to have a careful eye to saving every penny that could be saved during the whole period of a long war. Though it may be assumed that after the object lessons that have been received that will not be the tendency of the Treasury in future, I do think there is a need to create an atmosphere, not only in the Treasury, but everywhere else in other Departments of expenditure, which will govern the situation more completely. We want an atmosphere of general disposition to watch all waste that is likely to occur, and that can be best created, in the first place, by the Treasury itself setting the example of doing so, and, in the second place, by the War Cabinet backing up the Treasury.

I consider one of the most noticeable paragraphs in the Report is the one which suggests that not only ought the Chancellor of the Exchequer himself to press and press again the absolute necessity for economy on every spending Department, but that he ought thoroughly and actively to be backed up by the War Cabinet in taking that course and introducing what I have called that atmosphere. There are several points which strike one in the Committee's Report, and which I should just like to notice. The one where they criticise the size of new staffs in the different offices is one of great importance. There is no doubt that there has been a good deal of over-staffing in these new Departments. It has also been suggested—perhaps I ought to say it has been repeatedly rumoured, though I know not with what truth—that many of the young women and others working there are disposed not to work over hard in order to get a little opportunity for overtime at the end. I do not know whether that is true or not. I can only say it has been repeatedly rumoured, and I should be very glad if this Committee or the Treasury could look into that and set the matter at rest once and for all. In the case of the overlapping of Departments, we know there has been considerable waste. That is a matter in which the Treasury, if it chooses, can grip the nettle firmly and prevent such extensive overlapping as occurred when the Ministry of Labour and the National Service Department were each vieing to do certain kinds of work. We want, also, more business men for supervising contracts. My hon. Friend the Member for Windsor (Mr. J. Mason) has mentioned that We want to avoid competition in buying between Government Departments—which surely is not very difficult to avoid if the proper machinery is instituted—and we want to save such large sums by this careful attention to details as comes out so noticeably in Appendix 2 of the Committee's Report. I was surprised to read that the price of certain gun ammunition in 1917 showed a reduction of £43,000,000 on that of the same quantity in 1916. It is scarcely credible that such waste could have occurred, or that it should have been necessary to make this criticism in order to prevent its occurring again.

One of the remarks which will, I think, have struck the House as specially important was that of my right hon. Friend the Member for Cleveland (Mr. H. Samuel), when he told us that the increase in national expenditure since the appointment of the Committee last August amounted to a total sum of £196,170,000 a year. It was an amount which is equivalent to the whole of the National Budget before the War for a year, and if these increases are made, despite the appointment of this Committee, without adequate care, and without being checked by the. Treasury, it seems to me that it will continue in spite of the useful labours on which the Committee is engaged. These increases have occurred largely from a cause which cannot be too often recollected. The increase of prices has brought an increase of wages, and both have caused a growth of expenditure at a time when economy is a national necessity. I welcome the announcement that we are to inquire exactly what is the increase in the cost of living. The increase in the cost of living is always one of the reasons given for an increase of wages, and until we have accurately, officially, and by careful in vestigation ascertained what the real increase in the cost of living is, we shall have sentimental increases of wages being granted without due regard to the effect in other quarters than those in which they are given. Another reason—that of profiteering—is always given for an increase of wages. I do think it ought to be pointed out more than it has been in the country that profiteering now is, comparatively, nothing like what it was a year or two ago. The Excess Profits Tax has dope away with a great part of it, the very high Income Tax does away with more, the Super-tax, in many cases, does away with more still. Really, profiteering is to he found in all classes. It is not, I am afraid. confined to one or another class, but still goes on in all sorts of places, sometimes quite unsuspectingly, and if only the Chancellor of the Exchequer can regulate this increase of prices and increase of wages fairly all round he will do away with a great deal of the agitation.

One of the best ways in which that can he done is undoubtedly by greater coordination between the Government Departments for fixing the standard of wages. My hon. Friend (Mr. Mason) seemed to think it was scarcely necessary to refer to the well-known 12½ per cent. increase given by the Minister of Munitions, but i do not quite take that view. I think it was Talleyrand who once exclaimed, in rejoinder to someone who said, "It goes without saying," that "It goes even better by saying it," and in this matter it cannot be too often repeated that the Ministry of Munitions, and the Minister of Munitions in particular, made a grievous mistake in granting that increase of wages irresponsibly, off his own bat, without consulting his colleagues and without having regard to the very widespread results which it must necessarily have. The Committee makes some remarks in general about the financial control of the Ministry of Munitions, and about there being no Parliamentary Secretary there. and about the fact that the Minister holds himself responsible for all expenditure, whether it be extravagant or not, and all that appears at present as the result of the Government's dealing with it is that it is receiving their careful consideration. The House will be impatient to know before long what is the result of that consideration. It is important that it should know it, and that action should be taken before long. I dare say it may not be quite easy to decide the matter instantly, but after all they have the analogy of the War Office and the Admiralty, both of which have financial secretaries. The Committee therefore has done much valuable work.

I understand from what the right hon. Gentleman (Mr. Samuel) said that it was not intended in this discussion to go beyond the question of national expenditure, that is to say it was not intended to discuss the question of taxation. The hon. and gallant Member for Greenock (Colonel Godfrey Collins) did discuss it slightly, and I am not quite sure what the Chancellor of the Exchequer will do in that respect. It has been whispered that he means to say something about a levy on capital. I understand there. has been a good deal of unauthorised statement with regard to some observations he made to a private deputation which thought fit to publish his remarks, or what they believed were his remarks, without strict authorisation, and it may be that he will think it, necessary to say something. But on that matter I want to say for myself that making any temporising statement seems to me to be playing with fire. A levy on capital will create great want of confidence, and I believe it is impracticable if it is to be done fairly, and it is not economically sound. After all, every sixpence that is saved becomes capital. The Chancellor of the. Exchequer is asking the population to save on the one hand, and on the other talks of appropriating by levies on capital what has been saved, unless he has been misinterpreted. It certainly offers no inducement to save. The man who spends all his wages is not to be taxed. The man who saves them is. It will be certainly unjust in many ways. It will not affect such people as barristers or surgeons, or, let us say, music-hall stars, who are. making large temporary incomes but have very little capital, while it will affect others who are in a different position and perhaps cannot afford it nearly so well. I do not, want to go into the matter deeply, but I feel that it will compel taxpayers, if they are to be so treated, to sell securities, or furniture or houses, when there are all sellers and no buyers, and, therefore, prices will be lowered and great uneasiness will be aroused. What we want. to do is to increase values, to increase trade, to increase confidence, and not to depress by undue taxation either one or another. Confidence, after all, is a plant of slow growth. It is vital to national prosperity, and requires every encouragement. Do not, therefore, let us destroy it on ill-considered grounds.


My right hon. Friend will forgive me if I do not follow him in the discussion of the question of the conscription of capital, or words which the Chancellor of the Exchequer may or may not have said at an interview of which there has never been any authorised report. I say that the more because—I think I may speak for all the members of our National Expenditure Committee — we are very anxious that the discussion to-day, so far as there is a discussion, should deal with matters which are raised in the Report, and the question of expenditure which the Committee was appointed to consider. It perhaps, unfortunate from the point of view of the Debate that there should be such general agreement in regard to the findings of the Committee. We are suffer- ing a little from the judgment pronounced, "woe unto you when all men speak well of you." Up till now hardly anyone has said anything aloud in detriment of us of our findings. I should feel somewhat happier really we had aroused eager controversy in some quarters. I am not sure that we have drawn blood sufficiently by our Report and certainly, from the point of view of the Debate to-day, things might have better perhaps more lively had they been more in controversy. Put I do not think it is necessary for me as a member of the Committee to traverse again the ground which was so well covered by our Chairman in his opening speech to-day. The appointment of the Committee was due mainly to the desire of the House of Commons and of the public, because it was certainly pressed on the House from outside, to know where the vast sums of money which are being raised were going, and I think we may claim for the Committee that: it has, in some degree at any rate, enlightened the House and the country as to how the money is being spent.

It. seems to me that we may claim two results from our work. The House of Commons is better informed as to how the money is being spent and what we are getting for it There is growing up in the House a body of informed opinion as to the methods adopted by the Government Departments in spending the very large sums entrusted to them. That is pure advantage to the House of Commons. Under our old system of Estimates, the great tendency was that the clays of Debate in Supply would he spent, not in discussing the Estimates. but in discussing some grievance in connection with the Department. Our Committees do really mittee supplies a gap in our Parliaments; and therefore I think this Committee supplies a gap in our Parliamentary machinery which the House of Commons will not hereafter willingly let go. It is perfectly true that we were appointed as a kind of war emergency, but it is equally true that something of the kind is required in our normal machinery for dealing with the expenditure of the Departments. The Committee has the other result, that the Departments have to reckon with the House. of Commons through the Committee. Under the old system, during the War, the Departments had nothing to fear from the House of Commons. They had no scrutiny of their expenditure—there could be none under our procedure—and the spending was out of the Vote of Credit with no Estimate before the House. There was, therefore, no examination at all by the House of Commons of the expenditure. I think the mere appointment of the Committee caused a tightening right through the Departments, and it has comes to my own notice. as chairman of one of the sub-committees, that there have been actual results before ever the Committee has made any investigation at all. It has the indirect effect of letting the Departments know that there is a body about to ask questions of the Department, and that expenditure can no longer go on. without the spenders having to give an account of themselves.

There was certain misgiving in sonic quarters that the mere raising of the question of cost might interfere with the necessities of the War. I do not think anyone would allege against our Committee that we have in any way hampered the operations of the War. Certainly the officials have had to do a certain amount of work. They have to give evidence before us, and have had to prepare certain returns, but I believe all our Committees have been. actuated! by the desire not to put work upon overworked Departments. and we have not had any complaints, as far as I know, of any unreasonable demand which may have been made. But in asking for economy I do not feel, and I do not think our Committee feels, that we are undermining efficiency. I am more and more convinced as I have sat upon this Committee that lavish spending is the sure mark of inefficiency. If a man cannot account for his spending, you may depend upon it his work is not being very well done. It would be a very happy thing for the world if we could by extravagance, by inefficiency, by a lavish spending, get confidence. But it is not so. The very reverse is the truth, and our of the first marks of inefficiency is the spending of more money than is necessary in order to get your work done. Cost in war. or at any other time, is not, of course, the dominant consideration. You must have the materials, you must have the men, and you must have the services. Cost is not the dominant consideration. but. it should' always be a consideration, and unless it is a consideration your organisation will go wrong.

If cost is a consideration, those in high, authority should make it known through- out the Services and throughout the Departments that it is a consideration; and I am not satisfied that sufficient reward is given to the men in the Services who attempt to be economical in their administration. I am not sure that men get promoted, as they should, because they have done their work economically. I am rather afraid that important administrative posts have been given to men not because they were good administrators, but because they have failed in some other Department—men who have not been altogether a success, shall we say. abroad, and have been brought home and put into important military posts. It is a vital defect in your administration if you console men who have failed in some operation by rewarding them with important administrative posts. That is a matter against which the Government ought. to stand on their guard. If economy is really to be held in high estimation by the Departments, you must give in your hierarchy an important position always to the financial officers and the financial committees in the Departments. There, I think, lies a real safeguard for wise economy. It is most important throughout your public services that the finance committees or the finance man in a Department shall have a position of real authority and shall be consulted in all the matters of finance that are inside the Department. The Sub-committee over which I have the honour to preside differs from that of the hon. Member for Windsor with respect to the large number of comparatively small new Departments which have grown up during the War to deal with particular matters—Departments which have grown up out of the Board of Trade and the Board of Agriculture to deal with such. things as wheat, sugar, tea, timber, and the different articles that have to be controlled and managed by the Government in order to ensure a supply. Our Committee have been very much struck by the haphazard way in which these new Departments have conic into existence. It was perhaps inevitable, seeing that they have grown up out of the stress of war. In many cases not. long notice was given that a new Department was required. In some cases, I think, the Departments have been set up when there was no need to have new Departments. The Board of Trade or the Board of Agriculture could have exercised direct control without setting up the semi-independent bodies which have been set up in these cases. What. has happened has been very general. A scarcity has arisen, or the danger of a scarcity, in sonic article, such as petrol, timber, or sugar. Sugar was one of the earliest articles affected. The Department has riot known how to deal with it; it has had no machinery for dealing with it Under these circumstances it has usually secured sonic particular individual or possibly has appointed some small committee. and has said to that committee, "A danger has arisen. There is going to be a shortage of petrol, or of timber. Get to work and see what you can do to prevent that shortage." These individuals or committees have had very little guidance. very little advice, and very little knowledge or past. experience to go upon. They have had to get their staffs as they went along and the whole thing has been uncontrolled, or unadvised by anyone outside themselves. Great responsibilities have been thrown upon individuals or small committees. On the whole, I may say, from my experience, these individuals have done their very best in the very difficult circumstances they have had to handle, but they have had too little guidance, too little help from outside, and I think the House and the country may justly complain of the. Treasury. To judge from some of their witnesses, the Treasury are under the impression that this House is asking too much when it appeals to the Treasury to keep the Departments and the officials of the Departments in order. It is urged that there is danger that if you relieve the Department of responsibility and if the Treasury take over the detailed control of what is going on inside the Departments, the result would be unsatisfactory. I think that is true. I think there is great possibility that you might duplicate your machinery if you asked the Treasury to scrutinise all the transactions of each Department and not to throw fully upon the Department responsibility for its own expenditure. That is true, but at the same time, when you are setting up large numbers of new committees, the circumstances are different. I do riot think I can describe the situation better than in the words of the Report: The War has brought into being a number of new Departments without administrative traditions or experience, not limited in their expenditure by the restriction of Parliamentary Estimates, without the safeguard, for the most part, of competitive tenders, and working under conditions of great stress In circumstances like those it seems to me that fresh responsibility rests upon an old established Department like the Treasury to give constant guidance, counsel and control to the new Depart- merits that have been set up to do certain emergency work. Take the question of the Estimates of these new Departments. I found in cross-examining the witnesses that these new Departments were perfectly ready to prepare for Parliament Estimates in the usual way. They were Sub-departments in some cases of the Board of Trade and the Board of Agriculture and in some cases independent Departments. They were one arid all prepared to present Estimates to the House of Commons, if required to do so. They were discouraged from doing so by the Treasury, on the ground, as far as I understood it, that the House or the Treasury had decided long ago that the expenditure out of Votes of Credit was not to be made the subject of Parliamentary Estimates presented in the usual way, that the War was regarded as an abnormal thing, that Estimates were prepared as far as possible in the normal way, and everything outside that normal way was to be dealt with without a formal Estimate. I cannot see that we should regard the War in that way at the end of three years. We have to adapt our system of life to war conditions. and we have to adapt our expenditure in the House of Commons to war conditions, and I press very strongly, from my experience on this Sub-committee, that we should have, in ordinary form, Estimates from these new Departments in every case where they can be put before the House without revealing vital information to the enemy. The only excuse for not presenting to the House Estimates which a Department is ready to provide is that it may be injurious to us from the fact that we are at war. Apart from that I do not think the House ought to accept any excuse of a general kind for not presenting full and detailed Estimates to the House. It seems to me very extraordinary that it should have been left to our Committee to urge this course upon the Government. I do think that we have reason to complain that the Treasury have riot made this demand for Estimates from these Departments and that it should have been left to a Committee to make that demand. I am glad to know that the Chancellor of the Exchequer has agreed to give to the House as full information as is practicable on this point, and I hope it may not be necessary to urge it again.

Many of these new Departments are trading Departments and are trading on a very large scale in wheat, sugar, timber, and so on. They are buying on a very large scale and in some cases selling on a large scale, and I think the House ought to be in possession of the results of their operations. Where they are trading Departments their accounts should be presented to the House in some form, or if it is not desired to present them to the House they should be presented to our Expenditure Committee. It is exceedingly desirable that the House should be informed of the results of trading operations where they are carried on by these new Departments. If that is clone, if we have the results of their trading and if the Treasury will continue—and I am glad to think that they are doing it more now—to put those intelligent questions which any owner would put to his agent who was carrying out important operations for him, then, I think, we shall get the control that is possible during the War. Here I want to say, on behalf of the Treasury, which is coming in for criticism and attack, that no amount of Treasury criticism is Commons to take the place of House of Commons criticism. It is not enough for this House to appoint a committee. It is absolutely necessary that the House should keep up a sustained interest in these financial matters. The discussion to-day is a proof that the House wishes to support the Committee which it appointed. I hope all hon. Members will read the Report of the Committee. I have sat on toe Public Accounts Committee for about twelve years. We have had an occasional Debate on the Report of the Public Accounts Committee. Those Debates have not been very frequent, but when they have taken place no one ha; taken part in the Debates except the members of the Public Accounts Committee and the Ministers concerned in the criticisms. It is exceedingly difficult to get the House to take the trouble to keep direct control over financial matters. The only way to keep control in this House over financial matters is to hold on and to keep that control in your own hands and not be content to put it into the hands of a committee, because committees get slack if no notice is taken of their work. W e are fresh, excited, and interested in our work now, but if you reappoint the National Expenditure Committee, and if we go on year after year, and if when the novelty has worn off the newspapers take no further interest in that Committee and the House ceases to take an active interest in that work, we shall become a mere routine department, there will be no one to ask the questions which are necessary, and without that continued watchfulness no system that can be devised will be really effective in promoting public economy.


I wish to join in offering the warmest congratulations and thanks to the members of the Select Committee on National Expenditure for their most exhaustive and valuable Report. Certainly there was need for the appointment of such a committee when we know that even since the introduction of the last Budget the expenditure on the War has risen from £6,250,000 to £7,500,000 daily. The practical question before us in this Debate, in view of the most valuable recommendations and suggestions made by the Committee, is how far, in a genuine, thorough sense. the Government and all the spending Departments of the State are going to give effect to those recommendations. We have had two lengthy replies from the Government in answer to questions put by the right lion. Gentleman (Mr. H. Samuel) who presided over the Select Committee, giving us certain assurances of changes that have been made or are intended to be made in the expenditure of public money. But the Committee suggests that there has been no such effort to secure economy, that the Imperial General Staff do not consider the money cost of any policy, that there is an absolute disregard of restriction in regard to doing anything on the ground of cost. No one would restrict cost so as to make our Army less well equipped and less efficient in the field in the prosecution of the War, but when we come to the expenditure with which we are faced to-day, and when we consider the Report which has been issued, it is perfectly clear that there is a huge waste of public money still going on. We have been told by the Government since this Committee reported that they are sending out to all the commands abroad and at home letters emphasising the necessity for further economies. We are also told that every soldier is to have repeated to him what was sent out in 1915, and apparently not repeated since, of the need of safeguarding his arms, munitions, and equipment. We are told, in reference to the stores and equipment, that the present inspection is entirely inadequate. We should like to know from the Government what changes they are making in that respect.

The cost of maintaining the troops at home in this country raises a most important question. It also embraces subsidiary bodies of men who are not physically fit for active service. For instance, of one body, the Royal Defence Corps, we are told by the Committee that to maintain one sentry, a single post, by that corps costs no less than £850 a year. I believe that there are about 40,000 of these. men, and I am told that, if properly re-organised, one-half the number of men could quite well do the work, and we could effect a saving on that one item alone of £60,000 a week, or £3,000,000 a year. We believe that a much larger number of troops is retained in these Islands than is necessary on any military ground, in view of the fact that we have tens of thousands of trained soldiers with their arms and equipment constantly on leave in this country, that we have a large number of Colonial and other troops training here, and have a Volunteer Corps which might be utilised for national defence to a much greater degree than has been the case; and when we take all these forces into consideration there does seem to be need for a review of the whole of these questions, of the cost and number of men retained and maintained in this country, and as to what curtailment in numbers and reduction in expense are possible.

Turning to the Admiralty, we have a Navy Controller appointed. There are allocated to him duties beyond all human possibility of being attended to efficiently by one man. This one man is to be responsible for inspection, repair, and maintenance of the material for the Fleet, including ships, and machinery, armour, guns, gun mountings, torpedoes, mines, etc., for all contracts relating to material, for the administration of dockyards and other Admiralty manufacturing establishments, and for the provision and repair of vessels for all other Government requirements, including the Ministry of Shipping and the War Office. Is it humanly possible for the greatest super-man that the world ever knew efficiently to manage, control, and direct all these multifarious and gigantic operations? Some vital change is needed if we are to have these Departments worked efficiently and with due economy. This Naval Controller is left by the Treasury free to appoint any number of officials with salaries not exceeding £1,000 a year, and an enormous number has been appointed. Then as to Admiralty contracts, they tell us that they cannot have competitive contracts, and we accept the statement. But is there any reason on earth why the principle of paying a contractor a percentage of the amount of money spent should be continued? Surely a bonus might be given to a contractor for the saving of money, and the reduction of expenditure on a particular contract, while you might deduct so much in case the expenditure exceeds the amount of the estimate. We should do everything to encourage the production of what we need at the lowest possible cost consistent with efficiency. There is no doubt whatever that the Admiralty, the Ministry of Munitions, and the War Office ought to have insisted on having cost of production furnished on all occasions where possible, in order to guide them to what would he fair prices to pay in connection with such contracts. Then, again, we are told that the Admiralty are setting up four great national shipyards, and that the scheme was embarked upon without having first had any estimate whatever of the cost. That is a very serious charge, and when we remember that the existing shipyard and the machinery connected therewith have been very inadequately employed—I have it, on the best authority that the existing shipyard and the workshops in connection therewith work on an average very little over eight hours a clay, and if that were doubled it would be a great deal better to have that concentration and a great saving in the expenditure that will be incurred in connection with his national shipyard.

With regard to the Ministry of Munitions, could anyone ever conceive it possible that a great Government Department wealth be allowed to expend £1,000,000,000 without any Treasury control? It is incredible. It is perfectly true that the Chancellor of the Exchequer in war time, with this huge expenditure of £2,800,000 a year, cannot possibly exercise power over the spending departments as in normal times. But apparently because full control cannot he exercised the idea of exercising as much control as is possible in the circumstances has been given up, and apparently the Ministry of Munitions has simply been left to spend money as it chooses. Now I see that the Chancellor of the Exchequer has at last stipulated that the Ministry of Munitions shall not advance more than £50,000 for the putting up of an additional shell or other factory, or give a further grant of more than £10,000 for any of these controlled or national factories, without having the approval of the Treasury. That is a step in the right direction. But if there is one Department in which there is urgent need of Treasury control and supervision it certainly is the Ministry of Munitions, and why we cannot have the recommendation that a Parliamentary Secretary charged with the finances of the Ministry, as in the case of the Financial Secretaries to the Admiralty and the War Office, accepted at once, I cannot imagine. All we are told is that it is being considered. The reply of the Government in regard to the absence of proper financial control, even in time Ministry of Munitions itself, is most lame, halting, and unsatisfactory.

Of course the cessation of the system of competition in tendering for supplies renders Treasury control more urgently necessary than ever in the history of the country before, and the Committee tells us that in every Department it falls far short of the needs of the case and we are drifting into a higher and higher expenditure. I do want to have an assurance from the Government that they will take up the question of affecting drastic economies in every spending Department of the State. The Committee in the last Report state that the recommendations made in October do not appear to have been considered or dealt with. There is no doubt that in the staffs of the various new Government offices all over the country and in these temporary buildings erected in every square in London, in all human probability one-half, or at least one-third, of the employés in those Departments could quite well do the work, if properly organised, directed and controlled. Will anyone tell me that it was necessary in the Army Pay Department to increase the number of employés from 600 to 26,000? It is an absolute scandal. If you have an Army of 5,000,000 men now, as against 250,000 at the beginning of the War—that is an increase of twenty times the number—that would only mean 12,000 employés, as against 26,000. What I urge is that competent business men should be got to visit every one of these newly established Government Departments and to investigate what is the position in regard to the staffs and how far they should be diminished, and how far better organisation and control of these staffs would give much more satisfactory results. We are told, in regard to the huge number of employés in the new Government offices all over London, that the Government have appointed a Committee. Yet another Committee It is always a Committee, and unfortunately too often we hear nothing as to what the result has been.

6.0 P.M.

I am grateful to my right hon. Friend opposite that he and those who worked with hint inform the House of Commons as to the results of their investigations. This is encouraging. and I hope that it will give encouragement to the House to take the control of finances once more back into its own hands, and insist, in the interests of the country, on greater economy. If we have these. cycles of rise in value, a rise in prices, and then a rise in wages, those who get the rise in wages are no better off, because they have to pay further increase in prices for what they have to buy. There is no doubt whatever that the financial position, if this country goes on as it has, will will be of such a serious character that twelve months hence we shall realise, even if we do not realise now, the importance of doing all in our power to effect economies, and I am sure that my right hon. Friend the Chancellor of the Exchequer is really as keen an economist as I am myself, and I think he must be indeed a superman to manage the duties of controlling the finances of the country, to be in the War Cabinet and to be the Leader of this House at the same time. I must say that we are enormously indebted to my right hon. Friend for his magnificent services during the War and for the depth and judgment he has so often displayed, but I do beg of hint to go a little further in trying to prevent the waste of Public money in every Department of the State. I raised the question in this House of the way in which the price of timber had been inflated by the neglect of the Government in regard to home-grown timber from the beginning of the War. At last action has been taken for the limitation of prices of different classes of wood. It was taken on the 4th December—only last month—but still the scale of prices, I do not hesitate to say, is two or three times as high as it would have been if the scale had been brought into effect in December, 1914, as it ought to have been. I apologise for detaining the House so long, but the question of economy and national expenditure is one in which I take the keenest interest.


I propose to offer a few remarks to the House upon this extremely important subject, and, I think, as an ordinary member of the Select Committee upon National. Expenditure, it may be of more interest to the House to state my general impressions upon the subject of our inquiry than to attempt to follow the exhaustive review of details which the hon. Member who has just sat down has referred to. I have had, perhaps, special opportunities of forming a general impression, because I have had the privilege of serving under our most capable Chairman upon the Sub-committee which has been dealing with Departments which together have the greatest amount of work—the War Office and also the Pensions Department. A large number of witnesses were examined, and a great many special inquiries were undertaken. I would like to say at the outset, in reference to the enormous number of people who come under our review, as being entrusted with the expenditure of public money, that on the whole the impression I formed, and I think many of my colleagues also, has not been at all unfavourable, particularly in connection with the Army. I should like to say that I was surprised, both in this country and in France, to find among commanding officers the existence of an evident desire to exercise economy. Indeed, I was very much impressed by the keen desire exhibited by the majority, by far the greater majority, of those in command to effect economies where they could; but, while I say that, I must also say that the impression I formed was that the tender plant of economy had not received from above the encouragement which it requires if it is to grow well and strongly. At the same time, however, I think we must always remember that the future historian will say that the creation of the British Army as it exists to-day is the greatest work of improvisation ever seen, and the most successful improvisation. You must bear in mind the conditions under which it was carried out. I have not the slightest doubt that the great United States of America will exhibit a magnificent improvisation in their turn, but their improvisation will not be carried out under the extremely difficult conditions which attended the improvisation of the British Army, and the extension of the Navy and the establishment of its subsidiary Services. Therefore, no one can criticise at adversely or harshly the fact that in the opening stages of the War it was necessary not to count the cost, but to get things done, and they were done. We must remember that.

Then I think there was some force in the remark of my right hon. Friend, who said that no one expected the War to last so long. That may be true, but, although it may be an excuse, it does not justify the failure to take measures to enforce necessary economies so soon as that was practicable. The War has now lasted four years, and the great improvisation was more or less brought to a conclusion, perhaps, after the first eighteen months. A long time, at any rate, has elapsed now for settling down, and I submit that much more might have been done than was done in the direction of economy. During that time, a number of zealous individuals were bringing forward ideas with a view to effecting greater efficiency and economy, and such suggestions as the Committee have been able to make have, as a rule, been the result. not of our own originality but of the ideas which were suggested to us, which we saw were good ideas that we would be able to support. That being so, and those ideas being in existence at the time that this Committee was appointed, one is. of course. tempted to the conclusion that had someone in authority, before our appointment, been as zealous as We tried to be, in securing support for those ideas, a great deal more might have been done, and done earlier, than was possible under the conditions which existed. I am afraid that the blame, if blame there he, and there must be blame, rests considerably with the top. I do not feel that it lies with the Departmental Treasury, and I am afraid those responsible were the Cabinet. I do riot know how it is organised; I do not know the relations of the War Cabinet and the various Departments of the State presided over by our Ministers.

I view as a moving picture one zealous Department after another, each trying to do its best, and each competing for what it wanted and devil take the hindmost, but I cannot blame the Departments entirely. and so far front saying, as the hon. Gentleman who has just sat down said, that it is impossible for one super-man to take over such numerous functions, I would observe that one man, or one group of men, must perform the super-function which is necessary to run the British Empire. Someone has got to perform the duty; if nobody does, then the result will be competition between the Departments, which must often result in failure, and always results in extravagance. Even at this period of the War, I hope that the Government will take into their very serious consideration whether enough has been done, not by the appointment of Committees, but by giving authority to one individual, or to a group of individuals, to carry out what has now become a very hackneyed expression, namely, the co-ordination of all the Departments entrusted with the spending of money, for, until that is done, there will continue to be waste. That is, I think, the chief lesson which is shown by the Report of our Committee. We have pointed out a number of small leaks through which money has been poured, But the great point is to have the whole situation thoroughly explored and thoroughly kept in hand by one, or, at most, two controlling minds. It is not for me to suggest the machinery. It may or may not be possible that such work could be combined with membership of the War Cabinet. Whether that is so or not, it is important for the Government themselves that there should be someone entrusted to perform these duties. I consider it an absolutely essential condition of further economy, that such an individual or group of individuals, should be secured. If the present atmosphere, which has been pointed out by many Members. is to be maintained and perpetuated, some step of that nature, I think, is necessary.

There is one further observation I wish to make in regard to that subject. In all the functions entrusted to the Departmental Treasury, everyone who has come across the. work of that Department. must admit that everything it has taken in hand has been extremely well clone and most conscientiously and carefully done. The fault which we find with their work is, not that they have done badly what they have done, but that they have left so much undone. They showed no power, so far as I can see, of adapting themselves to new conditions. They should have asked themselves whether they could not go. outside the ordinary practice of the Department into new grooves and devise new systems for the Departments. I feel that trained minds, minds of that calibre, might have been applied to solving not old, but new conditions, and that in that way much more might have been done to promote economy. Whether they were encouraged or not to do it, I do not know. Looking at the record of the Departmental Treasury, which has scarcely increased its staff during the whole War, we find that it did not make that effort, and therefore work which would have been extraordinarily valuable and which certainly would have saved hundreds of millions, was left undone. I would like to make one or two remarks with reference to what fell from the hon. Gentleman (Sir J. Walton). He singled out for blame the Army Pay Department. That is a matter to which the Committee gave a great. deal of attention. It is perfectly true that the staff of that Department, which was originally very small, did swell to a very large one, but the, impression left on my mind, and the minds of my colleagues, was that the way in which the Army Pay Department had been improvised was a marvellous piece of organisation. It may have been extravagantly done, though I am not sure it was, in the conditions. I know that the Department. has been attacked for various reasons, but, on the whole, considering the different interests with which it had to cope, certainly the work which it has done is one of which we ought to be proud. My saying that necessitates mention of its extremely able military chief, General Carter, and I should like to point also to the fact that it is presided over by that great public servant, Sir Charles Harris, who has probably done more than almost any other member of the Civil Service to maintain economical administration in the Departments in which the greatest expenditure has been going on, and to say that he deserves this recognition both by members of the Committee and Members of this House.


I rise only to draw attention to a single point in the Report of the Committee which has not, I think, had the attention it deserves, though my hon. Friend who spoke last referred to it Before I turn to that may I say, as one who has had some opportunities of judging, having served in the Treasury and in other positions both in and out of the Government which have brought me into connection with Sir Charles Harris and his work. how glad I as to hear the tribute which my hon. Friend has just paid to him with the general assent of the House May I also say that I think the House as a whole has reason to be grateful to my right hon. Friend the Member for Cleveland (Mr. H. Samuel) and his colleagues for the inquiry they have conducted and the reports which they have presented. I promised that I would deal only with one point. and I propose to do so as briefly as I can. My hon. Friend, in the concluding portion of hi; speech, said that he thought that the Treasury had done every work well which it had attempted, but that it had not done as much as it ought to have clone. I am convinced, afer twenty-five years experience, of this House, and in Office, sometimes in the Treasury and sometimes in the spending Department, that it is upon the Departments in the first instance and upon the Treasury in the second instance that we must rely to prevent waste and to secure economy. My hon. Friend below me (Sir J. Walton), as an illustration of the fact. that hope springs eternal in the human breast, invites the House of Commons to resume its old control of finance. He thinks that that will promote economy. There is no more wasteful body than the House of Commons and there is no Minister or ex-Minister who will not confirm what I say that for one economy, good, bad or indifferent, which this House have helped him to make, they have forced upon him or tried to force upon him a hundred unnecessary extravagances. It is quite idle for us to pretend that the House of Commons favours economy. We do not. We hate imposing taxes, but we love spending money and very often we spend the money first and then the Chancellor of the Exchequer has afterwards to find it It is therefore on the Treasury, on the individual Departments, and on the central institution of the Treasury, that we must rely for economy and the prevention of waste.

There is a paragraph in the Second Report of the Committee on page 3, under "Treasury Control," in which they draw attention to the fact of the smallness of the Treasury staff in peace time, and to the fact that it has hardly been expanded during the War. It is to draw attention to that point and to its moral that I rose. I am convinced that the Treasury is under-staffed. My hon. Friend says that they might have though out fresh ways of controlling money. There is no man in the Treasury who hat; any time to think about anything but his daily round and common task, yet at any time there were large problems looming in the future before the Treasury, and that Department, if any Department, wanted a thinking branch which would look ahead at those problems, which would collect information, which sooner or later the Chancellor of the Exchequer and the Government would require, and which would have made it their business to maintain a comparative study of the financial systems of different countries, and to see how our methods compared with other people's methods, and what the study of our Dominion methods might suggest to ourselves. There was no Department for that purpose in peace, and there is no Department for it now. If the problems were largo in pre-war times, they are larger now. I do urge on my right hon. Friend, and I hope he will not think it an unfriendly action of mine, that he should take to heart this paragraph of the Committee and see, even in the stress of these times, if he cannot strengthen the Treasury both for the purpose of economy control and, above all, for the thinking out of the great problems which are going to confront him and us within a short time. The Treasury has at all times a very small staff. You need picked men, you need men with a wide outlook, and it is of great importance that the Treasury should always he able to lend a man for the secretaryship of a Commission or a Committee. In that way he gets experience, widens his outlook, and becomes more a man of the world and less a man of routine. It is desirable that the Treasury should have such a staff that at any time it can lend, as it is sometimes asked to lend, financial advisers to a Dominion or Colonial Government. I assure the House that the Treasury is so narrowed in its staff that if you want to take a man from it now to do important national work which is not Treasury business, you cannot do it because they have not got a man to spare.

When I was Chancellor of the Exchequer I was told that the Treasury could not afford to lend a man to one of our Colonies which had asked for a financial expert to look into their treasury system. I said that I would not allow such an answer to be returned by the Treasury to a Colonial demand as long as I was Chancellor of the Exchequer, and that it was our business to be able to respond to the invitation, and that we must do it I tried then, and my tenure of office was very brief, to persuade the chief heads of the office, at an unusual meeting for the purpose, that it was necessary to expand the Treasury to the point of creating a new division, but I could not convince them in the short time that I was there, and, new as I was to the post, I did not like to override them. I think it is a great misfortune that I did not have the courage of my convictions and do it then. The opportunity arises to do something of the same kind now. The need is urgent, and beg of my right hon. Friend to fortify himself in the conclusion of the Committee that the limiting of the staff of the Treasury is not economy, and to expand it till it is equal to the great duties which it has to discharge.


I certainly cannot regard what has been said by my right hon. Friend as in any way an unfriendly action. I entirely agree with every word of it, and I will only do my best to respond to the appeal he has made. It is perfectly true that there never was a greater need not only for men to do routine work at the Treasury, but for the men of the, calibre of mind and width of outlook which fits him to take a wide survey of the problems which are in front of us. I am glad to say this, and I say it quite freely, and I think I am unprejudiced, that from the point of view of ability, there is no Department in the world that has a more able set of men than the men who serve in the Treasury. There is also at present an arrangement which one would say was absolutely impossible in any well-conducted business. We have three heads at the Treasury as the result of war conditions, and the result of that is on the whole that, in spite of the pressure of work, there is more time for the heads to give advice to me than the House of Commons would consider likely or consider possible under ordinary conditions. Nobody knows better than my right hon. Friend how difficult it is to make additions to the Treasury. It is not only additional men that are wanted, but it is the getting of men of an exceptional type both in ability and experience. I need not say to my right hon. Friend, who has been helping the. Government so much that he knows as much about the Treasury as I do, that we have made efforts in that direction. We have had more outside help than perhaps the House of Commons knows. For instance, my right hon. Friend the late Chancellor of the Exchequer set up a Committee of well-known business men in the City to deal with exchange problems. At this moment we have one very well-known business man—I am riot going to give the name or the details—in one neutral country, two in another, and two in a third, all giving gratuitous services to the State in trying to help us to deal with the exchange on the spot. Compared with other Departments, the help from outside experts in the Treasury is small. We have three well-known and very capable business men who are giving their whole time in helping us in work at the Treasury itself, and I may add that each one of them came without having any special or important work given to him, but they expressed readiness to do clerical work or anything else until they found work where their experience would be of the greatest use. They are doing us great service, and I sincerely hope we shall be able to get inure of that kind of assistance and do a great deal more to strengthen the staff of the Treasury.

As regards this general Debate, the House of Commons will remember the conditions under which the Committee was formed. A Motion was put down which the Government could not accept in the form in which it appeared. We arranged a Debate then, and I think I convinced the House that the Chancellor of the Exchequer and the Government were not hostile to any effort intended to improve control of expenditure in this country. No one could be Chancellor of the Exchequer for a minute without knowing that improvement was possible and very desirable. We came to terms with regard to that Committee. What was almost a Parliamentary bargain was made, that the Government would allow the fullest form of reference on condition that the Committee entered upon its duties not with any idea of criticising, but in order to help in the problems brought before us. I have the greatest pleasure in saying that not only in the speeches which we have heard this afternoon, but throughout, they have Acted in that spirit and they have rendered non only to the country, but to the Government, great service by the recommendations which they have made.

I should like to say a word or two, if I may, as to the point of view from which, since I have been in the Treasury, I have regarded this question of the control of expenditure. I was convinced, and I am convinced now, that when you have these immense Departments you must never leave out of sight the problem of material, and when you are dealing with Departments of that kind, spending such immense sums of money, it is quite impossible with any expansion of the Treasury staff that they could effectually control the way in which that business is done. I am sure of that. The most we can hope to do, and it is on that basis that the Committee have acted, is to try to get a good system of expenditure in those Departments and, if possible, to get good omen at the head to carry out those systems. My examination of their methods convinced me that things were perhaps not half so bad as was the general view outside, and I may, perhaps, add that my hon. Friend the Member for Tamworth (Mr. Wilson-Fox) has said that that was the view impressed upon him by his examination as a member of the Committee. Going over the Departments one by one, I found in regard to the War Office that they admitted that at the beginning there had been great looseness which was inevitable, but that the system, partly due, I think, to a distinguished Civil servant who has already been referred to, had been immensely improved. I felt with regard to that- Department that what I would like to see would be one man responsible for the supply branch of the work who was capable of dealing with it and who had authority to do it Mr. Andrew Weir was put in that position, and I am glad to say I have had time to see in detail a great deal of what he has done, and I am not exaggerating in the least—and I am sure my hon. Friend will share my view; lie was on the War Office Committee—that what is being done there is saving the country immense sums now, and will save scores of millions before the War is over. At the Admiralty I found there was not quite the difference between war-time and peace-time that there was at the War Office, because, much as the Navy has expanded, it has not expanded in anything like the same proportion, and we were able to retain something of the old Treasury methods in dealing with the Admiralty. it has not been carried to quite the same extent. It has not been put in one hand to the same extent, but Sir H. Livesay is doing some- thing of the same kind, and, so far as I can gather, he is doing it with great advantage to the national purse.

I come to the Ministry of Munitions. That was a new establishment, and a new system, and the House must not forget that when it was set up the one thing we wanted was to get the material at almost any cost. You must riot forget that, and, indeed, the Committee has recognised that, but what they have called attention to is that afterwards, when things got easier, more efforts were riot made to bring it under more complete control. I got from that Department a very elaborate account. of their system. I can assure my right hon. Friend that, on paper at least, it was pretty good. I found, for instance, that their method in dealing with contracts was to have a Costing Committee, which went into the cost of production, and placed the contracts on that basis. I thought that at a time like this, when we want the full product of any factory, when it is impossible to have competitive trading, you could not get a better system than that. It has been said that the Ministry of Munitions are slow to adopt the recommendations of the Committee. I do riot think that is so. I think they are trying to adopt them in the spirit as well as in the letter. I have had many conversations with my rigid lion. Friend the Minister of Munitions, and he authorised me more than a week ago, when the last conversation took place, to say that he has already appointed my hon. Friend beside me, one of the Parliamentary Secretaries, as Financial Secretary to act in the same way as the Financial Secretary to the other Departments. The expenditure in the Ministry of Munitions is I do not know how many times larger than the whole national expenditure before the War. I suppose it is more than three times. I should like to see, if it were feasible, a Chancellor of the Exchequer in that Department with the Chancellor of the Exchequer's authority to deal with everything within that Department.

That is all I am going to say about. these Departments so far, but this Committee made two recommendations which thought were of the greatest value. They were in regard to two Committees. One was a Committee to look into this general question of expenditure—the methods adopted in the Department. the contracts, and everything connected with purchase in the Department. I appointed a Com- mittee. I took a great deal of trouble to get the men whom I thought were best for the purpose, and I am glad to say to the House, as an illustration of the public spirit you find everywhere, that the three men I asked are the only three men I asked—the men I thought were best for the purpose. and who at once accepted. One is Lord Inchcape, the chairman, the second is Lord Colwyn, better known as Sir Frederick Smith. and the third, Sir Peter McLelland, who has tendered very great service on the Advisory Board of the War Office. What they are going to do is to examine the very questions we are discussing—the means of getting the best system in the Department—and I hope that they will render invaluable service in that way. The other Committee is the one dealing with the staffs of the Departments. I think it is partly because of training, and partly because of temperament, I suppose, but what interests me is not so much principle as saving money, and, after all, expensive as these staffs may be, the amount of money involved is very small compared with that occasioned by a bad system of production and making contracts. But there is something more in it even than the question of money. One of the essential virtues of our Civil Service has been uniformity and control right through, and that is one of the directions in which the Treasury has always exercised, as my right hon. Friend knows, complete control. I am sure I am only expressing his sentiments as well as mine when I say that of the ordinary routine work of the Treasury the things that come inevitably to the Chancellor of the Exchequer are the things which are by no means the most important. For instance, somebody in a Department thinks that a particular employer deserves a higher rate of remuneration than is usual for the scale of work. He conies to the Treasury, who are unable to meet his wishes. But no colleague will be satisfied unless he has tried to make the Chancellor of the Exchequer agree with his point of view, and that is the kind of thing with which one's time is constantly taken up, and which involves very little money.

But I do realise the importance of dealing with this question. The Committee recommends that it should be a Treasury Committee. We want, if possible, not only to give recommendations, but to see them carried out, and in dealing with this question I thought that the men best likely to get at the root of it were men accustomed to Government Departments. The result of that is that I appointed Sir John Bradbury as chairman; Mr. Warren Fisher, one of the well-known public servants in Somerset House; and, in addition, Mr. J. Rostern, goods mangaer of the Great Central Railway, who was selected because of his great experience; and Mr. C. H. Wood, a City man, who is giving his full time to the question. My right hon. Friend suggested we should have a woman on the Committee. It has already been considered, and we have been looking out for one. I am sure he will agree with me that we arc not going to put a fifth member on the Committee because she is a woman, but we will put a woman on if she is fit for the work and will help us in it I am certainly making no reflection at a time like this, with the woman's franchise before us, on the capacity of women, but what I mean is you want here people of special experience in this kind of work, and if we can get a woman with that special experience then we shall add her to the Committee. I hope this Committee will be useful, and I may say this: if it is not, it is a very great waste of two very able public servants, who would not have been put on if the Government had not meant it to be a real committee, and hoped that something would result.

I shall deal as briefly as I can with a number of points raised in the Debate. My right hon. Friend opposite raised a question of having ordinary estimates in many of the Departments. He said that the only objection he could see was if the information given was information that would be of use to the enemy. There are many more practical objections than that. I have already said in answer to the question asked by my right lion. Friend that, in presenting this information, we shall give all the details we can, so that the House may see how it stands. I believe that is as much as we ought to do and I hope the House will be satisfied. Let me point out what the difficulties are. If you are going to take any Department, such, for instance, as the Board of Trade, and if you are going to frame estimates m any of these Departments, you cannot foresee in advance with any accuracy what the War expenditure even in those civil Departments will be, and the result would be that we should have constantly supplementary estimates, apart from other disadvantages, without any useful purpose. That is my view, but I have already said we shall give all the information we can in that, statement.

A great deal was said about inflation. The heads of the Treasury have great theoretical knowledge as well as practical experience. They are always afraid of inflation, and we have certainly done our best prevent it. As was pointed out by my right hon. Friend, the inflation of the note issue is small in this country compared with what it has been, for instance, in Germany, and of course no one can doubt that inflation of currency does tend to higher prices. The House will have to remember that these notes are not created in order to pay for debts; they are only created as the demand is there for the currency. The banks get them in the same way as in ordinary time they get gold currency. I do not think we have to go very far to see the real explanation before our eyes of this inflation of prices. After the War broke out the supply of commodities was diminished. If there had been a falling off in spending power—a great reduction of wages—that supply would have been counteracted, but, of course, that could not happen. Wages were again raised to meet the increased prices. Then prices rose once more, and wages were again raised to meet the increased cost. The wheel goes round indefinitely, with this result in the main, that the working men who arc getting higher wages, in so far as those higher wages only represent the increased cost of living, are no better off, but those who have not been able to increase their income are ever so much worse off, and every pound that the Government borrows is made almost two pounds because of this inflation of prices.

This brings me to another point, which was dwelt upon as most important by my right hon. Friend opposite. That is the relation between the Cabinet and the Chancellor of the Exchequer, to what extent he controls the expenditure, and to what extent he is overruled by other Departments. I ask the House to look at that matter, as I do, quite impartially. My right hon. Friend gave five or six instances of increased expenditure. I listened to them very carefully. Let me mention some. Some were unimportant in amount comparatively, though we would not have thought them so four or five years ago. These include advances to teachers, increased pay to soldiers, etc. One of them was very controversial—that was the subsidy on the loaf. We discussed this before in the House at the time it was agreed to. I said then that it was a question in which there was room for great difference of opinion. Of course, the House knows quite well—and I venture to say this, whatever else may be in doubt—that if all the circumstances had been presented to the House of Commons as they were to us, whether it were wise or unwise, the majority in this House of Commons would have voted in favour of that recommendation. hook at other items of expenditure: additional advances to our soldiers and advances to our officers. At a. time like this members of the Cabinet and Chancellors of the Exchequer have to look at what these men are doing in comparison to others who are staying at home. When we think of the higher wages those at home are getting it really made it more and more impossible not to deal more generously with those who are running the terrible risks of war. I know my right hon. Friend opposite does not question that at all; I am only giving it as an illustration of the difficulty of stopping this increased expenditure. All I can say is this: it is clearly the business of the Chancellor of the Exchequer to look at every item of expenditure, and see whether or not he can use his influence to stop it. I hope I am doing that. But I will say this: that if any item of expenditure is put forward which, either on such grounds as I have mentioned just now or on the ground of enabling us to put ourselves in a position to make more progress with the War, I would not take a different view as Chancellor of the Exchequer to that which I would take as a member of the War Cabinet. It is the necessity of the case that should be considered. I do not think it is the business of the Chancellor of the Exchequer to try to oppose every expenditure because it is expenditure, but only when he is satisfied that it is not needed from the point of view of being helpful or necessary to the carrying on of the War.

The only other general point made is as regards the proportion of expenditure which is raised by taxation and by borrowing. I do not think anybody on principle would differ from this, that we ought. to raise now every penny that we can safely do by taxation. The difference of opinion comes in as to what is a fair proportion. And there I differ, so far, from many of my hon. Friends in this House. There must be differences of opinion. My own view is that, in view of all the circumstances, the proportion raised by taxation is a pretty heavy one, and not far from being as much as can be safely raised without interfering with our means of raising money to carry on the War. That is my view. All I will add with regard to that is to say that the expenditure—the figures I gave in answer to a question the other clay show it—has not been increasing lately, but is rather less, and I have every reason to hope that the total expenditure out of the Vote of Credit at the end of the financial year will not be so large as at one time, quite recently, we had reason to expect. That is all I am going to say on that subject. I would like, if I may, to take the opportunity of thanking every Member of the House who has spoken for the complete absence of anything like a desire to annoy -the Government, or its representatives, and for the friendly way in which the whole thing has been discussed.

As I promised, before I sit down, I am going to say a few words, and as few as possible, about the reference made by me to a deputation on the subject of the possibility of a tax upon capital. When I said I would speak on the subject in the House of Commons I thought it better to do it here, as Leader of the House, than to make any statement in the Press. I intended to deal with it to the extent that my examination of the subject would enable me to do, by looking into the whole question. I am not going to do that I have decided not to do that—for this reason: I could not, I am afraid, argue it without giving the impression that I was in my own mind committed to it I certainly was not. The House knows—at least I fancy those interested in it do—how this subject has arisen. I looked upon it, and I look upon it now, as for the present an academic question. A deputation representing two Labour groups came to see me in private. They talked about a grant many things—amongst others. the conscription of wealth. When one has to deal with a subject. of that kind. I only know of two methods of dealing with it The one is to say what you think; the other is to say nothing In this case I really thought. that I was perfectly free, seeing that the deputation was private, to say what I thought about the matter, and the words I used showed I was not expressing any considered opinion. I myself think it is a pity that what was said at that private deputation should have been made public. I regret it, not for the personal inconvenience—for at a time like this a little inconvenience, more or less, does not matter—but it is a pity that Ministers should not be free to talk with greater frankness and less responsibility on occasions like this without the risk of publicity. As a matter of fact, the statement given in the Press was, so far as I know, an accurate report of what I said. I judge from some comments in the Press that I have gone over to the doctrines of the Bolshevists. If so, it is an unconscious conversion. I was, indeed, reminded of an incident that occurred at the time of the French Revolution. Marat was then recommending as a method of securing his ideal State the cutting off of the heads of a large number of people—I think it was 30,000 aristocrats. That was considered rather strong even for the Revolutionary assembly. The people began speaking about the matter and wanted an explanation. Marat got up and made a very simple speech. He said, "Well, that is my opinion." I do not think my lapse from virtue is quite so bad, but I must give the same answer, and that is that I expressed my own views.

7.0 P. M.

What are they? They simply are, that the question of whether or not, as a means of diminishing the war debt, a capital levy is possible, is a question in regard to which I have a perfectly open mind. That is my view. I want the House also to understand what was not involved in my view. There has been a good deal of talk about the contrast between the conscription of wealth and the conscription of life. I wish it were possible that there should not be this contrast. If it were possible to save life by conscripting wealth I do not think there is one man in this House who would hesitate; but, as it is not possible, the comparison is absurd. We are proud of the way in which all classes of the community, before conscription, went to serve their country. file wealthy classes have certainly paid their full toll in that respect. There is another thing. This idea of a capital tax is put forward as a motive of socialising the whole of our industrial life. I think, however, a fiscal scheme, whether it is good or bad, is not to be judged by the motives of those who think it would suit their purpose. Indeed, as a matter of fact, if ever a Government were established in this country which desired to take that course I do not think it would be influenced by precedent. I think, on the contrary, it would very likely consider the fact that it had been done before would be a reason for not doing it again. Further than that I said—if I remember rightly—that the speeches of the hon. Member for Blackburn showed us before the War that if that sort of thing were to be done, and the Government were supported in doing it, it could be done in effect quite as easily and almost as effectively by using the Income Tax and Super-tax as a means of confiscation. Indeed, as a matter of fact, it would be more easy, because the taxation of capital, being a new ilea, would very likely raise more opposition. I do not think that I need say much more about it. I do not in the least wish to have a subject like this treated as if it were a practical question now. All that I do claim is—and this is essential—for, of course, if it means confiscation, then I have no right to my view—all I think is that there is nothing of confiscation if such a thing were done. The War Debt which we are now incurring is like a mortgage on the country. It has behind it the security, not only of the revenue, but of all the assets of this country. Therefore, if the thing in itself were, which remains to be seen, wise, there is no confiscation about it any more than the present system of taxation. Of course, there is confiscation in one sense when taxation is partial; and in one sense this is partial because it deals only with wealth, but I am sure the House will agree that also is true of the Income Tax which so large a proportion of the population do not pay. In its essentials there is nothing confiscatory in this proposal. I need not point out the objections to a tax on capital, for they are obvious. For example, when I first thought of it at all I had in mind it commutation of Income. Tax, but it would be said when you have taken that tax what guarantee have you that they will not spend that money, not pay off the debt, and not reduce Income. Tax. I do ask the House of Commons to consider the other side—to consider what will be the effect of an Income Tax for one or two generations on the present scale. You may look upon that as a possible expedient, and it is not the only expedient I have considered. When I was at the Colonial Office I was struck by the evidence of immense natural resources in many of our Colonies. I thought it was possible that the time might come when we could pay off part of our National Debt by rapidly developing through the State these resources. I find that a Committee was formed with that idea, and it is represented in this House by my hon. Friend behind me. I need not point out to the House how many objections would be raised to that kind of proposal if one were seriously to put it forward. I can imagine people saying that what I suggested was Socialism. In the same way you would find people saying that to try to develop the resources of our Colonies for the benefit of this country in that way would be exploiting them. All I claim is that we are going to be faced with a new situation when the War is over, and that we have to look at every suggestion on its merits.

It may quite well be, as I have seen suggested, that I have only had this lapse from virtue because I have not had that deep grasp of economic principles possessed by my friends. That is quite possible. I do not object to it, and I never had any ambition to be thought wiser than I am. As a matter of prophecy I believe that that problem and many others of the same kind must be dealt with when we are facing the problems of re-construction at the end of the War. I know that in other belligerent countries the subject is being much more discussed than here. I read an articl in two enemy papers last week, one strongly condemning it and the other recommending it, each of them written by a German banker, so that it is evident that it is not regarded by them eaher as a class or a political issue. All I say about it is this: I do claim the right to look at any problem of that kind with a perfectly open mind, and if it ever does become a. practical question, and I am still in political life, I will oppose or support it simply from the point of view of whether I believe it is or is not in the national interest.


My right hon. Friend has justly said that this is a non-controversial Debate, but it has presented a number of interesting features, and perhaps none more interesting than the disclosure of the psychological movements of the mind of a Chancellor of the Ex-chequer under the stress and pressure of war problems. My purpose in intervening is rather to deal with the general question that has been raised in all the speeches of the relations which exist, or ought to exist, in the conditions in which we find ourselves in regard to national expenditure between the Departments, the Treasury, the Chancellor of the Exchequer, and the House of Commons. I belonged, like my right hon. Friend the Member for Birmingham (Mr. Chamberlain), who addressed us a few moments ago, to what is now an obsolete species, namely, the class of Chancellors of tile Exchequer who had to deal with the finance of what has now become the "Stone Age." In those primitive days our business was comparatively a simple one. We had three functions and three only to which to devote our attention and time—the repayment of debt, the remission of taxation, and the reduction of expenditure. A Chancellor of the Exchequer situated like my right hon. Friend is to-day cannot, unfortunately, busy himself with any of these problems. What he has to do is not to pay off, but to accumulate. debt, not to remit, but to impose taxation, not to reduce, but to increase expenditure. I say he has to do so. But when I say that, I mean that he is an unwilling or a reluctant spectator, but a necessary participator as a member of the Government, in all these processes, which are essential for the due prosecution of the War and the attainment of the ends which as a nation we have in view.

When the War broke out, that new condition of things of necessity arose, and much of our old machinery, departmental and supervisory, became inadequate and ill-adapted to the new problems which were involved. Even in the old days before the War, as my right hon. Friend the Member for Birmingham has quite properly pointed out, one of the great difficulties a Chancellor of the Exchequer had to encounter was not the zeal of the House of Commons for economy, but the pressure of the House of Commons—an always increasing pressure—for new forms and heads of expenditure. I will not go into particular cases on the present occasion, but anybody who studies the Parliamentary history of Old Age Pensions and National Insurance will see that there is abundant illustration there of the truth of my right hon. Friend's proposition. I do not say the House of Commons was wrong; I am not saying that for a moment. The House of Commons presumably was then, as now, the authentic exponent of the will of the majority of the people, but to represent the House of Commons as though at any time or at any stage of its existence within living memory it was an efficient and a vigilant instrument of public economy is a travesty of the facts. One of the reasons for which we all welcome the appointment of this Committee—to whose admirable work, if I may do so, I would add my tribute, as have done all preceding speakers, not members of the Committee, who have taken part in the Debate—was that by such machinery as that the House of Commons could really and effectively satisfy itself, and through itself the country, that this large and lavish expenditure in which we are involved was being wisely administered, and that the stewardship the nation has entrusted to public Departments was being faithfully discharged.

On the whole I am bound to say, after studying the Reports of the Committee, that its verdict is not an unsatisfactory one. Previous speakers have pointed out that the machinery which has served us well enough in time of peace has had thrown upon it a multiplicity of new duties and cares involving an enormous extension of its personnel, and an equally incalculable enlargement of its area, and so must of necessity have taken time to adapt itself to these unforseen and unforseeable conditions. In the old days—and my object in calling attention to it is to see how far the principles that governed us in the past are applicable now—the real safeguard for economic expenditure, apart from the House of Commons, was twofold.

In the first place, the existence in the spending Departments themselves of a financial branch whose duty it was to see that the money asked for was required and was duly expended. We had in the War Office a very distinguished Civil servant who controlled the finances of the War Office for many years. I have been Secretary of State for War myself, and I know how admirably he has discharged this most difficult and delicate function. We have similar officers in the Admiralty, and those w ere our two great spending Departments. Their work was very efficiently done; but while we had this domestic tribunal in the Department itself no new expenditure of any importance could be incurred without obtaining the sanction of the Treasury. The Treasury used to be compared in those days to the ancient mythological figure of Cerberus; arid it is interesting to know that, even in time of war, it has a superficial resemblance to that famous figure, because I understand it has now acquired three heads. But, seriously, it is a matter which everyone who has been at the Exchequer must realise. It was a daily and an hourly occurrence that no spending Department would ever incur any new and large item of expenditure—not even to pay an increased salary for exceptional reasons to a clerk—without it going to the Treasury, and, very often, to the Chancellor of the Exchequer. That was a very good system, and on the whole it worked very well, but I agree that it was inapplicable to the time of war.

I understand the objects of this Committer, so ably presided over by my right hon. Friend—whose recommendations are being attended to, I am glad to see, by the right hon. Gentleman—are, first, to strengthen what I call the domestic tribunal in the Department, particularly in such a new Department as that which deals with Munitions, and, next, if you cannot restore Treasury control in all its old fullness, at least, wherever any substantial increase, either in kind or in quantity of expenditure is required, that Treasury sanction should be obtained. I understand my right hon. Friend, on behalf of the Government, to have carried into effect—he has described some of the means by which he has done so—both those recommendations. I am not quite sure, particularly after listening to the speech made earlier in the Debate by my hon. Friend the Member for Greenock (Colonel Collins) that in the Munitions Department that process has been carried at present to the extent which the necessities of the case demand. The expenditure of that Department, as my right hon. Friend has said, exceeds by a very great deal the total annual expenditure of the country before the War. Although it is quite true that in its early days, when the provision of munitions was the supreme necessity of the country, much of necessity was allowed to go through without minute financial supervision, yet in the conditions in which we now live—we are no longer, happily, in the same state of necessity in that matter—I trust that the steps recommended by the Committee, and outlined in mote detail by my hon. Friend, will be taken effectively and without delay.

There is one other topic on which, perhaps, I may say one word. I am invited to do so by the concluding observations of my right hon. Friend. The annual expenditure of the country has reached a point not only unparalleled, but undreamt of by anyone before the War. Even the Budget estimate of our daily expenditure presented less than a year ago has been exceeded by, I suppose, something very nearly approaching £1,300,000 a day. [An HON. MEMBER: £1,250,000.] I suppose that would be the average.


A little over £1,000,000.


A little over £1,000,000, which means between £300,000,000 and £400,000,000 in the course of the year. The House will be glad to hear that increase, at any rate for the time, has been arrested, but as it stands it is a most formidable sum. I am far from dogmatising as to the precise line of demarcation, if that were possible, which ought to be drawn, in view of such exigencies, between the provision to be made by taxation and to be made by borrowing. All I would venture to say upon that is that, in cases of real doubt, the decision ought to be on the side of additional taxation than of additional borrowing. It is safer in the long run, although not easier. As to the form that additional taxation should take, of course the judgment must rest in the first instance with the Chancellor of the Exchequer himself. He appears to have discussed in a private interview with a deputation, the question of a possible resort to a tax upon capital. He has told the House to-day that that was a purely academic discussion. He did not commit himself in any way to such a proposition. He merely threw it out as one of a number of possible suggestions that might be considered for the purpose of meeting an unprecedented emergency.

I do not desire in the least to rule out as a possible form of taxation, in some contingencies, a tax upon capital. I see many difficulties in the way—enormous practical difficulties, quite apart from what I may call the ethics or merits of the case—practical difficulties. which, as far as my experience of finance goes, arc to my mind for the moment unsurmountable. But I am quite sure that my right hon. Friend never meant to give any different impression. In some quarters a construction has been put upon what he is reported to have said which, I am quite sure, he never intended. I am speaking, I need not say, not in the interests of one class of the community any more than of another—certainly not more in the interests of Capital than of Labour. Nothing is further from my thoughts or inclinations. But I am perfectly certain, when you approach even a discussion of these matters, that you should leave no doubt in the public mind—the mind of this country, or of people abroad, whether they be enemies, friends, or neutrals—that whatever form of taxation you may embark upon, anything in the nature of repudiation of our national obligations, direct or indirect, is a thing which this country will never contemplate, and can never pursue. And when I say repudiation, I use the term in its largest and wisest sense, fur von may have what is in effect repudiation under veils and disguises which conceal, perhaps, from the superficial observer its real character, but which none the less strikes at the root of that confidence in the security of the man who has lent his money to the State under a sense of patriotic duty, for the purpose of meeting a great national necessity, that sense of confidence which it is as important to preserve and which is as much one of our great assets in war as is the courage and endurance of the nation at large. I say that in unequivocal language, not because I have the faintest doubt or suspicion that contrary views are entertained, or will be entertained, in any responsible quarter in this House, but because I think it is of the highest importance not only that our own people, but that the world at large, should know that the credit of this country is as unimpeachable and as secure in its foundations as it ever was at any time in our history.


The subject that has just been raised by the Chancellor of the Exchequer at the end of his speech and by the late Prime Minister is one of such vital moment to the country—it affects the rate at which we can borrow and it is affecting the whole future finance of this country and its reputation—that I claim, as a very humble business man,. who, however, has made some special study of this subject, just to say a word or two about it. I am in favour of the conscription of wealth, but not the taxation of capital. There is a wide difference between the two things. Conscription of wealth may be expedient, just as I believe it is inevitable. In some forms, however, and I maintain most strongly in the form of a levy on capital—it does not make any difference to me whoever favours it; I am here to tell what I believe to be the truth—or of taxation of capital, it is unjust, inexpedient, and will not work out to the interests of the poorest classes of the country any inure than of the wealthiest. The cry for the conscription of wealth is very specious and may he very misleading. In so far as it implies, as the Chancellor of the Exchequer has already told us, that the well-to-do classes of the community have not given their toll of life and limb to the service of the country, it is a misleading and unfair cry. Rich, poor, and middle-classes have all suffered of their best. Nor is it true that there has been up to now no conscription of wealth. The trading classes in particular, and especially young traders who began business immediately before the War, have been very heavily and in some cases very unfairly hit by that tax, a very good tax in itself, the Excess Profits Duty, and I do press upon the Chancellor of the Exchequer, when the time comes, to endeavour still further to improve the tax so that beginners in business may not be mulcted, as so many of them have been, of almost 85 per cent. of their income.

I know of cases in my own Constituency of men who began business just before the War and who have not actually the money with which to pay the Excess Profits Duty, their money being locked up in their business. Even those supposed monsters of iniquity, the payers before the War and since the War of Super-tax, are having a part of their wealth very properly conscribed. I quite agree with the Super-tax, and I should be prepared to raise it still higher. But while heavily taxing them, do not let us be so hypocritical as to deny that we are already conscribing wealth. If ever there was conscription of wealth, the Super-tax upon rich men is conscription of wealth. Even the Income Tax itself is a form of conscription of wealth, because it is graduated from the lowest to the highest and makes the man with a certain income pay much more simply because he is rich. "Ah, but," say the advocates of taxation of capital, "you are only speaking of income; what we want is to deprive men of their capital !" It is as well that issue should be openly put in the house of Commons. There is a desire on the part of some, I believe honestly, to deprive men of their wealth, because they think it is in the national interest to do so. For twenty-three years past the capital of dead men has been conscribed by the Chancellor of the Exchequer. As a matter of fact, long before 1594, Legacy Duties and Probate Duties were to a certain extent a taxation a capital. In the year 1894, under Sir William Harcourt, the principle of taking a share of a deceased's estate was established and has been practised by every Chancellor of the Exchequer in the country since. We, therefore, have tile principle of the conscription of dead men's capital already established. What I understand to be now proposed is that slices of capital should be taken by the Chancellor of the Exchequer every year, perhaps oftener, from the estates of living men. That is the new principle it it is sought to engraft upon our system of national finance. It is being advocated on two grounds, and by two different sets of people. I should be doing no .wrong to the real authors of the proposal if I were to say that they hold Communistic principles and that in the public interest they think that the means of production of the country would be greater if those means were owned entirely by the community. I give them credit for sincerity, but I deny the fairness of an attempt to introduce Socialism under the cover of taxation. As for those who call for what is termed sometimes "conscription of wealth," and at other times more definitely "taxation of capital," and who have not definitely Socialism in view, but who think by this means to stave it off, they say, "What a large debt we shall have after the War; how burdensome it will be; how inconvenient ! There are many rich people in the country whose capital, if you took a large slice of it, would help you to pay off the National Debt and save the burden for years to come. Let us take their capital, such of it as seems fair, and pay off a large part of the National Debt with it. Why should we be burdened for generations with all the interest and the principal of a large National Debt, when we might get rid of a part, if not all of it, so easily?"

That kind of talk reminds one of what the Kings of England did hundreds of years ago, when they took hold of rich Jews and threatened to pull out their teeth if they did not give their wealth to the service of the King. As the Chancellor of the Exchequer has reminded us, it is a little bit akin to the programme of the Russian Bolsheviks at the present time, who have just declared that in the interests of the country they repudiate the National Debt, incurred, let me remind the House, in some part to the taxpayers of this country, owing to the loans made to them by our own Government. I shall be very glad to hear what the taxpayers of this country say as to the repudiation of their debt by the Russian Bolsheviks. Among the rules of government which the present rulers of Russia have to learn, not the least important is that it does not pay a Government in the long run to be dishonest and to repudiate its debts. The easy way is generally the wrong way. If any British Government ever were to repudiate either directly or indirectly its National Debt it would deal a mortal blow at what is our greatest national asset—I mean our world-wide reputation for honesty and fair dealing. After all. one does find in travelling the world over that the word of an Englishman does carry weight. What would it be worth if the British Government were to repudiate, either wholly or partially, its financial obligations? It may be asked: "Who talks of repudiation?" It may be claimed that no one does, and that what is proposed is only a reasonable way of raising the necessary revenue.

I am sorry that the hon. Member for Blackburn (Mr. Snowden) is not here tonight, because he moved the resolution at the meeting of the Labour party last Friday, which was passed, nemine contradicente, not only demanding the taxation of or a levy upon capital, but that after the War the Chancellor of the Exchequer should "consolidate the Debt at a lower rate of interest." We are entitled to know what that means. Does it mean that if, after the War, the Chancellor of the Exchequer can induce those who have lent their money to the Government, by some fair means or some open arrangement, say, for a longer term of years or for some other consideration to take a lower rate of interest, that he should do so? There would be no need to pass any resolution to urge any British Chancellor of the Exchequer to lower the rate of interest- on the National Debt by any honest and fair means. He would only be too glad to do so. I am most reluctant to believe that the Labour party's resolution means that the Chancellor of the Exchequer, after the War is over is to break his bargain and rob the creditors of the Govenment of part of the interest due to them. We are entitled to be told what that resolution means. For my own part, I do not believe that a body of representative British working men would ever pass such a resolution, realising such a meaning. I cannot believe for a moment that such a sinister interpretation of it is the correct one, for the simple reason that I believe in the honesty of the great mass of my countrymen of all classes.

On the larger question of what is called "a tax upon capital," I am sure there is room for much misunderstanding. If I may venture to say a word of comment upon the Chancellor's attitude, I think his honesty was greater than his prudence when he said what he did on a certain notable occasion in October or November. I have no right, perhaps, as a private Member, to express any opinion as to what a great man like a Chancellor of the Exchequer ought to do, but it is a very dangerous thing, even for a private Member, to express half-formed opinions.




Honesty I admire, but it is better to form a final opinion before allowing it to go out to the world. The greater the man the greater the responsibility and the greater danger which a half-formed opinion produces. On the larger question of a tax upon capital, there is room for much misunderstanding. Undoubtedly many people favour it on very superficial grounds, without thoroughly studying it, who, if they did understand it, would oppose and not support it A favourite argument in support of the taxation of capital runs something like this: "A levy upon capital is only like Income Tax in another form or another form of the Death Duties. It is just as if, instead of waiting till a man dies you reckon that he dies once a year, or once in two years, and you say you will take 10 per cent. now and pretend. that he is dead. It does not make any difference to us as a nation. We have to pay the money at some time, and the sooner the better. When we call upon a man to pay £1,000 into the National Exchequer, what does it matter to him whether we call it Income Tax or Capital Tax? He has to find the money just the same." My argument on that is that if there is no difference in the name, why call it a Capital Tax? If a rose would smell as sweet by any other name, why call it a Capital Tax? Why not call it Income Tax? There is a very obvious reason for that. A man would never be called upon by the Government to pay more than his whole income in a year in the form of Income Tax. I believe that we can arrange to finance the War without an Income Tax of more than 10s. or 12s. 6d. in the £. Even if the War goes on for another year, I am sanguine enough to believe that an increased Income Tax and raised Death Duties would enable us to discharge our liabilities.

Let me put the case to hon. Members. Let us say it was proposed to levy a tax upon capital. We are given two alternatives for doing it In one case a tax say of 10 per cent. is to be levied at once on your capital, be it large or small. No guarantee is given; indeed, no guarantee can be given that that, levy of 10 per cent, would not be repeated after a short interval. Thus, if a 10 per cent. levy on capital does well for the Chancellor of the Exchequer this year, probably next year he or another Chancellor of the Exchequer might make it 20 per cent., and the year after 30 per cent. The more admirable the idea the greater the probability that those who admire that kind of thing would repeat the dose. It may be said by the advocates of that tax, "We do not mean to repeat it just yet awhile, at all events." What would their promise be worth? Just nothing! Nobody in the world knows the utter valuelessness of binding any future statesmen or Parliament by any enactment passed by the present Parliament than do Members of this House. Let us now take the other alternative. No British Government has ever yet made a levy upon the capital of a living man. Let us suppose that the Government says, "We do not mean to do so, and, as a proof of that, even under the pressure of the present circumstances, we will not levy a capital tax, but in earnest of the fact that we are going to pay our way, we will increase the Death Duties to a substantial amount." Does anyone mean to tell me that he himself would have as great an objection to higher Death Duties on his own estate as he would have to an immediate levy on his capital in his lifetime? After all, Death Duties, except by way of provision of life insurance, are not paid in a man's lifetime. He does not see his savings taken away from him before his very eyes. Up to the present the man who saves and lends to the Government has not been deprived of his capital. If he has saved much and has a larger income in con- sequence of his savings, then he has to pay a heavy Income Tax and he has to pay a larger share of his income, but his capital is safe as long as he lives, and most men live as long as they can.

One vital difference between Death Duties and what I may term life capital Duties in their effect upon the people who pay them is that in the one case they actually stimulate saving and economy, while in the other case they actually stimulate expenditure and extravagance. A man will—men do—save to provide against Death Duties. If you take away part of a living man's capital and thereby threaten to take from him the remainder of his capital, you kill in him the motive for self-denial and make him say to himself, "Let us eat and drink, for to-morrow we die." What is the urgent need in our national finance at the moment? Is it not that individually we should spend less, so that the Government may have the necessary money to spend on, as far as possible, winning the War? How is the threat of a levy on capital going to help the Government in selling War Bonds? I am assured by some of our greatest banking authorities to-day that the fear of this is doing a good deal to prevent the sale of our War Bonds. I will not weary the House by dwelling upon the impracticability, nay the impossibility of actually carrying out the programme of taxing capital. Take the case of a tradesman. One ease is quite enough, say, a tradesman in a country town.. a draper or a grocer in a large way of business, worth £2,000, who has borrowed as much as he can of his bankers, say £1,000. The Government go to him and say, "We are going to tax you 10 per cent. of your capital; we want £200 from you." Where is he to borrow the money? Only from the bank. The bank will say, "No, we have lent you as much as we can. You are worth £2,000 now, you are going to be worth £200 less, and we shall lend you less, not more." Remember that at the same time the bankers would be pulled at by their clients all over the country to lend them more money. The great mistake made by the men who are in favour of this taxation of capital is in imagining that traders all over the country have large balances at their bank which they can pay out. The very contrary is the case in regard to the great bulk of the traders of this country. To the poor people, the struggling people, it would mean ruin to them to take a substantial share of their capital.

Of course there is the alternative put forward by those who propose the taxation of capital who say, "Let the Government take over, instead of 10 per cent, in money, one-tenth share in the businesses of the country and perhaps the following year a one-fifth share of the businesses." That again would apply to a large proportion, indeed the larger proportion of the businesses in this country. We should have to put in a Government receiver in every business that could not pay in cash its quota of the tax of one-tenth or one-twentieth as the case might be. We should have established all over the country in every town a new institution, more officials, more interference and not, I maintain, a greater national income, as I have no doubt Socialists honestly believe would be the case, but I am certain there would be a much less total national income than we have to-day. Does any sane man believe that more profits and a greater national income would accrue from the perpetual interference of the Government with private businesses? No, there is a better way. The proper function of Parliament and of the Government is to prevent abuse and to regulate things for the benefit of the great bulk of the people. A better way to make money is to allow a man to manage his own business. Tax his income, but leave him free to make that income. After all, what the Government want is not an addition to capital, hut an addition to income. I cannot insist upon that too strongly. What the Government needs to-day is a larger command over the income of all kinds of people. I beg the Chancellor of the Exchequer to study this question. He told us with most engaging frankness—and I admire, and have done for a long time, his frankness with the House; I admire his truthfulness, if I may respectfully say so—but I do beg him to put an end, as far as he is concerned, to all the doubts and suspicions which are at present hampering the issue of our national loan. I am aware that increased Death Duties can only raise part and perhaps only a small part of the money we need, I am afraid the bulk of the new income must come from a higher Income Tax, and from special taxation on luxurious expenditure. I know that it is odious for any Government to set up sumptuary laws, but it may be, before the War is over, the Government will be compelled to have recourse to this sort of taxation. Let us by all means look to Income Tax as the main source of our revenue. I was talking to one of the wealthiest Members of this House the week before last. He is a large Income and Super-tax payer and he said he would rattier pay an Income Tax of 12s. 6d. in the £ than have his capital taxed, and he believed that such a thing as a tax on capital would be a disastrous thing for the whole country. Without imposing an Income Tax of 12s. 6d. I think we can carry on our finances:

I am not opposed to conscription of wealth, on the contrary, I am in favour of it in a wise and just form, in a form which will produce, but not destroy, income. I warn the advocates of a levy on capital that their policy, instead of increasing the national income would both lower the national credit and reduce the national income. The policy of a levy on capital is a policy of killing the goose that lays the golden eggs. It is the policy of the Sultan of Turkey, who cuts down olive trees instead of taking a toll on the olives. It is the barbarous policy of Oriental despots rather than the policy of our enlightened Western democracy. I believe in the honesty of the people. I desire that this subject should be openly, frankly and freely discussed. The more it is discussed, the more I am sure it will be seen that it is not practicable or expedient, but would tend to lower our national credit. It would not help us in our present difficulty, it would only raise greater difficulties later on. I hope, therefore. whatever our views may be as to collective ownership, we shall come to one conclusion, and that is that the practical way of raising income nationally is to take the income of its citizens, and not to interfere with the means of production or to destroy confidence by confiscating capital.


The hon. Member has depicted in rather lurid terms what might happen in this country as a result of a levy on capital, and while I agree with much that he said, I think that even out of his own mouth he condemned himself. He told us that he was in fact favourable to the conscription of wealth, which he also added already existed in the matter of Death Duties, Income Tax, and Super-tax. If he has no objection to that form of conscription, why, I ask him, should there not be a life duty? It is not going beyond the ingenuity of some financiers surely to draw up some scheme of life duties which would not be open to the objections which he has put forward. I agree that it is a matter which would require to be very carefully thought out. If I may, I should like to congratulate the Chancellor of the Exchequer on his very frank and honest statement and on his open mind—that is to say, fie, told us that if anyone could offer a reasonable argument in favour of this method of financing our war debt which is not likely to be detrimental to our credit and which at the same time is feasible, he is willing to consider such a proposal. I should like, if I may, to offer one or two observations in reply to the objections which the hon. Member has just put forward. Is it not possible, for example, for some Chancellor of the Exchequer, or for some financier, to draw up a scheme of life duties which would not press unduly on people in receipt of incomes barely sufficient for their sustenance? It does not necessarily follow that because you have a levy on capital it is going to apply to all equally. Surely it could be adjusted to fall on those best able to bear it, and it should be quite possible to draw up a scheme which would not penalise the professional man in receipt of a fixed income and only just able to make both ends meet. It might be possible to draw up some system of life duties which would get at capital—at large accumulations of either personalty or securities, and other forms of wealth.

There is just now a great expansion of revenue amongst certain people in this country who previous to the War had not been in a position of great wealth, and if you have a levy now, or very soon, you would secure from those persons a very considerable accretion which could be used for the reduction of the National Debt. That is a sane proposal in this sense, that it could be done without detriment or injustice, and it might actually be regarded to be in the interest of certain classes in this country. I have discussed this with people in the City. I quite agree there are some who have been rather frightened at the prospect of life duties, but there are others who believe that you might possibly, even in the interest of cumulative wealth, bring forward such a proposal, at a time when there is this vast liquid capital, and thus secure that which after the War, when there comes a, period. of contraction and depression, it will not be so easy to obtain. I submit that the Chancellor of the Exchequer might well consider that possibility either in his coming Budget or in some future Budget. It is well worth considering, and it would not really decrease the productive power of this country, while it would secure a very considerable sum; it would lighten the charges on the country and enable us all the sooner to reduce taxation; it would help to get rid of the National Debt, and it would reduce the burdens on industry. Therefore I think it would be a very wise measure. I should like to offer one or two observations on this Report. Like other speakers, I congratulate the right hon. Gentleman, the Chairman, and the other members of the Committee on many of the points raised in this Report, particularly with regard to greater Treasury control. I think the right hon. Gentleman the Member for West Birmingham (Mr. Chamberlain), in the very brief speech he made, got at the heart Of the matter when he said that the Treasury was under-manned, and that there ought to be an increase in the number of officials in that particular Department. We know that the War has resulted in an enormous expansion of financial responsibility. The questions of currency, of management of debt, and indeed the full Department of finance has swollen enormously, and it would be well worth the consideration of the Chancellor of the Exchequer whether the suggestion of the right bon. Gentleman the 'Member for West !Birmingham to increase the manning of the Treasury could not be given effect to.

8.0 P.M.

There was some remark made by the right hon. Gentleman the Member for Cleveland (Mr. Samuel) with reference to the effect of paper money on the rise in prices. I join with the Chancellor of the Exchequer in the view that unquestionably this form of inflation has affected prices. The right hon. Gentleman seemed to treat very lightly indeed that aspect of the matter, but the Report itself specifically says that the question of the large increase in the currency and the effect it has had on prices demands attention. The hon. Member for Greenock (Colonel Collins) referred to this and spoke of the effect, which the increase in the supply of money had had upon prices, because the goods supplied for the money had been very much decreased. That seems to be rather a contradiction in terms, but it was an attack on the particular expan- sion and inflation brought about by this issue of Treasury notes. It has increased the supply of money, but, at the same time, the effect has been to raise prices, and for him to say, as he did, that this had undoubtedly brought about this increase of price, is again to go against his own Report, which says that the increase in currency notes has played a very subordinate part. We must have it one way or the other. Either the hon. Member for Greenock must say that he disagrees with this Report and with its chairman, the right hon. Member for Cleveland, or else he must support the statement made by the right hon. Gentleman that it has played a very subordinate part. It is very discouraging, in view of the fact that most great authorities, either living or dead, have repeatedly pointed out that this enormous inflation has unquestionably had an effect upon prices, and one regrets that this Report has not enlarged upon that effect, because if we had had the Report cautioning, or perhaps recommending, the Treasury that some action should be taken to reduce this vicious influence, there might have been some hope that the Treasury would have considered it. The Report itself complains of the expansion of credits during the War as one of the causes bringing about the rise in the cost of living. I am sorry the right hon. Member for Cleveland is not here, because I should like to ask him if an addition of £210,000,000 of paper money to your currency is not an expansion of credit, the very thing of which he complains? He apparently does not understand how this continuous issue of Treasury notes is, of course, itself an expansion of credit. He ignores it. The Report says: Your Committee have consequently found themselves obliged to extend their inquiry into the causes of the increase in prices and the possible checks that may be applied. And then it goes on to state the chief causes, the expansion of credits during the War, and so on, utterly ignoring this very considerable expansion of credit which it is not necessary to have a knowledge of finance to know must occur if you have an issue of £210,000,000 of Treasury notes. That is itself an expansion of credit. Then the Report goes on to say, in paragraph 20: In the expansion of credit, the issue of paper currency, as hitherto practised in this country during the War, plays a very subordinate part. If in any degree contractors accounts had been met, or if the soldiers and sailors had been paid, simply by using the printing press and issuing fresh supplies of currency for such purposes, the effect would, of course, have been serious. But this has not been done, and is not in contemplation. Notes are not issued in order to make Government payments. They are issued to meet requests from toe banks for the currency needed by their customers; their quantity is regulated by those requests, and neither exceeds nor tails short of them; they have to be paid for by the banks by transfer of securities or in other ways. The amount of currency has largely increased. Really, one is amazed to read such a statement as that. It is really nonsense, because I would ask this House whether there is any difference between the Government increasing the credits from the bank and using their printing press. This Report refers to the banks, and protests against the large amount of money being raised for the War by loans, and with that I am in entire agreement. The banks create the credit. The Government issues large orders for various munitions and other necessaries which it requires for the carrying on of the War, and for this credit which is created the Government give Treasury Bills and other pieces of paper to these banks. Those proceeds being used for expansion of industry, as they are bound to do when fresh credit is created, that money flows into the banks and swells their deposits. 'The banks have the right under the Treasury Currency Bill to get Treasury notes from the Treasury up to 20 per cent. of their current deposit liabilities, and, as the deposits are swelled by this creation of credit, they are qualified to get the Treasury notes from the Treasury, and so this inflation is created and stimulated. There is, therefore, very little difference in a sense between the Government using their printing press and by inflation of credit increasing the rights of the banks to draw out the notes and thereby increase circulation. The result is shown by the adverse exchanges, the stimulation of our imports, all of which I have foretold would take place. We see that the figures recently published by the Board of Trade are again confirmed this year when we find our imports amount to £1,000,000,000 and our exports to £550,000,000.

The right hon. Member for Cleveland said that we were not on a par with Russia. I hope not, and no one ever suggested that we were on a par with Russia. I have the figures here showing how the Russian circulation has gone up. The paper money in Russia has gone up from £163,000,000 to £1,540,000,000, until the peasants in Russia refused to take any more paper, and you have to-day to pay £12 for a pair of boots in Petrograd. No one suggests that we are on a par with Russia, or that the credit of the British Government is the same as that of the Russian Government. Surely there is such a thing as degree, and when the right hon. Gentleman said that the paper money of this country had increased from £45,000,000 to £277,000,000 most people will agree that that is a very large increase, and all we who are interested in this matter suggest is an amount of caution. We suggest that this method of financing the War is a bad method, only to be used because of the emergency. Former Chancellors of the Exchequer have said—the present Prime Minister when the Bill was introduced in answer to a query of my own in this House said—that he believed these notes would be retired after the occasion had passed, and that he expected the issue would be between £30,000,000 and £40,000,000. Now we have £210,000,000 of these notes outstanding, and it is ludicrous and depressing in a degree to find a Committee composed of sonic of the ablest men in the House subscribing to such a paragraph as this. I hope, therefore, that some means will be used by this Committee, or by Members of this House, to caution the Government that this policy is a dangerous policy, not to be indulged in to any extent. I am no captious critic. I recognise the difficulties of the Government and the difficulties of the Treasury. I recognise particularly the difficulties they have at the present time in financing the War, but it is because I hope I am as great a lover of my country and because I am sincere that I am anxious in the interests of my country that sound methods of finance should prevail, and that I offer these observations.

I have laboured this argument on previous occasions and given chapter and verse in proof of it, and I see nothing in any sense of the word to lead me to believe that the statements I made several years ago are not true and have not been borne out by the facts of the case. Every day there is accumulated evidence of it and all authorities will vouch for and confirm what I say. There is an accumulation of articles and books issued pointing out how inflation is the order of the day. I think I have said enough on that point., and I would just like, in confirmation of my remarks regarding deposits, to draw the attention of the representative of the Treasury to an extraordinary publication recently made of this enormous growth in the deposits of our banks, again upon which, of course, this system of inflation is based, because when the deposits are increased that gives a right to the banks to get these Treasury notes and still further to increase the inflation. I referred to a striking table in the "Economist," showing that the deposits of the banks at 31st December, 1917, compared with those of 1916, had increased by some £272,000,000, and, again, the deposits in 1917, as compared with 1913—before the War—had increased to no less a sum than £671,000,000. That might appear to be an indication of great wealth, and I just wish to call attention to it because I believe it is not an indication by any means of great wealth. We know we have recalled great many of our credits abroad by selling foreign securities, and by loans continuously being issued which go to swell the deposits of the banks you create this enormous inflation.

I mention those figures so that we should not be led away with the idea that such an enormous accretion in the nominal deposits of the banks should be considered as an accretion of wealth. The Committee has not drawn any attention to gist feature, and, in fact, has rather supported the principle of still further proceeding with these methods of inflation, while complaining of the increase of bank,expansion. I regret that they have not seen their way to caution the Treasury on the lines on which I have spoken, but I hope, nevertheless, they may still do so, and may take other evidence. They have taken the evidence of authorities in the City, who are interested in this method of finance and are most unlikely to condemn themselves. I hope they may keep an open mind with regard to that, and perhaps in some future Report we may see some caution. of the kind.

Question put, and agreed to.