HC Deb 13 April 1927 vol 205 cc385-517

Question again proposed, That it is expedient to amend the Law relating to the National Debt, Customs, and Inland Revenue (including Excise), and to make further provision in connection with Finance.


Whatever criticisms may fall to be passed upon the Budget of this year, I think it will be universally admitted that the country has greeted it with a great sense of relief. The impositions of the new year are not so severe as many people feared. This mood is, I think, clearly reflected in the stock markets. As a result of the Budget, Government securities have risen in price, and there is a generally improved tone throughout the whole market. Despite the jeremiads of hon. Members opposite, despite the very virtuous language in which they have sought to expose the errors which lie beneath its nefarious ingenuities, nevertheless, the Budget is being backed up by the country. There is a natural sense of disappointment on the other side of the House. The critics had anticipated that they were to find a miserable Chancellor in a white sheet.

Lieut.-Colonel WATTS-MORGAN

No, never!


Instead of that, they found him in a fighting mood. [Interruption]. If I may judge by some lucubrations in the Sunday Press, contributed by the late Chancellor of the Exchequer, the right hon. Member for Colne Valley (Mr. Snowden), I gather he anticipated that he was going to act the part of an admonitory schoolmaster, who was to hold a terrifying rod over a trembling pupil, but instead he found that the Chancellor of the Exchequer was prepared with a complete defence. [Interruption]. I do not know how I have annoyed the hon. and gallant Member for East Rhondda (Lieut.-Colonel Watts-Morgan). Up till now, it seems to me that I have not made any utterance except of an entirely innocent nature, and if he is going to be so annoyed at what I have already said, he will be in a condition of supreme irritation before I have finished. I say, that, instead of finding the Chancellor of the Exchequer as he anticipated, my right hon. Friend has been able to make a complete defence, not only of his conduct during the past year, but also of the proposals which he makes for the future. And while we sympathise with hon. and right hon. Members opposite in having a great deal of their thunder wasted, at the same time we, on this side of the House, congratulate the Chancellor of the Exchequer upon the series of contrivances by which he succeeded in climbing his precipice, and also upon the sparkling speech in which he described the performance.

Lieut.-Colonel WATTS-MORGAN

And we all—




The hon. and gallant Member for East Rhondda (Lieut.-Colonel Watts-Morgan) does not seem to realise that his asides are pitched in too high a tone.

Lieut.-Colonel WATTS-MORGAN

They are quite Parliamentary interjections.


Before I proceed to deal with other matters, I should like for a moment to comment on some of the fiscal changes which the Chancellor of the Exchequer has made in the present system. I am sure we should all welcome the plan by which Super-tax and Income Tax are related to the same year, and are to be collected on the same Schedule. This plan, as it seems to me, will not only lead to a simplification of procedure, but will at the same time tend to rid the minds of many of the taxpayers of misconceptions which inhabit them at the present time. The two taxes, the Income Tax and Super tax, are not really overlapping taxes, but are in truth, what the Chancellor of the Exchequer described them the other day, the same tax on a distinctly regulated process of gradation, each gradation forming a step, not in two different ladders, but in the same ladder. The Committee may remember that at this time last year I ventured to suggest to the Chancellor that he should amalgamate these two taxes, and while that process has not been entirely carried out, nevertheless a long step has been made in the right direction.

There is another item to which I think reference may be made by way of approval, that is, the abolition of the penalty which is involved in the registration fees for the amalgamation of companies. This registration fee up to the present time has constituted a very severe and vexatious impediment to the natural development of our industry, and I am glad to think that by the device that the Chancellor of the Exchequer has now adopted great encouragement will be given to that tendency towards cooperative effort which is the supreme characteristic of modern industry. I would refer also to another change of procedure which is of importance. The Chancellor of the Exchequer has felt it possible this year to remit the tax on the profits of schools where these profits are being devoted to the further pursuit of education. This remission will, I am certain, bring encouragement to many struggling seminaries, who are carrying on the work of education with great enthusiasm, but under conditions of very great difficulty.

I turn now to what are the more important features of the Budget, and, in the first place, I direct attention to some duties which, as it seems to me, can come in for no reasonable criticism. There are the duties upon pottery and upon motor tyres. I have no doubt these duties will be met with the same apposition as has been indicated from certain quarters of this House in the past, but we are now in a position to look at such duties as these with the benefit of some experience. We have been threatened in the past with very dire results which were to flow from the imposition of duties such as these, but when we look at what has happened in connection with the other safeguarding duties which have been imposed in this country, what we find is that during the past year the imports, in the case of trades which have been safeguarded, have gone down by 22 per cent., while the exports have gone up by 11 per cent., and, taking the figures approximately, the country has obtained a revenue from these duties of something like £10,000,000.

These results, it seems to me, blow into thin air all the prognostications to which we have been constantly treated in this House. We have always been told that you could not both gain a revenue and get any defence of your trade by imposing a duty, and yet we have done both these things in the case of these duties. We have always been told that any help given by a duty must have the necessary result of inducing your manufacturers to become slothful and lazy, and to rely on the benefits of the duty alone. Yet you find in this country, where the manufacturers have been helped by these duties, there has been a spirit of enterprise created which has led to an enormous development.


Is that true of lace?


Lace has not yet had a very long trial. My hon. Friend must wait a little before he can get the results in that case. We have also been told that no help could ever be given to exports by the imposition of a duty upon imports, but the figures I have given show that exports have been encouraged, and it only requires a moment's reflection to see why that is so. If the manufacturer has got some assurance in regard to his own market, it enables him to develop his enterprise and lessen his costs in a way he would not otherwise be able to do, and thus lower his prices to enable him to compete in foreign markets. That explains, amongst other reasons, the enormous development there has been in the export trade of America. It has to be remembered that those exports contain the highest wages in the world, and yet America has been able in her own industries to develop an export trade which now, for the first time in history, has exceeded that of Great Britain. [An HON. MEMBER: "She is not carrying our taxation!"] I venture to say that when we come to the consideration of these duties which the Chancellor of the Exchequer has put forward in the present Budget, the Committee will be able to accept them with the encouragement of the past to guide them.


I do not want to make irritating interruptions, but does the right hon. Gentleman think he has described all the results of these duties?


I have described the main results. If my hon. and gallant Friend wishes to describe others, the time of the House is at his disposal. I now turn, for a moment, to the tobacco duty. I think there can be no objection from anywhere to this slight addition which the Chancellor of the Exchequer has made to the tobacco duty. Personally, it does not disturb me, because the smoking of tobacco is a virtue I have not yet achieved. But, as far as I can see from what is stated in the Press, so slight is the imposition of this duty upon this enormous trade, which now not only covers the whole country, hut to which both sexes are addicted, that the tobacco manufacturers find themselves in a position in which they have already promised not to pass it on to the consumer. [HON. MEMBERS: "Some of them!" and Interruption.]


We really cannot carry on a serious Debate with these constant interjections and interruptions.

Lieut.-Colonel WATTS-MORGAN

Look at Winterton and the chap who threw the book.


I warn the hon. and gallant Member that unless he will refrain from interrupting, I shall have to ask him to leave the House.

Lieut.-Colonel WATTS-MORGAN

Certainly, Sir.


The other main features of the Revenue which the Chancellor of the Exchequer has put before the Committee have created, no doubt, some feeling in the breasts of some of those who have attacked them from the other side of the House. There is, for example, the use of the surplus from the Road Fund. I gather from the speech of the last Chancellor of the Exchequer that this a proposition which is to receive the full attack of those whom he represents on the Labour Benches. I understand, also, that it is a proposal which is greeted with animosity upon the Liberal Benches. For my part, for the same reasons that I gave last year, can see no possible objection at all, in the circumstances in which the country is at the present time, to taking the surplus of the Road Fund in order to eke out the Revenue of the year. This surplus at the moment is serving no useful purpose whatsoever. It has been accumulated when the taxation upon motor vehicles was at a much lower figure than it is to-day, or rather, I ought to say, when the yield was much less than it is to-day. The roads of our country are, I am sure, as anyone who has been on foreign roads in recent times will agree, the best in the world. Their condition shows that the sum that has been devoted to their upkeep has been entirely adequate, and it would seem foolish, in the position in which the country is, to go on piling up more and more surplus to add to a fund which is not utilised for any necessary purpose. I cannot imagine circumstances in this country in which it would be so justifiable to use such a fund, which for other purposes is not required, and to use it at a time when the imposition of any extra taxation on the country could not have anything but an injurious effect upon its trade. I quite sympathise with the feelings of my right hon. Friend the Member for Carnarvon Boroughs (Mr. Lloyd George). This Road Fund is his child, and I dare say he does not like to see it being snatched away. He nurtured and cherished it, and was proud of it, and, I suppose, is still proud of it. We can only give him the conventional consolation, that it still survives in regions of greater bliss, and that where his heart is, there will the Treasury be also. But, as far as this device is concerned, the plan which the Chancellor of the Exchequer has adopted seems to me to be entirely fair and reasonable, and can be subject to no criticism which ought to weigh in the minds of the Members of the Committee.

I turn now to the shortening of brewers' credit, with regard to which I do not find there is any criticism. With regard to the anticipation of payments under Schedule A, I agree that there is much more to be said in the way of criticism. I sympathise a good deal with what was said by the late Chancellor of the Exchequer yesterday afternoon. Undoubtedly, there will be hardships created by these anticipations of payment. Many people who are very badly off will find it very difficult to get finance by which to make the payments which the Chancellor requires, and this does not apply merely to the tenants about whom the right hon. Gentleman the Member for Colne Valley spoke yesterday. It applies also, in very many cases, where the rules of collection are different to the landlords, and while it may be said that they are not entitled to very much sympathy, I beg the Committee to remember that there is no form of property in which so many small fortunes have been embarked as in houses in this country. To take Glasgow, alone, it is in house property that the small savings of thrifty people have, to a very large extent, been put, and from my own personal experience, it is absolutely tragic to-day to find how many people there are, very many of them ladies of advanced years, who used to live in a condition of modest comfort, and who to-day are in a state of penury. Accordingly, while I do not take definite objection to what the Chancellor proposes to do, I would remind him that this cannot be done without imposing very considerable hardship upon a large and very deserving body of the community.

The chief attack made by the late Chancellor of the Exchequer upon my right hon. Friend's Budget was, as I understood him, made upon the ground that sufficient was not being devoted to the Sinking Fund in the present year. He pointed out that there had been a deficit both this year and last year, and that upon grounds of sound finance it ought to have been the Chancellor of the Exchequer's duty to make up the full amount which had been stipulated for in the past by an increased imposition in the present year. The Chancellor himself used language which indicated that he regarded the duty of providing a Sinking Fund as so paramount that if he had not been able to find the money from other sources he would have been compelled to obtain it from new taxation. I entirely disagree with the point of view of the right hon. Gentleman the Member for Colne Valley, and I am afraid that I could not subscribe to any statement so dogmatic as that which has been made by my right hon. Friend.

I hope the Committee will permit me to review what are the real principles to be applied in dealing with the Sinking Fund. Everyone agrees that we ought to pay off debt, and all acknowledge that the credit of the country depends upon a sufficient diminution, going on from time to time, in the debt which burdens the country. We also realise how important it is that debt should be paid off in order that the large loans coming to maturity may be converted upon the cheapest possible terms. I do not think there is any dispute in any part of the House about those points. But the question immediately arises, How much debt are we to pay off. You answer, "The more the better," but there are very different views as to how much we ought to pay. For example, the Colwyn Committee have reported that in their view we ought to pay off £100,000,000 a year. I do not think anybody in the House at the present time would suggest the imposition of such a burden on the country. Why is that so? Because you must not attempt to pay off so much debt that the country will have imposed upon it burdens which check its future power of development. If you do that, obviously you are only killing the goose that is going to lay the golden eggs, and, while you may carry through your operation now, in a year or two you may find the industries of the country so crippled that they cannot meet the obligations of the State in the same way as they would have done if they had had the opportunity of development.

I remember Mr. Bonar Law saying in this House that what we ought to aim at was to pay off large sums of debt when we have a good year and to pay off smaller sums in a bad year. Obviously that is the principle which any business man would follow. Suppose the business had a large debenture debt. No business man would ever think of crippling his establishment by applying to the payment of debt money required, for example, for new machinery which he regarded as necessary to enable him to carry on his trade. What is true of business is similarly true of the State. The only difference is that those who preside over the financial fortunes of the State cannot watch the development of the business so closely as a man does in his own organisation, and very often those at the Exchequer are deceived as to the effects of their taxation. Many businesses go on paying Income Tax faithfully while all the time what is happening to them is that their funds available for new enterprises are being depleted, and the end—it may take a process of years—is that an organisation which would have been available for increasing the revenue of the country goes out of being through lack of the necessary resources. The State does not know what has happened because the result comes so long after the actual cause which produces the effect.

Using that illustration, I would like to say that in the present year we ought to aim at doing no more than we reasonably can do. Obviously there are times when the business of the country requires to be nursed rather than to have additional pressure put upon it. Can anybody imagine a worse time than the present, or one in which it was more necessary to help and encourage our industries? In my view it is pedantic—well, perhaps that is an inappropriate word—it is over righteous and over virtuous to talk of paying off more than £50,000,000 in the present year. That is the amount fixed by Statute, and while it may be said that we failed last year to come up to it, and have failed again this year, nevertheless it is true that in past years we have paid off many times more than this sum of £50,000,000; and surely in a time of depression we can take account of the great efforts we have made in the past, and ease off a little, in order that we may be able to make greater efforts in the future. I think this is specially true when, as it seems to me, it is obvious from the Estimates of expenditure for the year that it will be impossible for the Chancellor to keep his expenditure to the figure which he has estimated, £834,000,000. So far as I can follow the accounts there is no special provision made for the extra cost of our forces in China, and if that be so then it appears to me that it would be a far wiser policy to limit the payment of debt to £50,000,000 and keep something in hand for the Supplementary Estimates which sire almost certain to come before the Committee from time to time, and certainly something to meet the contingency which nobody at the present moment can estimate, namely, the cost of keeping the forces at Shanghai.

4.0 p.m.

I leave that point and I turn to the only other subject which seems to me to bulk largely in the speech which the right hon. Gentleman the Member for Colne Valley made yesterday. He spoke of the expenditure involved in the present Budget and twitted the Chancellor of the Exchequer with having failed egregiously to keep the pledge which it was suggested he had made to the House as to the reduction of expenditnure. I think it is a common place that in the preparation of a Budget you look not merely at the year with which you are dealing but that you look at the next year also, and, perhaps, as many years ahead as you can in making your plans. This is a very exceptional year and not much can be founded upon it, but I think the Committee are bound to look ahead to see what is going to happen next year. This Budget discloses the fact that £32,000,000 of the revenue which is going to meet the expenditure of the year is found in a way which can never occur again. If the expenditure were the same next year as the present year, there would be a gap of £32,000,000 to be found by some other sources of revenue. You may hope that increased prosperity in the present year will give you something, but £32,000,000 is a very large sum, and it is a great gap which has to be filled. Accordingly, we must look on this expenditure with a very scrupulous eye. £833,000,000 is an impossible burden for this country to bear, and I am sure that none of us could look forward with any hope if we were to assume that any figure approaching this amount is to become the normal expenditure of this country. Everybody is agreed that economies must be effected, but everybody is disagreed as to how precisely these economies are to be obtained. That something must be done is obvious.

Not very much can be achieved by curtailments in Departments. The Chancellor of the Exchequer has announced that the Ministry of Transport, the Department of Overseas Trade and the Mines Department are all to disappear, but I have carefully observed the speeches which have been made both by the Chancellor of the Exchequer and by the Financial Secretary to the Treasury, and they do not hold out much hope to the Committee that large sums are going to be saved by this transaction. One can see very obviously the reasons why it may be impossible to achieve very much economy in these directions. The business of the country—the transport business of the country, the mines of the country, the overseas trade of the country—is not going to stop nor is necessary administration to cease because you scrap these Ministries. All that the scrapping of the Ministries can mean is that there may may be certain reductions of staffs and that some heads are knocked off at, the top. But for the rest, there must be preserved organisations which can deal with these matters. If that be so, it is perfectly apparent that you are not going to effect very large economies there. It would be a pity if people were to be led to believe that a great deal was going to be achieved by such a method and afterwards found themselves grievously disappointed.

The CHANCELLOR of the EXCHEQUER (Mr. Churchill)

Hear, hear!


In the speech which the right hon. Member for Norwich (Mr. Hilton Young) made yesterday—with every word of which I agree—he suggested an inner financial council of the Cabinet which might in some way review expenditure. I think my right hon. Friend the Member for Carnarvon Boroughs remembers such a Committee of the Cabinet in days gone by, and I am perfectly certain that much good and very great benefit can be achieved by such a Committee. It is true, as my right hon. Friend the Member for Norwich pointed out with remorseless logic, that very little can be done by setting up Estimates Committees. No matter how good they are or how assiduous they are, nevertheless they have not the authority to put any economy which they see into operation. It is, after all, only the authority of the Cabinet which can achieve economies. It is for that reason, among others, that I entirely agree with what was said yesterday very forcibly by my right hon. Friend in a very remarkable speech.

When we really come down to bedrock in this matter, it is quite certain that the cause which is chiefly responsible for expenditure is the policy of the Government. It is policy upon which expenditure is founded. If the Committee want any illustration of that, I shall go back in our experience only about a year. I do not use this example with a view of saying, "I told you so," which indeed would be a very weak and foolish position to adopt; but only as putting before the Committee an illustration which must be very clearly in their memory. I will refer for a moment to the Widows' Pensions Act. It is not at all an exaggeration to-day to say that in our present circumstances we cannot afford that Act. The Chancellor of the Exchequer himself, only a few weeks ago in Lancashire, said that if the passing of that Act had been deferred until the present year it could not have been put through, and the reason is obvious. We would never have faced an expenditure of that kind, realising our present position. See what it means. It means, is the Chancellor of the Exchequer said a few days ago, £7,500,000 a year at present, and it increases, and in the end will cost the country a sum of £700,000,000. It robs us of all the benefits which we obtain by the diminution in what is paid out in the shape of War Pensions, and, if you think of the burdens upon the credit of the country and the impediments to cheap conversions of maturing loans, why, there is no burden so heavy as this, and no impediment so great as this has been erected in this country since the War.


What about the rates?


My hon. Friend the Member for Hillsborough (Mr. Alexander) surely does not suggest that the relief to the rates has been anything like compensation for what is being spent upon this Act at the present time or for what its burdens are going to be like in the future. The Committee will not misunderstand me. I am not disagreeing with the principle of this Act. On the contrary, I approve of it. But I ventured to point out to the House at the time it was passed that it was too great a burden for the industry of the country to bear. I am not now saying something that I did not say before. What I want to-day is for the House to realise that the biggest elements of expenditure are in the Government's policy rather than in departmental administration. You may make certain savings by careful scrutiny and review of departmental expenditure, but it will not amount to anything like the burden created by great social measures such as the one to which I have referred. For that Measure every party was responsible, and I think behind Parliament the people who were responsible were the electorate of the country, because there was a persistent demand made for such a Measure. The Government have certainly this to say for themselves, apart from anything else. If they had not passed this Measure, burdensome though it may be, hon. and right hon. Gentlemen on the benches opposite would have passed a Measure which would have been infinitely more costly, and the country is not so heavily burdened by this Act as it would have been by another.

There is no question at all that it is the House and the country who are responsible for this high expenditure and for this vast total which we now have to meet every year. It is no good constantly girding at the Departments and saying that the Civil Service are running away with the country's money. What they run away with is infinitesimal compared with the expenditure which we by our policy impose upon the country, and the sooner we realise our responsibility the better. Until we do, the country will never get away from these constant additions to the social services with rising charges, and I think myself—I give it as my own personal view—that it is time we called a halt, a temporary halt, in these increases of expenditure for social service in order to give ourselves some financial relief. Let us recall, after all, these facts. We are the most highly taxed country in the world. We pay higher local rates than any other country in the world. We contribute egregiously more per head of the population to social services than any other country in the world. Do not the Committee think that in our present difficult position we might for a time at least wait until other countries, who are our competitors in business and do not bear these burdens, catch us up to some extent in these particular activities We ought to have the courage not merely to say here, when expensive Measures come up, that the country cannot afford them; but we ought to have the courage to say to our constituents when we are asked to vote for particular Measures:: "These things may be all very well, but it is of vital importance to the country that our expenditure should be reduced, and the country, in reality, cannot afford to carry them." Until we fully realise the hard facts of this position, until we cease bidding against each other for the favour of the people, with Measures that involve large additions to expenditure, the revival of prosperity is, in my view, remote.


The contribution made by my right hon. Friend the Member for Hillhead (Sir R. Horne) to the discussion on economy is, I am afraid, rather disappointing. I wish he had done what I should have expected from a business man, and had discriminated a little more between productive and unproductive expenditure. No one knows better than he does that even when times are bad and when every business saves every penny it can on unfertilising expenditure, that may be the very moment when you should spend more upon fructifying expenditure. My right hon. Friend denounced expenditure on social services, but he had not a word to say about useless expenditure upon cruisers and Singapore. If he had denounced expenditure upon those as well, then, I think, his contribution would have been entitled to far more consideration than it is when he confines his illustrations merely to widows' pensions. The right hon. and gallant Member for Burton (Colonel Gretton), the other day in his speech, described this Budget as a "financier's Budget." The kind of criticism which has come from my right hon. Friend rather bears that out. The right hon. and gallant Member for Burton pointed out that it was a Budget that seemed to have forgotten the producer and was designed rather to please the financier. There is a good deal in the criticism of my right hon. Friend the Member for Hillhead—and I think it was also a criticism of the right hon. Gentleman the Member for Norwich (Mr. Hilton Young)—with regard to the size of the Sinking Fund. I am not disposed to disagree with that criticism, and I say so all the more readily because, later on, as my right hon. Friend has anticipated, I am going to criticise some of the expedients used by the Chancellor of the Exchequer to annex funds which do not belong to him—well, not yet. He will have a good deal more trouble than he imagines before they do. This is the third deficit which the right hon. Gentleman has had to announce to the House of Commons, and I wonder whether it is going to be the last. There was a realised deficit the year before last; there was a realised deficit last year; there is an anticipated deficit this year, and we have to make provision for those three deficits.


Why three?


The right hon. Gentleman is not always good at figures but I think he could have added one, and one, and one. I am not quite sure whether this is going to be the last deficit. I am aware that the right hon. Gentleman is confident that he is going to have a surplus this year, and that next year it will be unnecessary to introduce any fresh taxation. I am not so sure that he will not have to reckon for a deficit next year. There was a certain Queen of France who has gone down to history as "Madame Deficit," and I think the Chancellor of the Exchequer will have to take great care or lie may go down to history as "Mr. Deficit." What are the prospects? The ex-Chancellor of the Exchequer, in a very searching analysis to which I had the pleasure of listening, criticised the Estimates of expenditure and revenue upon which the Chancellor has based his anticipations and proposals. I only wish to add one or two words on this point. There is the obvious criticism that the right hon. Gentleman has made no provision for Supplementary Estimates. Personally, I am not disposed to criticise him for doing that, but it all depends whether he has something hidden in the toe of his stocking—perhaps an extra 6d. which he has concealed from his colleagues If so, he is right in running it up to the last penny, because it is a great thing to be able to say, "Here is a new demand and I have no money." I have no doubt that my right hon. Friend, if he does expect another surplus, will be very careful to hide it from his colleagues. As far as making provision for unknown Supplementary Estimates is concerned, I believe the right hon. Gentleman is quite right in making it more difficult for the Departments to come to him begging for more cash. He has to fight this battle this year, and what he is doing will make it more easy for him to succeed. That is not a criticism, but speaking as an old ex-Chancellor of the Exchequer, I say that it is more of a commendation.

There is one Supplementary Estimate which is not there, and that is in relation to China, for which there is no apparent provision. What has been said on this question will not meet that case at all. Our troops have been some time in China, and it is no use pretending that there is any immediate prospect of them being taken away from China. I am only stating what is in the mind of everybody when I say that it is much easier to send troops to China than to get them back again. It will be quite impossible to take our troops away from China until there is a Government established in China that will guarantee protection to life and property in those particular areas in which we are interested. Therefore it would be a mistake not to budget on the anticipation that our troops are in China for some time to come. I know the situation is very complicated. The mere fact that there are these waves of triumph surging forward and backward adds to the complication of this question. The fact that at one time nobody is winning and at another everybody is winning; that troops advancing one moment are next day thrown in the Yangtse, and the following week something happens to drive the others back again—all that is bound to prolong the agony in China and increase the expenditure which the Chancellor of the Exchequer has to provide for. You cannot keep 30,000 troops in China, assuming you do not exceed your present number, at the end of a long chain a great distance from home without an expenditure which will run into millions. There is nothing on the face of this balance sheet that contains any provision at all for this expenditure, and unless the Chancellor of the Exchequer has considerably anticipated his revenue there is at the present moment a realised or an assured deficit in the very statement which has been put before the House.

Has the Chancellor of the Exchequer under-estimated the revenue? I suspect that he thinks so. I noticed his smile of confidence when the ex-Chancellor of the Exchequer suggested that he had nothing to spare, and that is why I suspect he felt that he had some hidden anticipation and some treasure somewhere else. Of course I do not know. It is a very difficult thing, as anybody knows who has been at the Exchequer, to forecast the revenue, and there is nothing more marvellous than the over-scientific accuracy with which your advisers are able to estimate what is likely to happen in the coming year. All this is done with considerable skill, but it is getting more difficult when we reach figures of such huge dimensions, when you have depression in trade and when nobody can say what course trade will take in a single year. There are some very disturbing elements in the Estimates. There is the fact that the year 1926 was a very bad year, and worse even than has been acknowledged by the Chancellor of the Exchequer. During that year there were very few businesses that did not have a reduced income, and there were a considerable number of businesses which actually lost money, but they had to carry on in order to avoid closing down, and they lost money. All that will come into the accounts for 1927, and it is upon that basis that the Chancellor of the Exchequer will have to collect his revenue. Perhaps the right hon. Gentleman has made allowance for that.


Yes, I have allowed £23,000,000.


That is a very considerable sum, but it all depends upon whether it is an adequate allowance. There was one figure mentioned which I thought was rather an ominous one. I would like to point out that the whole of the loss for last year on the Income Tax was not attributable entirely to the coal stoppage, but there were £12,000,000 due rather to other causes.




That is a very ominous fact, and it shows that the Income Tax is ceasing to have that resilience of which every Chancellor of the Exchequer could almost be assured in his Estimates. Some of the words in the opening sentences of the Chancellor of the Exchequer were very remarkable. He seemed very discouraged when he was talking about trade revival and the fact that we were not quite keeping pace with foreign countries in their advance and recovery after the war. All this seemed to give the impression that our industries were staggering under heavy burdens and getting tired, and therefore not able to keep pace with foreign countries. This looks a little like something which comes from overstrain, and that is the real significance of the appeal made for economy from every part of the House. The Chancellor of the Exchequer, I am afraid, may find that the allowance he has made for a reduction in the Income Tax returns will not be quite enough, although I seriously hope that will not turn out to be the case. If a deficit is likely to result from that cause, that is something which the House of Commons and the country should remedy, but if it is due to something more serious in the condition of the country itself and its industries, that is a far more serious thing than the delinquencies of any Finance Minister, and that is why it is worth while for the House of Commons to give more attention to the conditions and prospects of trade and industry than we have been able to do during the last few months.

I now come to the taxes imposed by the right hon. Gentleman. I admire the very great skill with which he has introduced them. The whole thing was, if I may use a phrase used in his own statement, a piece of translucent pottery—iridescent but rather fragile. It was rather amusing, to see the relief not only among hon. Members opposite, but also among hon. Members above the Gangway on this side of the House when the right hon. Gentleman described himself as an executioner, and announced that they were not to receive his professional attention. It was like the sort of scene we read of in the French Revolution, when the Commissary used to come in with a list of the condemned, and there was an anxious look on the face of everybody to see whether his name was down, and when it was found that it was not down there was a great scene of merriment and joy. At any rate, they were not there, and the poor fellows who were put into the cart were quite forgotten. But they will hear their cries. They will begin to cry out, "One moment, Monsieur le Bourreau." They will ask to be put off for another year.

What are the taxes? They are, first of all, protective taxes. All I can say at the moment is that they are fiddling taxes, they are miserable taxes. My right hon. Friend was a little patronising to the Liberal party over this. I think, if I may say so respectfully, he might have spared his sympathy for the party that came third in the last two elections and which will probably come third in two more elections, when the obligations of honour are discharged and those elections are declared. They stand more in need of sympathy at the present moment. But when the real fight— [Interruption.] I am referring, of course, to by-elections. Hon. Members naturally forget these things, and their memory is simply going back to past years, which is always what happens to a senile party. They forget recent events, and let their memories go back to the pleasant things of the past.

With regard to these taxes, the Chancellor of the Exchequer has put up as doughty a fight for Free Trade in the past as anyone in this House, and, unless the signs which I can read in the sky mislead me—there were some of them in the speech of my right hon. Friend, to which I listened with great interest; I thought he was interpreting the view which is for the moment, I will not say unpopular in his party, but which his party would rather not have expressed at the present moment—unless I misread the signs, there is a time coming, and not very far distant, when the Chancellor of the Exchequer will have to decide again whether he will abandon the principle to which he has hitherto been substantially faithful. [Interruption.] There have been one or two little lapses, but they are not very serious; a very small penance would let him off. All I can say about the matter generally is that it does seem to be a little out of place and out of time to put on these fresh duties at the very moment when the present Government are sending a delegation to Geneva to persuade the Continental countries to reduce their tariffs and to remove trade barriers. [Interruption.] I do not know; I think there is a little touch of hypocrisy about that.

I come to the next point, which is much more serious, and that is the £30,000,000. These sums have been described as windfalls. Well, tree-shakings are not windfalls. There are one or two apples here that, at least, are not ripe, and in any event they do not belong to the Chancellor of the Exchequer. They are not in his orchard, and the kind of animals he has turned on there are not entitled to these particular apples. The first question is that of the roads. My right hon. Friend very rightly anticipated that I took special interest in this. The attitude of the Chancellor of the Exchequer towards it is, if I may say so, purely a banker's attitude. I am not, with great respect to him, treating him as a mere financier; that is the last charge that anyone would bring against him; but the bankers' attitude towards money of this kind is that you have no right to any development that does not pass through their books and is not subject to commission and interest in the usual way. They take no interest in any projects of national development; and here I come again to my right hon. Friend's fundamental mistake in his plea for economy. It is not economy to neglect something which is essential to the business which you are conducting—some improvement, some repair. You can have economy by neglecting repairs. You can save for a year, or perhaps two, but in the end you lose more, and that is the kind of economy that this is; that is the kind of mischief that there is in it.

The Chancellor of the Exchequer, if I may say so, has never shown the slightest conception of the need for which the Road Fund was established. He was a Member of the Government that first created this Fund in 1909, and he did me then the kindness of, at any rate, not opposing my proposals. That is a great advantage, as anyone knows who has been in a Cabinet with my right hon. Friend. I always claim it as the highest testimony of friendship for me that he did not resist me on that occasion. Why was the Fund established? I am not claiming any prescience for it; anyone could see what was coming; you could see that there was a new traffic coming, and coming with fierce velocity, in more senses than one. It was practically the same thing as happened at the beginning of the 19th century, when you bad a new transport, when the old roads and the old stage coaches disappeared, and there was a new means of transit and transport which completely changed the whole character of the country and its industries.

If anyone will look at the last five or 10 years, he will find that quantitatively it is a greater revolution than happened at the beginning of the 19th century, in the money put in and the number of engines poured on to the roads as compared with the engines in a corresponding number of years at the beginning of the 19th century. I am speaking in the presence of one who is a very great authority on that particular part of history, as he is on many others, and he will correct me if I am wrong. If you look at the quantity, even of goods, apart from passengers, carried on the roads to-day as compared with 15 years ago, it is a greater change than happened in any 15 years at the beginning of the 19th century. And that is to be ignored. The means for coping with that traffic are ridiculously inadequate at the present moment. Any business man who has to deal with the problem knows that. Any county or local authority, urban or rural, that has to deal with it, could tell the Chancellor of the Exchequer that it is one of the most serious problems of business, apart from human life, that confronts us at the present moment.

Let me take one or two figures. Since 1921 the number of vehicles—I am not talking about motor bicycles, because, if one did that, the figures would be still more startling, but about lorries and motor cars—the number of vehicles on the roads has more than doubled since 1921. That is in a few years. What is still more, if the House of Commons would take the trouble to look at the weight which is put upon the roads, that is still more remarkable. You have trebled the number of tons that roll along these old roads, constructed for totally different traffic. It tears them up, it breaks them up. There are dangers, there are bridges that you dare not cross. I wonder how many have taken the trouble to read the Report of the County Councils Association on the position? They are not a Labour body; even taking Labour and Liberal together, the party opposite would probably be in an overwhelming majority on the County Councils Association. Therefore, when they approach this matter, they do not approach it from any standpoint of hostility to the party opposite, and their Report is a very startling report. There are 750 bridges on main roads which are utterly unadapted to motor traffic, and which are dangerous. Some of the statements are very remarkable. I must apologise to the Committee fur reading just one or two passages, but they are really very relevant to this proposal.

They deal, first of all, with the main roads of the country, and the main roads of the country are only about one-fifth of the other roads—and the other roads are very often more important for traffic. In 16 typical counties, approximately only 48 per cent. of the existing classified main roads—not the unclassified—only 48 per cent. of the classified main roads are fit to carry modern traffic. Of the remainder, approximately 38 per cent. require reconstruction, at an estimated cost of nearly £25,000,000—and the right hon. Gentleman said, "What could we do with the money?" Approximately 27 per cent. require, in addition, widening and diverting, at an estimated cost of nearly £44,500,000. This is a very moderate body, and some of the very ablest men in local government in England and Wales are at the head of it. There is one passage more that I should like to quote. It is from Lancashire: The need for extensive widening of existing main roads in this country is most urgent and pressing. The growth of mechanically propelled traffic during the past years has been so great that most of our principal roads have become positively dangerous, owing to their limited weight. The average increase in weight passing over the whole of these roads has been multiplied by six between 1911 and 1925. That is in Lancashire. Take the question of the cost to local authorities. The cost of maintaining the main roads in 1911, when that Bill went through, was £18,000,000 a year. The cost to the local councils at the present moment is £54,000,000—it has trebled. The rates have doubled, and in some cases they have trebled.

The Chancellor of the Exchequer is in the habit of boasting about the effect of his McKenna Duties, and he points out what a number of motor cars are manufactured in this country, and are turned out as the result of those duties. Every defence that he puts up for the McKenna Duties is an attack upon his present Budget, because, the more motor cars you manufacture, the greater is the need for this money for putting these roads into something like condition. Take London. It is almost impossible for motor lorries to pass along the roads. So much is that the case that a great many have given up motor power and gone back to horses, because they can move more rapidly. That is happening more and more every year. The roads are blocked and if anyone will take the trouble to look at the report of the Advisory Committee for London he will find no end of recommendations for making new roads and for widening old ones in order to cope with the traffic. One of these reports states that the loss to business in this City alone is £200,000 per day. Let anyone multiply that by the number of business places in the country and you will begin to see that the £12,000,000 you spend upon roads is not a thing that is wasted. It is a thing that is essential to business. It saves money. It enables the community to make money out of which the Chancellor of the Exchequer will get his Income Tax. It is said, "Here this £12,000,000 is lying idle in the market. Why should it not be absorbed into the Budget of the Chancellor of the Exchequer? "It is a great shame that it should lie idle there when you have these requests year after year to the present Government begging them to give grants for the making of these new roads and the improvement of old roads. Take agriculture. Anyone who knows the agricultural problem knows very well that it is not merely a question of the things that are in contention between the two sides of the House, like questions of tenure and ownership, but that it is almost primarily a question of marketing. It is a vital question. If the Chancellor of the Exchequer will look at these reports he will find that an enormous proportion of the country roads are reported to be unfit for motor traffic. It is impossible to organise marketing under these conditions, and instead of putting this money away into a sinking fund, it would be a far better investment for the country to put it into the improvement of these roads in order to develop the resources of the country. I shall, therefore, certainly oppose with the whole of my strength the annexing of this sum of money and putting it into a sinking fund. The best sinking fund of all is the money you spend upon development which is productive and remunerative and gives a substantial return to the business of the country.

I am not going to say a word about beer. [Interruption.] Well I will say just one. The Chancellor of the Exchequer has stuck an extra spigot in the cask in order to get a little more beer this year in the Treasury cellars. God speed him! That I shall certainly not protest against. But he cannot get it next year. He cannot rely upon that. I must say one word about Schedule A. It is no use the Chancellor dismissing this as a good joke, which made us all very merry. This is an increase of 50 per cent. upon the Income Tax paid by a certain class of people for one year. You cannot get away from that. There are men and women, not all of them old—some of them will probably get the vote—whose sole income is practically Schedule A, and for them it is an increase of 50 per cent. in their Income Tax. The Chancellor says that will be put right on the great day. Let him try that on the Super-tax payers. Let him go to the Super-tax payers and say, "Instead of paying two instalments pay three." [HON. MEMBERS: "Only one."] "Pay 50 per cent. more for one year and next year you will only pay what you did before, and the recording angel will keep the account." That is substantially what he said. It will be put right on the far off day. That is really not very fair. It is suggesting that these people are not paying more, but it is an extra tax imposed for one year upon one class, and a very much heavier one, and hon. Members will find that when they go to their constituents and come up against those who own property. It is really rather too like a trick played at the expense of people who cannot afford it. I do not think, when the Chancellor comes to realise what the effect is upon this class, that he will persist in it. I should not like to predict, but he is fairly human, and after the pressure which will come upon him I do not think he will persist in his proposal.

Now I come to the question of economy. The Chancellor's ideas are rather curious on this. He does not pretend that he has succeeded in econom sing but he says "My intentions are good," and he gets off on that. He thinks, like Robert Louis Stevenson: it is better to travel hopefully than to arrive. I think there is something to be said for that because when you do arrive at an, economy everyone turns on you. I do not often make quotations but there is another that is applicable: Not high aim, but low achievement is the crime. The right hon. Gentleman s achievements here have not been very great. He said he aimed at economy, but the one great economy he aimed at, there the sturdy figure of the First Lord of the Admiralty stood right in front of the target with a gun in his hand and the Chancellor missed his aim. His first economy is abolishing Ministries. I am rather amused. As long as those Ministries were alive everyone abused them, but that will happen to us all, especially anything that is political, and when they are dead there will be the usual fate, although it will not interest us, that everyone begins to say: "After all, he did this and he did that," and that is what is happening with the Ministries. Here is the poor Mines Department slaughtered by the Chancellor and its remains scattered over all the offices in Whitehall, and then everyone says that is a great shame because it was a very useful Ministry. The trouble with the Ministry of Transport is the same as with the Mines Department, that it is costly. I agree with the ex-Chancellor of the Exchequer here. The right hon. Gentleman will not save £10,000. In fact, I think he will lose. The trouble with these Ministries is, not that they were costly but that they were not sufficiently costly. The mere fact that one of them has allowed the Chancellor to walk off with £19,000,000 under its very eyes is the greatest argument I know of for their abolition. What can you do with a Ministry that cannot defend either its own cash or its credit? But that is an argument for making them more efficient. Take the Overseas Trade Department, I think to abolish it is a first-class mistake I know perfectly well the rather foolish ill-informed clamour there is.


Lord Oxford!


I am almost tempted to reply. My right hon. Friend knows as well as I do that this has been going on for years and years and years. The whole expense—I must assume that you can wipe out every function£does not come to £1,000,000. But you cannot wipe out these functions. Someone has got to discharge them. I do not believe you will dismiss a single clerk. I read the speech of the Financial Secretary to the Treasury, and he has as great a gift of painting these things in delicate colours as anyone in this House to give the impression that they are things of beauty, but even he could not really give any impression that there was a real economy to be effected by this means. We have overseas trade that runs to hundreds of millions. We have the greatest overseas trade in the world. We are a country of overseas trade preeminently, in spite of the fact that we are not keeping pace. We are first in the world in the business we do with the whole world, and yet we cannot spare a Department to look after that. Is it conceivable that you are going to put the Consuls back under the Foreign Office? Imagine who is going to look after them! Our business is not doing too well. Can you imagine, if this were a great business concern and not an Empire, that you would not put someone in charge of that particular branch, and someone who would run it well? I think the present Minister is doing his work exceedingly well. I am not criticising him. On the contrary I am pleading that he should be allowed to go on with the task. I think it is inconceivable that we could just listen to appeals of that kind and give the impression, as my right hon. Friend did, that we are effecting economy which we are not effecting and diverting the attention of the House of Commons and the country from real economies that you can effect. The real economy is to be effected in armaments.

5.0 p.m.

I am not saying this really because it is a conventional thing to say. I am going to give one or two reasons. The Chancellor said "Compare the expense of armaments with the expenditure before the War." Well, if after that colossal event, the spending of £50,000,000,000 which the world expended and the loss of 10,000,000 of lives, we are not to be any better off as far as armaments are concerned than we were before, what was it for? It was these armaments that helped to provoke that conflict, that created an atmosphere which became so explosive. The Chancellor of the Exchequer and I fought that battle for years before the War in order to prevent the mad competition in armaments. We fought it year by year until he became First Lord of the Admiralty. What is happening now? You have got a Navy which is more powerful than the combined navies of Europe put together at the present moment. We have never been in that position before, and still we go on building. The distinguished father of the Chancellor of the Exchequer fought in 1886 against an increase then. The figure he fought against was £13,000,000 for the Navy, but his sacrifice was not in vain. I have gone into the figures closely in the last few days, and I find that for eight years there was practically no movement upwards. For eight years—that has never happened since.

Then came a panic. I am sorry to say it came with a Liberal Government in power, and they surrendered. Just the same thing happened, if I may say so with respect, with the Labour Government in power, and they surrendered in the same way to the same kind of panic. The Liberal Government then started the competition in building. What was the result? In a few years you had doubled the cost of the Navy. In a few more years you had again doubled it; you were really forcing the pace. We forced the pace with the "Dreadnought." Nobody had built a "Dreadnought" until we did, and the result was that we had to scrap huge armaments that we had and practically rebuild the whole Navy because we had started a new thing. I ask hon. Members to look at what the United States of America is doing now. She is not keeping up her full programme. She is not anxious to go ahead. She is relying upon her strength, and here again we are forcing the pace. There is the place for real economy which runs into millions; not miserable little things like the scrapping of the Mines Department or the Department of Overseas Trade, but something that runs into millions. If you try to insure against everything, you will be bankrupt. That is true of every business and it is true of a country as well. But here we are; we are going now to send a Minister to Geneva. First of all, we send one delegation to say that the tariff should not be raised at a moment when we are bringing forward our own proposals. We send a distinguished Minister to Geneva, I will not say to lecture the foreigners on their armaments, but that is the view they take of it, and we send that Minister to say, "You must reduce your armaments," and here we are every year putting them up. [HON. MEMBERS: "NO!"] The Navy is going up year by year. What is the good of saying "NO" when you have the figures in official documents? It is going up, and that is exactly what the Continent is saying to us. They say, "Had not you better turn your attention to your own armaments? Our security depends upon our armies; your security depends upon your Navy. You ask us to reduce our armies; you are increasing the armaments which you are depending upon," and the same thing applies to the air. We are accused of hypocrisy, and there is a certain amount of truth in it so long as this expenditure is going on.

I agree with the right hon. Gentleman the Member for Hillhead that the position of affairs with regard to trade and industry is so serious that this expenditure may be a serious and a determining factor. It is not merely the expenditure in regard to Imperial contributions, but it is the burden of the rates which we ought to be relieving; the £12,000,000 would have relieved the pressure there. The right hon. Gentleman said, "Look at the imports and the exports." There is not the recovery that one would like to see; nothing like it. It is four or five months since the stoppage. Take the March figures and compare them with the March figures of last year. Our exports are down over £4,000,000. I could well understand them in November, December, January, and even February, being down, because there were orders that had not be executed and that could not be delivered, but March is a different story. The fact of the matter is that the competition with which we are going to be confronted is coming. We are competing with countries that have none of our burdens. I have worked out the figures with regard to what has been spent in Germany and what Germany has had to bear in the way of national debt. At the end of the War her National Debt ran into something like our own, six or seven thousand millions of pounds. Her National Debt to-day is not one hundred and thirty millions of pounds. Her municipal debts, pre-War, have been wiped out. Inflation was practically—[interruption.] I am just giving the facts. I will draw my conclusions in a moment. It is vital that these facts should be brought out, because these are the facts with which we have to deal. The municipal debts of Germany have been wiped out. Inflation was practically a paper jubilee which wiped out all the pre-War debts. As far as France is concerned, her debt at the present moment, on the present basis of the franc is only about £2,600,000,000. She has reconstructed the whole of her devastated areas. She has rebuilt her factories. She has put in new mines, new docks, new harbours, she is refitted and reequipped, and her National Debt is about one-third of ours. Those are the countries we have to compete with. I know perfectly well it will be said that no doubt that process destroyed the credit of Germany for a time, and she therefore could not buy her raw materials in the markets of the world at anything comparable with the prices which we had to pay. She had to pay more and therefore she could not compete. But I see her loan is standing at a premium in the City to-day; she was borrowing at 40 per cent. The loan was floated the other day, and it was only about three-quarters to 1 per cent. higher than ours. She still has to pay more than we have, but it is coming down with increasing rapidity. She is again building up her credit. The advantages we had from the fact that our credit was good compared with her's are rapidly disappearing. The advantages she has got from being without a debt and without an army and without a navy and without the enormous expenditure which she had before the War on armaments is becoming felt. The United States of America has not to pay more than £6 per head of her population. We are paying £16; France is paying £4 or £5; Germany something like the same. Italy, who is competing in textiles and shipbuilding, is paying about £4. These are things that ought to be taken into account when you are discussing the Budget of a great industrial country like our own. The United States of America, in spite of the fact that she is paying very much higher wages, and in spite of the crippling effect of Protection—take our point of view for the moment, because, before the War, it had a crippling effect undoubtedly—her exports and her import trade is going up rapidly at a time when her home trade is putting forward such demands that are quite unprecedented upon her manufacturers. When that element begins to sag, as it is bound to do in the course of events, she will begin to develop her exports to a large extent. Those are very serious facts.

We were the lenders of the world. The Chancellor of the Exchequer in his speech said that we were the financial centre of the world still. What does he mean? Does he mean that we are still the lenders of the world as we were before the War? He surely cannot mean that. That is not the case. The United States of America, who was far behind us, who was hardly a competitor before the War, is now far ahead of us. Even our own Dominions are going to America; foreign countries are going to America and are asking America to lend money and America is doing what we used to do. She is apportioning the loans which come to her with us, with Amsterdam, and with Switzerland. She is giving us, it is true, a larger share than the others, but nothing comparable with her own. It is no use the Chancellor of the Exchequer saying that we are still the financial centre of the world. What is his contribution in this Budget for dealing with that serious situation? He brings forward a Budget which puts further burdens on industry. They may not be serious, but every additional burden is serious. He is withdrawing the funds allocated for helping industry to discharge its business, He withdraws them and he is restricting the opportunities for the training of the children of the people in the schools for putting up a battle when they come face to face with the greatest trial and struggle that has ever confronted this nation, which we shall be up against in a very few years. Unproductive expenditure is going up. It is a misleading Budget; it is an irrelevant Budget; it has no reference to the necessities of the hour. It is a Budget without understanding. It does not show a realisation of what those needs are. It is an unhelpful Budget, and, therefore, I oppose it.


I feel somewhat overwhelmed in having to follow two ex-Chancellors of the Exchequer who have been lecturing the present Chancellor of the Exchequer. I notice that it is only ex-Chancellors of the Exchequer who are looked upon as financial experts—never the present one. As I do not pretend to have any great knowledge of finance, I am not in any way discouraged from speaking, because I might in consequence make a good one myself in the future. I have my own bone to pick with the present Chancellor of the Exchequer on this Budget. He is a Minister who has occupied most of the posts of government, with distinction or otherwise, according to one's point of view. I, on the other hand, have only been connected with one Ministry, although I have been connected with that one Ministry, the Ministry of Transport, practically for three Parliaments, and consequently I have a strong affection for the one, whereas he may have a mild affection for many.

I differ from the Chancellor of the Exchequer also in the fact that I am a post-War politician, whereas he is a pre-War politician. I do not say that some of the vintages of pre-War politicians are not good, but I do say that some of the sparkling wines, with age, become dull and flat. That is what I think has occurred to the present Chancellor of the Exchequer. There are two points upon which I wish to criticise his policy. One is in regard to the £12,000,000 which he has taken from the Road Fund, and the other is in regard to his adumbration of the abolition of the Ministry of Transport. The right hon. Member for Carnarvon Boroughs (Mr. Lloyd George) has referred to the funds which the Chancellor of the Exchequer has taken for Imperial taxation. I think my right hon. Friend was wrong in that respect. He said that he would have liked to have seen that money spent on the roads. That money was earmarked for spending on the roads. It is money which has accumulated because it could not be spent in time; it is money which has been taken from one year to another year for definite programmes which could not be fulfilled in a definite time, and was carried over. My right hon. Friend the Chancellor of the Exchequer seems to imagine that nobody is going to pay for the £12,000,000 which has been taken from the Road Fund and put into the Imperial funds. The people who are going to pay are the local authorities, and the sooner that is realised up and down the country, the better it will be.

Although it is true to say that the local authorities are not going to be any worse off, it is a fact that the local authorities expected as the Road Fund increased through the contributions in respect of motor cars, to be better treated than they are at the present time. Consequently, although it is right to say that they are not going to be worse off, they will be worse off than they legitimately could expect to have been in the future. I have always understood that taxation from the rates point of view is more vicious than taxation from the Imperial point of view so far as trade and the community are concerned. You hit trade harder by increasing rates than by Imperial taxation, and here you are actually pushing the burden from Imperial taxation on to the rates. Nothing could be more vicious than that. It is a slippery path to descend to begin taking money which is ear-marked for one thing and allocating it for another. If the Chancellor of the Exchequer remains much longer with us, I suppose that when he gets into one of his usual difficulties he will be taking ear-marked money to build a cruiser. I do not know where that sort of thing is going to stop. It seems to me that his conscience pricked him last year in taking a certain amount from the Road Fund, but this year it does not, and he takes the whole lot without any qualm of conscience whatsoever. The Treasury have resented very much that the Ministry of Transport have had a separate fund and a separate system of taxation, and it was always their boast that, as soon as they got a weak-kneed Chancellor of the Exchequer, they would stop it. We have still the Road Fund, thank God, intact, but he has gone very near doing away with it. Although the Chancellor of the Exchequer is capable of standing up, I think he is getting very wobbly on this particular point, urged on, no doubt, by the Treasury.

I regret that we have had no word from the right hon. Gentleman with regard to the possibility of a petrol tax. There is a good deal to be said for a petrol tax. Although it would be a bad thing for the motor industry, I think it would be a very good thing for the coal industry, but as I happen to be interested in the coal industry in a particular way I cannot elaborate that point. The Chancellor of the Exchequer was very optimistic last year about being able to introduce a new form of taxation on the basis of damage done to the roads, in the form of a fuel tax, but we have had not one word from him about it this year. As he knows, the change-over from a horsepower tax to a petrol tax means that the change-over has to be financed and that it will cost something like £6,000,000 or £7,000,000. That should have been done while there was a reserve in the Road Fund, but now, I do not see any prospect of the change-over which is so much desired in many quarters ever being accomplished.

I will now deal with the abolition of the Ministry of Transport, and will leave to others the task of dealing with the abolition of the Overseas Trade Department and the Mines Department. I am particularly interested in the Ministry of Transport, because I believe that it does not lie on the same plane as the other Ministries. It may well be that there will be times when a Ministry of Overseas Trade is wanted, and there may be difficulties in regard to mining questions which may raise big industrial issues of the day and justify a Ministry of Mines, but these are things which rise and fall. Surely, the question of trans port is one that must become increasingly important as years go on, and yet this Ministry is to be abolished with a sweep of the hand. We have had numerous inquiries into London traffic, and especially in regard to conditions in the East End. How are we going to co-ordinate traffic in London now that the Ministry of Transport is to be scrapped? People do not realise the extraordinarly false position of traffic in London to-day. The Tubes would not run to-day unless Lord Ashfield during the War had got an agreement to pay the Tube dividends out of the revenue from the omnibuses. It is time we got some co-ordinated system throughout London. We have had negotiations and talks about the possibility of co-ordinating traffic in order to build Tubes in the East End, where travelling is nothing but hell. Is a good thing that the one Ministry which has had this matter in hand, and which knows something about it, is to be scrapped? Can we expect to get that coordination which is so necessary in London traffic under these circumstances? Is it a good thing for any party to condemn for ever the people of the East End to travel as they do? The abolition of this Ministry seems to me a false form of economy.

The Ministry of Transport has been accused sometimes of extravagance in the making of new roads and arterial systems throughout the country. I admit that the policy of the Ministry has been primarily to relieve the rates on improvement works from the point of view of road construction and upkeep. As regards criticisms of the capital works which have been undertaken, it is well to point out that very often the work which has been the subject of criticism has been imposed upon the Ministry of Transport by successive Governments. My right hon. Friend the Chancellor of the Exchequer made the Ministry build a big road, which was perhaps premature and not wanted, except for the purpose of providing work for the unemployed. We have had bigger works than that. The last one about which the Ministry might be subject to criticism was the building of the Mersey Tunnel. But that was not the fault of the Ministry of Transport; it was the fault of the Chancellor of the Exchequer deciding on it on his own after having had a good lunch at Liverpool. The criticism of arterial works is a criticism not of the Ministry of Transport but of the Governments of the day.

The work of the Ministry consists partly of roads and partly of railways. My right hon. Friend says that we are not going to diminish activity on the roads. Will the whole road system go over to the Ministry of Health? What will happen to the railway system? That organisation is perfectly compact and watertight, and it will probably pass to the Board of Trade. What will be the result? Where is the economy? Here you have two warring elements, roads and railways, taken apart, and put under two separate Ministries. Will you get co-ordination? Will that be more economical? I very much doubt it. What about electrical development? Where will the electrical work go? Will it go to the Post Office or the Office of Works?

These three things should be kept together in one Ministry, and it should be the duty of one Ministry to see that they are properly looked after. It may well be that the only economy we shall get will be an economy in the Minister's salary. If we are going to consider the salaries of Ministers, then let us consider the salaries of all Ministers. Is it right that the Office of Works, whose business is to grow bulbs in the parks, should have a Cabinet Minister while the Ministry of Transport is to be abolished? Is that the modern conception of how the country is to be governed?

I believe that the right way to economise in this country it to do away with all the pre-war Ministers. I believe they have a wrong attitude towards everything post-war. Look at my right hon. Friend the Chancellor of the Exchequer. What is his attitude? He takes the view that everything post-war is rotten and that everything pre-war is right. Look at his attitude towards the Admiralty. With the ghost of his father before him, he allows the Admiralty this year on the office itself to spend more money than it did last year. That is our arch-economist! I am not going to take this economy from the point of view of shutting down Ministries on trust. It is up to the Chancellor the Exchequer to show a real saving if these Ministries are to be shut down, and I refuse to vote for any Bill to shut them down unless I am convinced that real economy will take place. If we are going to reorganise Ministries, I think something possibly might be done. I do not see why we could not have a Ministry of Communications, such as they have in other countries. I cannot see, for instance, why the Post Office and the Ministry of Transport could not work harmoniously together. If everything pre-war is to remain as it was before, and everything post-war necessarily be swept away, it will be an entirely erroneous and false policy. Let us remember that we are living in post-war days and not in pre-war days.


The Financial Secretary to the Treasury in the speech which he made in reply to the Debate last night contended that the Opposition had been singularly disappointed in finding so litle to attack in the Chancellor of the Exchequer's statement. I think this afternoon he will be compelled to review that opinion because, in point of fact, this Budget, both in principle and in a good many of the proposals, is exposed to criticism almost all along the line. We have already made it plain in the speech of my right hon. Friend who spoke yesterday and in the speeches of hon. Members behind me that we entirely reject the principle of raid, expedient and anticipation on which the Chancellor of the Exchequer has proceeded. There is not the least doubt that any student of finance, apart from party considerations, will be ready to agree that there is no permanent cure or a sound handling of our problem in this country by merely appropriating the reserves of one fund, anticipating revenue from taxes, and getting round our difficulties by devices of that kind, all of which are excused or largely excused by the Chancellor of the Exchequer on the ground that the circumstances of 1926 were exceptional, that in all probability there will be some measure of recovering trade during the present year; and with the kind of promise that these devices will not be repeated during his stay at the Exchequer. We have also made it perfectly clear that at the proper time, when these Resolutions are taken in Committee of this House, we on this side will oppose most of the Chancellor's proposals.

But it is easier this afternoon to indicate the real disinction between the policy of the right hon. Gentleman, on the one side, and that of the Labour movement, on the other, by concentrating upon two great considerations in this Budget statement. The first is the broad problem of economy, and, the second, the problem of the Debt. A survey of these two features of the Budget will make the distinction I draw perfectly plain and clear. Some years ago this country contemplated an aggregate Budget of something very much less than £800,000,000. It was believed that the reaction from the enormous Budgets of the War period would be more pronounced, and when we were faced in 1924 with an aggregate figure of about £790,000,000, there were visions in certain quarters of further reductions to £770,000,000 and £760,000,000. Some of us on this side did not altogether entertain that view, because it was increasingly plain that if we were to meet certain urgent social and industrial services after the War, especially as prices were tending to settle down, a Budget in the vicinity of at least £800,000,000 was probable. During the last two years there has been a large rise in the expenditure of this country, with the result that the Chancellor of the Exchequer now budgets for £832,000,000.

If I was asked to make a forecast as to what actually will be spent in the present financial year, I should say that at the very least you will have to add £10,000,000 for other calls which will be made upon you before the 31st March next, and all probability your Budget will be up to £840,000,000 or even £850,000,000. On paper, the call for economy appears to receive considerable reinforcement. There are fields, as every member of the Public Accounts Committee knows, and as every member of the Estimates Committee knows, in which economies can be achieved, but observe the field which the Chancellor of the Exchequer chooses for reductions in expenditure, limited as they are. The hon. and gallant Member for Chatham (Lieut.-Colonel Moore-Brabazon) has submitted that part of the Chancellor's case to what was a perfectly merciless analysis this afternoon. We support the hon. and gallant Member in that connection, because the Chancellor of the Exchequer has attacked what are really two or three Departments in this country which are providing the kind of economic environment within which a great deal of our industry and commerce must be conducted.

The Ministry of Transport is concerned with a problem of first-class importance in Great Britain, and one which is rapidly becoming acute; the problem of reconciling the developing road transport with the peculiar position occupied by the railways under the Act of 1921. There is considerable agreement outside these walls on the plain economic proposition, that if we are going to embark on a suicidal war or competition between these two great forces the loss will run into many millions for British industry, and indirectly for British commerce. In the Overseas Trade Department you have a Department which has devoted its attention to the study of markets in different parts of the world, which has provided an admirable series of reports, not nearly sufficiently used by the traders of the country and not sufficiently known to the trade union world.

And we might continue our analysis of the proposal to abolish these three Departments. The Chancellor of the Exchequer agrees that the economy will be infinitesimal, but I have no doubt that he will comfort the critics on that point by telling them that in any case all the beneficent activities of these Departments will be continued. There is a great difference between having a Department which is devoted to a definite study and pursuit of a problem, and having that Department as a mere section of another Department in the State, which has far more important duties, and which, with the best will in the world, does not give to the particular problem the attention it deserves. Let me give the House an illustration. Shortly after the War concluded, during the Parliament of 1918. I was asked, with one or two colleagues, to investigate the railway agreements which were concluded with the companies during the War, and in respect of which the taxpayer had to pay £51,000,000 net in 1921. It will be out of order for me to make any comment on that settlement this afternoon, but we had not proceeded more than a few days in that inquiry before certain members of the Committee were convinced that the little railway section in the Board of Trade was unequal to the situation which confronted them, not merely on the outbreak of the War, because that was a great crisis, but even before that time of emergency; and very largely because of that weakness we had been exposed to the payment of millions of money, which very likely may be repeated in certain connections unless we are careful in the treatment of these Departments to-day.

It is the most bogus form of economy we can practice in the State to attack certain Departments which are feeding our economic field, encouraging employment to certain sections of your people, at a period when your unemployment has settled down apparently in the static condition of rather more than 1,000,000 out of work. In due course we shall make war upon this spectacular yield of the Chancellor of the Exchequer to what we believe is very largely the Press clamour of recent days and recent years. Let us notice the attack on social services which was led by the right hon. Gentleman the Member for Hillhead (Sir R. Horne). He takes the view, illustrated mainly by the Widows' and Orphans' Pensions Act, that you cannot afford a great deal of this expenditure in existing circumstances. You have to give relief to industry and commerce, and he adds up the capital liability of this undertaking and points also to the annual charge. But the right hon. Gentleman, in his analysis of the annual charge, forgot the part which does not fall on the Exchequer at all, that is the contribution of the parties to the scheme. Be that as it may, we have had not only the dislocation of the war, but four or five years of industrial distress in Great Britain, during which competent authorities not associated with the Labour movement at all say that there has been deducted from the remuneration of 8,000,000 to 10,000,000 people a sum of not less than £700,000,000 to £900,000,000 per annum.

You cannot allow unemployment to go its peak point of 2,000,000 out of work, or settle down at over 1,000,000 out of work, make that enormous deduction from the incomes of huge numbers of our people, encounter all the waste and demoralisation of a considerable period, without rendering it absolutely necessary not to weaken the social services you are trying to keep up, but, if possible, to augment them. Some part of that expenditure is admittedly not constructive. It is not fitting the people for new occupations or for greater efficiency. It is only filling a gap in existing conditions; to prevent a waste which would be greater if you did not try to discharge these duties. We on this side have regularly contended that it would have paid this Government and its predecessors over and over again to have put more money behind local authorities and large constructive schemes, and have spent infinitely less than the £300,000,000 or £400,000,000 which has gone down the drain in purely unremunerative relief. That has always been our contention, but we have never been allowed to apply it, because of the immediate criticism that we should be interfering with privately run industry and commerce, and that the Government are not prepared to extend the activities of local authorities or the State. I have no doubt that on a perfectly fair analysis of this problem an unanswerable case can be made out for the full maintenance of these social services, and their extension on the more remunerative lines which we have indicated from time to time.

In regard to the third field of economy, many hon. Members opposite have criticised us for fastening always upon armaments and Debt. There is a perfect reply to that contention. If you add together the expenditure on armaments and Debt you account for about £480,000,000 of your Budget of £832,000,000. The Debt and Sinking Fund and armaments come to approximately that sum—and moreover that sum is tending to become fixed in character. It is perfectly idle to look to social services while you leave this vast part of the problem practically untouched. The situation in armaments has been complicated by events in China and the extra provision which I have no doubt the Government will make in order to meet the outlay in that part of the world. But we are still spending £116,000,000 on armaments, and the economies which have been effected in that sphere are infinitesimal. What will the Chancellor of the Exchequer say? He will contend first on the broad basis of security and then go on to say that these Estimates have been carefully pruned; with all the advice of the Departments, the miles of memoranda, all the arguments put forward in support of their case, and at the end of the day the maximum economy to be achieved is this sum embodied in the Estimates of the present year; which, of course, is very ludicrous and inadequate. The Chancellor of the Exchequer, in reply to the contention I made last year, when I suggested an overhead cut of at least £5,000,000 per annum, said that it was in the realm of practical politics. If the right hon. Gentleman refers to the OFFICIAL REPORT, he will find that that was the substance of his reply.


I said it was a reasonable object of endeavour.


That is the description which the right hon. Gentleman habitually employs: "a reasonable object of endeavour." It was perfectly valid criticism that was offered this afternoon—always travelling but never arriving. Let us take it on the basis of a reasonable object of endeavour. Our analysis in the Public Accounts Committee of this House—I do not want to pledge hon. Members to the point of view which I express—points to this: that if you depend on orthodox review, if you depend upon the case which the Departments put up each year, no reduction of this vast expenditure, unremunerative very largely, will ever be achieved. The only possible way in this sphere is the way of overhead cut. It is rather remarkable that when that overhead cut was applied to the tune of several millions when we were in office in 1924, the Navy actually surrendered an unexpended surplus at the end of that financial year. That is a suggestion to the right hon. Gentleman on which we shall be interested to hear his comments to-night.

The only other point I want to make on national economy is this: The right hon. Gentleman the Member for Norwich (Mr. Hilton Young) outlined a, scheme for the more careful and regular study of this problem. By a process of elimination he got rid of the Estimates Committee and the Public Accounts Committee and all the other machinery, partly because that machinery had no power or control over policy, and partly because its personnel changed, and there were other, perhaps inevitable, weaknesses in its review. Finally, he came down to a small sub-Committee of the Cabinet which was to have authority and power and which should be entrusted with very large duties in this connection. I do not know that that is a solution of the problem. The members of the Cabinet in any Government are all very busy men. They might achieve some of the results which the right hon. Gentleman had in mind. But without in any way taking power away from the Government, where it must rest and where of course all the final decisions must be taken, there is undeniably one great weakness in our financial system. We do not get on the Floor of the House, and we do not get under the machinery as it is at present constituted, either the deep and the broad analysis of expenditure which we should obtain, or the relation of that expenditure or of public finance in general to a great mass of material which is presented to us in the industrial world.

Let me give an illustration. This Government and all its predecessors appoint Committees of an influential character to advise on great problems of national trade. The Balfour Committee was a case in point. It has presented three Reports, dealing with overseas markets and industrial relations, and the last an analysis of our industrial structure. These Reports are presented and they are almost immediately forgotten. They are accompanied by a vast mass of material turned out by the Department of Overseas Trade and the Board of Trade and by other Committees and bodies. But no particular organisation exists for the purpose of extracting from that material the relevant recommendations, some of which are worth millions per annum to British industry and commerce, and relating those recommendations to our financial system. They are lost; they disappear. So I am coming more and more to the conclusion that, while perhaps some kind of machinery as was suggested by the right hon. Member for Norwich might be wanted, it would pay this House to set aside five or seven of its Members of a representative character, pledged to undertake this study year by year during the Parliamentary Session. Without attempting to set up supermen, or to weaken or evade the responsibility of the Government to take decisions, such a body could summarise and present the recommendation and ask the Government of the day whether they are prepared in the interests of national progress to undertake that effort of the Lind recommended should be attempted. Valuable material is running largely to waste and, as our financial reviews have shown, carrying with it many millions of public money at the present time.

The other subject of which I want to speak is the problem of the debt. Quite clearly, although the Chancellor of the Exchequer raises the Sinking Fund from the basic £50,000,000 to £65,000,000 in the new financial year, he has yielded in part to the plea for an inroad upon debt redemption, presumably in view of the industrial circumstances of the time. What is the reply which our movement offers to the criticism that was made very largely yesterday afternoon by the right hon. Member for Norwich, and from practically the same angle by the right hon. Member for Hillhead to-day? It can quite simply and easily be described. There is an undeniable conflict of opinion between the Government side of the House and this side as to the effect of taxation upon industry, and perhaps also as to the prospects of British industrial recovery. Generally speaking, the burden of opinion on the other side of the House is that in existing conditions you should modify your debt programme, whereas on this side we stand for strict adherence to a very firm debt programme even in existing conditions.

Let me try briefly, and I trust clearly, to illustrate that point. The aggregate debt is £7,700,000,000. Looking over the record of the past few years, we are, in total liability, making no impression upon that vast total at all. In point of fact it is defeating us. It is literally true to say to the Chancellor of the Exchequer to-day that the debt is beating him and the Government hollow as regards total liability. Of course, as regards the annual reduction of interest charge the effects of the last conversion scheme bordered on the ludicrous, because it achieved a saving of less than £500,000. There is, first, that enormous burden of the debt, together with the fact that its total accretion is getting the upper hand. That is the first thing that we must keep clearly in view. But hon. Members come along and say, that no doubt theoretically we are perfectly sound in standing for a strong Sinking Fund policy, but we must have regard to the circumstances of last year. The right hon. Member for Norwich and in some ways the right hon. Member for Hill-head practically told us we should wait for a better year in our financial experience or what was described as a bumper year, before we increased the debt provision. When is a bumper year likely to emerge in British financial or industrial experience? I do not say that the right hon. Gentleman had this point in mind but I have heard people argue that the bumper years were those in which you had a heavy Budget surplus, which under our system goes automatically to the reduction of debt. There will be no large Budget surplus in the near future.

The truth is, and it is borne out by the statement of the Financial Secretary to the Treasury in the document presented to us to-day on the Estimates, that you have now gone very close to pre-war estimating. Any future Budget surplus will be perfectly negligible. It will not affect your debt at all. So that any bumper year of that kind must be dispensed with. Does anybody suggest that we are going to have a very rapid industrial recovery? I regret from some points of view a discouraging reply to that question, but it is going to be a painful process to fight our way to industrial recovery, especially with the new Trade Union Bill confronting millions of our workers; and inevitable recrimination occupying a large part of this year; together with all kinds of propaganda from employers' organisations and trade unions, which I frankly say might be very much better devoted to a study of the economic problems of our time. That is the kind of thing we have before us. I see no bumper year, at all events as regards that class of contribution to debt reduction.

The choice which confronts us is this: Is it better for Great Britain at this moment to stand up to what may be on paper a tough proposition—I do not regard it as in any degree beyond our real capacity—in the debt service, back that up by all the industrial recovery and efficiency that we can promote, or yield to this fatal tendency to undermine our debt provision? Let us take the second of these considerations first. Suppose that we go back to a basic £50,000,000, of suppose that it works out even worse because of the enormous leakage which the Chancellor of the Exchequer has permitted this year. Prior to 1930 and immediately after 1930 you have very heavy conversion schemes. No Member will deny that what you are doing now in your Sinking Fund provision is going to determine very largely the terms upon which you can convert when that time comes. Even if we made far better provision in the debt reduction of the period between this date and that date, we could not recover the ground. So, unless we stand to a firm Sinking Fund policy in existing conditions the huge conversion round about 1930 will land you only in further total accretion of your debt, and in all probability very little, if any, interest will be saved at all.

The Chancellor of the Exchequer relies upon some decline in interest rates or rather easier terms for money. Far be it from me to pose as an expert in these matters, but I am bound to say that that is not a view which is shared by competent authorities of different political schools in this country. He is not likely to get a very great deal of help by that route.

6.0 p.m.

So we do incalculable damage in advance in this Budget to the prospects of these conversion schemes. Although they are apparently immediate on paper, the truth is that a longer view is taken and must be taken of all such financial propositions. The Chancellor of the Exchequer may obtain some temporary ease for industry, but he pays for that temporary ease by this huge difficulty to which he exposes future conversion schemes. We frankly and candidly take the view, however unpopular it may be, that the emphasis which has been laid upon the effects of taxation on industry has been very greatly exaggerated. Of course I know that all who speak from the standpoint of the Federation of British Industries will submit that that is a contention which cannot be sustained. I have read some almost violent criticisms of the point of view of both the majority and the minority of the Committee on National Debt Taxation. But there are various tests which you can apply. In the first place, In spite of all these adverse conditions which I have described, there is still a wide basis of savings and economic stability in this country. That is beyond all doubt. In the second place we are recruiting every year £230,000,000 to £250,000,000 of new capital, and, thirdly, I have not heard any widespread contention that sound schemes of industrial development in this country have been hampered in obtaining the money or credit accommodation which they require. If they have been, that seems to run counter to some of the most emphatic statements of the bankers; and it would appear to be contradicted by the figures of capital recruitment. Of course it is admitted that our savings have shrunk as compared with the pre-War period and no one could escape a statement of that kind who has studied the analysis of the national income by Professor Bowley and Sir Josiah Stamp, even if certain necessary modifications are made on the calculations at which they arrive. Savings have doubtless shrunk, and in the circumstances were bound to shrink, but I refuse to believe that you have really hampered or injured industry in Great Britain on this point.

After all, it is still true that a fair amount of capital goes annually in this country to enterprises of a luxury or quasi-luxury character which should have no place in our national economy in existing conditions, with debt of £8,000,000,000. If that point of view can be sustained we have to make up our minds to secure additional debt provision, and we here quite frankly propose to try to obtain that provision where we believe it can be obtained with the minimum disadvantage from the point of view of public well-being under existing conditions. The minority of the Colwyn Committee on the National Debt suggested a surtax on unearned income above £500 a year on a graduated scale. They suggested a recasting of the scale of death duties, with certain other proposals; and there is not the least doubt that if you take those spheres together, and keep in mind that provision for death duties is being increasingly made on the basis of annual contributions through insurance, you may achieve by that route—a very much healthier route—the kind of attack upon at least a part of luxury expenditure, which the Chancellor of the Exchequer himself constantly professes to have in mind. He runs to so-called luxuries like tobaccos and wines and other articles which certain classes consume. He hardly looks at all to these optional elements in the higher ranges of income, especially unearned income and especially in those large estates which in our view are proper subjects for additional taxation. This is so, more particularly, when you are going to apply them very largely to debt redemption which, I would point out to our critics, has been described partly by the Government, no less than by ourselves, as the highest form of investment you can practise in this country.

A considerable part of the argument against this seems to suggest that you are taking that money out of British in dustry altogether. In point of fact you are doing nothing of the kind. Very largely, in your repayment of debt, you certainly cancel that obligation on the part of the State but the money is available to a material degree for reinvestment. You have given it another direction. That is a perfectly sound economic and financial argument. You have redirected it, and moreover you have encouraged perhaps certain perfectly healthy parts of your industry, but all this was ignored in the speech of the right hon. Gentleman the Member for Hillhead who suggested constantly that this was some enormous burden, settling down with hopeless incidence upon the people who pay the taxation. That kind of argument cannot be supported for a single moment.

May I conclude with one more contention? Throughout all this long line of treatment of debt, my colleagues and I will fight for the remedies which have been described, among others. I dare not take time to enumerate them all this afternoon, but I want, quite impartially, to ask the Committee one final question. Supposing for a moment that we do not stand to a firm and courageous debt policy, what will be the result? The inevitable result must be adverse to the conversions round about 1930, and to the reduction of the total liability, and, beyond that, there will be years and years of further penalty for industry even if the argument of hon. Gentlemen opposite is admitted. As a matter of fact, we are the true economists. We are the true friends of industry. You have to relate the state of affairs which I have indicated to certain factors upon which the right hon. Gentleman the Member for Carnarvon Boroughs (Mr. Lloyd George) very lightly touched in the concluding portions of his address. Recently we addressed certain questions to the Chancellor of the Exchequer. One of my hon. Friends behind me asked him a question about the speech delivered by Mr. McKenna at the annual meeting of the Midland Bank, and inquired whether the Government were prepared to undertake an inquiry into the problem which Mr. McKenna raised, dealing with the industrial effect of the operation of the Bank Charter Act. The Government's reply—strictly orthodox, though not very imaginative—was simply to the effect that they did not favour an inquiry because it would lead, in all probability, to a great deal of unsettlement in Great Britain. Now, after all, what Mr. McKenna offered was a kind of comparison of American and British financial and industrial conditions since the War, and his broad conclusion appeared to be that the operation of the Federal Reserve system in America gave a greater elasticity as regards industry than the strict operation of the Bank Charter Act of 1844 in Great Britain, especially, of course, having regard to the return to the gold standard upon which the Government embarked in 1925.

Let me make it perfectly plain, although I cannot pretend to speak for all my hon. Friends behind me, that I am not an inflationist. I am no believer in the temporary stimulus of currency disease. That is no part of our case; but I do say that there is a very remarkable comparison to be drawn with American experience, even when you make just allowances for the different state of affairs in America as regards debt and as regards industrial practice. I think the subject of the strict operation of the Bank Charter Act, 1844, is worth inquiry, especially when you have still to approach the recommendation of the Cunliffe Committee regarding the merging of currency note issue with Bank note isue at some date still undetermined. There, at least, you have one ingredient of inquiry. At the moment nothing more is suggested. And, of course, there is another and a very important consideration. The United States is believed to be approaching saturation point in many of the efforts which it is making to meet demand, and the moment it reaches or approaches saturation point—so the critics contend—there will be a very strong endeavour to export more goods and particularly manufactured goods to Great Britain. On the other side, in Europe you are approaching the increased scale of annuities under the Dawes Scheme and already it is suggested that if they are to be absorbed by this country they must come here very largely in the form of manufactured goods. I have no hesitation in saying that unless we pursue a very faithful financial policy and unless we back that up by every improvement in industrial efficiency that we can secure, we may on these points be exposed to substantial danger in both our export and domestic trade.

For my part I believe the sound course this afternoon is to face that rigorous treatment of debt with courage and with imagination and, at the same time, to adopt every kind of improved efficiency that we can secure. I know there are hon. Members who say that far too much has been made of many, of the industrial lessons of America; in certain things they have undoubtedly overstepped the mark. But you have the wide-spread hire purchase system; you have the whole problem of simplification; you have such devices in industrial economy as have been introduced in America recently, one of which was estimated to have saved the industry of the United States £500,000,000. When are we beginning in Great Britain to face considerations of that kind? If we can secure a policy of standing up to our debt, encouraging every form of industrial efficiency and avoiding the evasive practices of the present Budget—which are undermining the provision which in point of fact we ought to make—if we are capable of that, we need not take a gloomy view of our economic future.

Brigadier-General Sir HENRY CROFT

I am sure every Member of the Committee will agree that we have listened to a speech of great brilliance from the right hon. Gentleman who has just sat down, and I do not think I am going too far when I say that we almost hope that on some future occasion the right hon. Gentleman may be Chancellor of the Exchequer of this country—thirty or forty years on, when once again hon. Gentlemen on the other side are called to responsibility. He will forgive me, however, if I do not attempt to follow him through his most interesting arguments. A great many of us agree with much that he said, and I thought his speech was much more helpful to our country and much safer than the speech of the right hon. Gentleman the Member for Carnarvon Boroughs (Mr. Lloyd George). I want to say a word or two regarding that speech, although I am not going to attempt to decide whether the right hon. Gentleman or Lord Oxford is right on the question of the abolition of the three Departments—a policy which has been decided upon by the Government. We have all found that when we did take any sympathetic interest in Liberal quarrels it was of no avail, because, if they were healed, fresh quarrels broke out again immediately. The right hon. Gentleman painted a picture of the burdens on British industry in its competition with the rest of the world. The right hon. Gentleman who has just spoken does not seem to think that the burden is so very great, but I hope he will enter into one or two financial concerns before long and get a taste of this medicine which I think will help him to change his views. The right hon. Gentleman the Member for Carnarvon Boroughs apparently does realise that one of the gravest problems of this country is the burden of taxation which we have round our necks when competing with our trade opponents. It is satisfactory to know that the right hon. Gentleman has progressed thus far, and that he now realises that inequality of the contest. When he called attention to a fact which, I am sure, is alarming every Member of this Committee, name'y, the failure of Income Tax to respond to our growth of population—"resiliency" was, I think, the word that he used—I must remind the right hon. Gentleman and also the right hon. Gentleman who has just sat down that they cannot have it both ways. If you are going to take 30 or 40 per cent. of the great fortunes of this country at death, you must expect to see your Income Tax yield in subsequent years going down, and the right hon. Member for Carnarvon Boroughs should be the last to express surprise that the Income Tax is not responding to its many demands.

I want to say just one word in regard to that part of the right hon. Gentleman's speech in which he dealt with armaments. Those criticisms were not too helpful to this country. I do not think it is ever wise for anyone in this country, even if they believe it, to tell the rest of the world that we are hypocrites and so on, and I think the right hon. Gentleman really was not contributing very much towards helping this country over our difficult time by what he said in regard to armaments. What was his contribution? He said that Great Britain at the present moment has a Fleet greater than the combined Fleets of Europe." Well we have an Air Force greater than the combined Air Forces of South America. It is no argument to take one part of the world, where there is no visible danger in the near future, and to tell us to frame our policy along those lines. I think he was a little bit on dangerous ground when he reminded us of his efforts in the past, because, if we are to be guided by him in our policy of defence, one has to remember, as I remember, that in the Spring of 1914 the right hon. Gentleman, knowing far more than the average man in this House then knew of the dangers which confronted us, deliberately tried to reduce our naval construction in that year.

The right hon. Member for Colne Valley (Mr. Snowden), in opening his attack on the Budget yesterday, although I think it is rather regrettable to enter into political controversies on Budget discussions, nevertheless endeavoured to suggest that the whole of our present gloomy outlook, due to last year's industrial unrest, was really due to the fact that the Government had failed to implement the Coal Commission's Report. I think we must all realise now that, if the Government had enforced that Report, it, would have meant compulsion, not only of the coal-owners, but of the mass of the miners of this country, and I do not think the right hon. Gentleman himself really believes that His Majesty's Government could have driven the whole of the mining workers of this country down the pits. I do not think it is really serious politics to talk like that, but I must remind the Committee that the right hon. Member for Colne Valley has told the people that every strike of any magnitude in this country since the conclusion of the War has been inspired by, or financed from, Moscow. [Laughter.] Hon. Members above the Gangway may laugh at their leaders. I know there are distressing divergencies of opinion among them, and I cannot compose the differences which exist in their party, but if there be any truth in what the right hon. Gentleman said, if there be any truth in what all the leaders on that Front Bench have said, if there be any truth in what the Trade Union Congress said immediately the coal strike broke out, let us be honest with ourselves, and let us admit that we have had these great industrial disturbances, and do not let us try, just when we are endeavouring to recover, to impute blame where it cannot honestly lie. Let us try to play the game together, let us cease fouling our own side, and let us realise the tremendous competition we are up against.


The hon. and gallant Member appears to be getting rather wide of finance.


If I have swum a little way from the shore, it was because the right hon. Gentleman lured me out there by his speech yesterday. May I say a word with regard to one of the results of this dislocation which has occurred, to which no reference of any length has yet been made in these discussions, and that is the adverse balance of trade in this country? In 1926 that adverse balance had reached £477,000,000, and even allowing for those invisible exports which are such a consolation to certain bankers and others in this country, but which I have always thought were a very poor consolation to industrial concerns, there was an adverse balance of some thing like £12,000,000. The figures were out this morning for the first three months of this year, and they show that the position has gone, in this connection, from bad to worse The adverse balance for the first three months of this year is no less than £119,000,000, an increase over the adverse balance for the first three months of last year of £24,000,000. This appears to me to be really the most serious problem that we have to face at the present time. As our financial difficulties increase, so we move along the path of the rake's progress, buying more and more every year, even of things which we need not purchase and which we can do without, while all the time we are producing less with which to pay for them.

It appears to me that we must act, and we can act in only two ways. The first way is by trying to restrict the nation's imports, and the second is by endeavouring to stimulate, by every means in our power, our export trade. Our imports, as hon. Members know, are divided chiefly into food, which we must have in great quantities; raw materials, of which we want more and more every year, and manufactured goods. We can only, therefore, rectify the adverse balance of trade so far as goods are concerned by endeavouring to check the inflow of foreign manufactured goods which we can equally well produce ourselves. We have still, and we are likely to have for some time—although I think the figure may come down by 100,000 or so this year, if we have industrial peace—about 1,000,000 unemployed, all these years after the War, and we are importing manufactured goods which have given employment to over 1,000,000 foreign workmen during the past year. I wonder whether hon. Members above the Gangway really appreciate that fact, that a million people, with their dependants in this country, say 3,000,000 or 3,500,000 souls were dependent upon the charity, for it is nothing else, of their fellow countrymen, while at the same time we had goods coming in which were employing a similar number of foreign workmen.


Tell the Government that.


I will tell the Government that every week for the next 18 months, if the hon. Member will give me his assistance. Perhaps he is one of those million voters who, at the Trade Union Congress this year, voted for a policy of protecting British workers. Is it surprising that in this situation our finances are strained? It appears to me that this question of rectifying the balance of trade really is the keystone to our national recovery. But for the few very successful Customs Duties which the Chancellor of the Exchequer and my right hon. Friend on the Teasury Bench imposed during the last two years, the adverse balance of trade would have been immeasurably worse, because they did what we were primarily out to succeed in doing; they restricted the imports of these goods, and they did not do what hon. Members who sit behind me feared they were going to do; they did not increase prices, and the exports of those goods were not decreased but actually, I am glad to say, in the aggregate, increased.

So much for imports. Now, what about exports? We have this ring fence round all our goods in Europe and in the United States of America, and although it is becoming fashionable among some people to describe the United States as a Free Trade country, I must confess, as a business man, that I have not yet experienced their Free Trade tendencies when I have endeavoured to send any goods into that country. The fact remains that is is very alarming for British industries, and very alarming for British merchants, and it might even become alarming for British bankers. We had the Bankers' Manifesto issued in the beginning of the year, which I must confess was a most pathetic moan, about the hostile tariff walls of foreign countries. They blew their trumpets of despair very loudly at the tariff walls of the Continental and the United States Jericho, but those walls did not appear even to be tottering. Not only did they stand fast, but, as far as I can gather, since then they have even added a few layers of bricks to the tariff wall which was already in existence.

I venture to submit that you can never reduce those tariff walls unless you have some power of bargaining, and then, if you have a low wall and can approach your competitors and say, "If you take off the top layer of your bricks, we will take off the top layer of our bricks," you will have a chance of reasoning. It is no good sending people to Geneva. When the right hon. Member for Carnarvon Boroughs was in office, the Spanish people at one time threatened to put a big new duty on British steel goods, or something of that kind, and the right hon. Gentleman, without coming down to this House or talking about the food of the people, said: "If you do that, we will clap a duty on Spanish oranges." The result was immediate—no Welsh wizardry was ever so complete—and immediately the Spaniards came to terms and agreed that that duty should not be imposed. But so long as you have Germany absolutely excluded from her great natural market which she had before the War, where, I think I am right in saying, she sold £100,000,000 worth of goods per annum—I mean Russia—where the Germans cannot deal at present, because they find it absolutely impossible, for even their last concessions have turned out to be ruinous for the Germans, we have not got much to hope for from the markets of Europe, or with the fresh disturbances in the East, from the neutral markets of the world.

Our best hope, our only hope at the moment, is within the British Empire. Of our total export last year, we sold no less than 49 per cent. to the Dominions overseas. That is a most remarkable fact, and I think that business men, industrialists, bankers, and everyone will agree that that practically kept the ship of British trade afloat during last year. But even so, we find that the Dominions are raising their tariffs, and in every case where we have given them self-government, even in India and in the Irish Free State, we find that their first action is to raise their tariffs. Unfortunately, this fruit is so rare and refreshing in some parts of the Empire that tariffs are being raised which are, even from my point of view, altogether difficult to justify, but there you are ! These Labour Governments, when they get a free run, will do these things, and when they find that there is going to be Protection, they are likely to carry it in the direction of prohibition, but the fact remains that, even within our own Empire, if we desire to see that great conception, which some very eminent statesmen in this country have pointed out as desirable, that conception of something like Free Trade within the Empire, it is impossible to conceive that we are ever going to have Free Trade within the Empire unless we have something to give as well as something to take in that direction.

I want to say one or two more words—I am very grateful to the Committee for their tolerance—with regard to the duties in this Budget. I want, particularly, to ask my right hon. Friend whether, in fact, in raising the duty on tobacco, the Chancellor of the Exchequer has not omitted to remember his pledge that the preference rate for Empire tobacco would remain for 10 years? It appears to me that in raising the duty, that pledge has been forgotten. I know there is still a preference, but I think it will be found that in raising the duty on tobacco all round the proportion of preference on Empire tobacco has been lowered. I am glad to see my right hon. Friend the Financial Secretary nod his head. I will, therefore, not pursue the subject, although I must confess the figures published in the "Times" do not convey that impression. With regard to the preference given to the overseas Dominions, the result has been remarkable, although the preference was small. To take tobacco, wines, coffee and dried fruits, the increased quantity of those products bought during the last two or three years from the Empire overseas has been astounding. If it be true that goods are paid for by goods, and if you cannot sell your goods to the Continent of Europe, is it not desirable to stimulate your purchases of Empire goods, in order that you may send your manufactured goods to those parts of the world in payment thereof? You have started on this policy to a small extent, and I do hope it will be possible to grapple with this question with even greater efficiency. Although some 50 per cent. of our exports are to the Empire at the present moment, everyone who has been round the Empire—for instance, I went all over Africa the year before last—sees the whole of our possessions and the mandated territories swamped with foreign goods.

Everyone must agree that if we have a settled, definite policy, it must be of enormous advantage to the prosperity of our country in the matter of expanding trade. Recently those who have been examining the state of British industries have noticed with alarm the enormous increase into this country of imports of matches, of pottery, glass and motor tyres, and I congratulate the right hon. Gentleman upon having recognised these facts. The match problem was becoming a very serious one. Imports of matches, I believe, were almost one-half of our total consumption. They have been going up enormously, and I hope the effect of the Chancellor's proposal will be to give more employment in the British match trade. I regret that the right hon. Gentleman's pottery proposals are so limited, because, if he had tackled the whole question of pottery, glass and abrasives, he could have raised £2,000,000 or £3,000,000 of revenue, and so given further employment in this country. A most important part of his Budget is his inclusion of motor tyres in the McKenna Duties, from which they ought never to have been left out. It was an anomaly that every gadget of a motor vehicle should be liable to duty, but not tyres. This is a great boon to Lancashire, and if the Lancashire voice is not lifted in this respect, I can say I have heard from people in Lancashire that this is regarded there as a very great boon. I saw it suggested in a newspaper that this will give employment to 50,000 men. I think that is a little in the nature of poetic licence, but I feel confident that this policy is going to result in the employment, undoubtedly, of 12,000 to 20,000 men, and that is a great achievement. I cannot help feeling, that if we will organise our finances always with a view to British employment in British industry, the more speedily we shall recover in our trade as a whole.

I only want to make two points in conclusion. One is this: We have heard all these demands for economy. I hope I may be pardoned if I say, there have not been many constructive suggestions as to what economy really may mean. I, personally, feel we owe a very great debt to the Harmsworth Press for having hammered away all this time and told us to economise. But I am rather inclined to ask whether we have not approached the question of economy from the wrong end. No paring down of Ministries will do much good. If you reduce the Army, Navy and Civil Service, immediately those people or others are thrown on the dole. What we have got to do is to begin at the other end, and, above everything else, find employment for our people and I am inclined to think we should do a great deal to gain the support of those Members who dwell on the salubrious banks of the Clyde, and who, I believe, are sincere in their desire to get better conditions for the workers. In order to economise, we ought to recognise the fact that unemployment is costing in unemployment benefits and relief, and in other ways, between £80,000,000 and £100,000,000 per annum. There is a direction in which a real saving may be achieved. The right hon. Gentleman the Minister of Health has done perhaps the most remarkable thing in the history of any country, because he has beaten all records in building houses. [An HON. MEMBER: "The Wheatley Act!"] That was what made the programme hesitate for a moment, but it is going an in spite of that. In view of the fact that we are approaching within two years an end to this starvation of houses, I ask whether the time has not come to get rid of the subsidy on houses? That would be a real economy, if the time has arrived to do it.

I believe those are directions in which we can do something, but when one looks at the extraordinary results of the few duties we have endeavoured to secure, I am more than ever convinced that if we are really going to bring down unemployment, the only way is by carrying out the policy to which everyone who was elected at the last General Election in the party to which I belong declared himself in favour. I only want to tell the Committee two facts. We are importing woollen and worsted manufactures which, in the first three months of this year, would have employed far more than all the out-of-work textile workers in the Bradford area at the present time.


It is the same with the cotton trade.


I am obliged to my hon. Friend for that information. I go further, and say with regard to the steel trade, that if you could by some means preserve that industry, you have an opportunity there of absorbing in that industry 29,000 or 30,000 of the finest steel workers in the world. It may be said, "Ah, but that is a big policy." I agree, but the results would be immense. Let me point out these two facts. The Coal Commission Report told us that the only hope of increasing the consumption of coal in this country is by a real revival of the steel trade. Is it not worth while attempting it? The second point is that railwaymen in this country are beginning to realise that what is ruining the expansion of the railways is the fact that our heavy haulage is not marching with our advance. One of the most eminent railwaymen in this country put it to some of us the other day, when he said," When you ask what policy I would like to see adopted with regard to steel, I say the railways would sooner carry seven tons including coal than one ton, and if you produce steel in your own country you are carrying seven tons, and the consequence is your heavy haulage is enormously increased."

As my final word, I believe we are going to be asked to spend some little time in considering the granting of votes to very estimable young women, who are at the present time beginning to do their hair up, if they have any hair left at all. I venture to think our whole mind and will-power ought to be concentrated on this one question—not votes for flappers, but bread and wages for our fellow-men and women of an ages, and I hope that in the time which remains before the General Election—two or two and a-half years hence—we are going all out for that. Let us look at this question not from the party point of view. Every fear expressed from the empty Liberal benches behind me has been confounded. You have done a great thing for employment by reducing the price of commodities, by giving security for your industries, and by increasing your export trade, which is saving us from a disastrous position. I only hope we can have the wit, the humanity and the courage even now to include two or three great industries in the Safeguarding Act, and, as I resume my seat, I repeat the words of the Prime Minister at the time of the last election, lest anyone may think I am trying to stretch the right hon. Gentleman's pledge: to safeguard the employment and standard of living of our people in any efficient industry in which they are imperilled by unfair foreign competition by applying the principle of the Safeguarding of Industries Act or by analogous measures. That includes any subject about which I have talked to-day, and I say to His Majesty's Government, why weary of well-doing when you have had such enormous success? Why not tell your countrymen, "We have succeeded, and we desire you to encourage us to go further"?


The right hon. Gentleman who has just favoured the House, as he usually does, with a very eloquent speech, tendered a flattering invitation to the Members from the Clyde to support his industrial policy. I understand that he has been for 21 years a member of the Conservative Parliamentary party.


Eighteen years.


The hon. and gallant Gentleman reminds me that he has been a Member for 18 years. I submit that in these days of hustle even 18 years is sufficient time in which to test your friends. If you do not find at the end of 18 years that they have any sympathy for your views, but that you require to appeal to what is regarded as the left wing of your political opponents, it is time to change your seat. When my right hon. Friend the Member for Colne Valley (Mr. Snowden) resumed his seat yesterday, after a careful analysis of the Budget, I was rather alarmed to find the right hon. Member for Norwich (Mr. Hilton Young) rising in his place, and congratulating him on the excellent Conservative appeal for economy that my right hon. Friend had delivered. To-day, after another of my respected friends, the right hon. Gentleman the Member for Central Edinburgh (Mr. W. Graham), had addressed the Committee and resumed his seat, the hon. and gallant Member for Bournemouh (Sir H. Croft) rose and said, "There would be an ideal Conservative Chancellor of the Exchequer." I hope it will not be my fate, when I resume my seat, to be complimented by the Conservative leaders upon having propounded a sound Conservative political policy. My hon. Friend the Member for Dumbarton Burghs (Mr. Kirkwood) assures me that if I dare to evoke such sympathy my days as a member of the Clyde group are numbered.

During the past two days we have heard a great deal about financiers, capitalists, investors and bankers, about loans, conversions, and all the other daily transactions of the class composing those people, but we have heard very little about a section of the British population called the working class. It may be necessary to remind the Committee that, in spite of all that has happened during the past 12 months, the working class of this country still exist. Numerically they are the largest section of the community, and, in the view of the Members on these benches, they are the most important section of the community. The hon. and gallant Member for Bournemouth has reminded us, in part, of the conditions under which they live. For a period of five or six years one million of them have been deprived of an opportunity of earning by their own toil their daily bread. With that fact staring us in the face, it is amazing to find hon. Members on the other side, including the hon. Member for Ilford (Sir F. Wise), rising to tell us that the great remedy for our present difficulties is more production. He makes that statement while defending a system which for six years has prevented one million willing workers from joining in production. The system seems to baffle even its own defenders. I want to remind the Committee that these million people are not merely deprived of the ordinary opportunity of producing the means of life for themselves and their dependants, but that they are compelled, through no fault of their own, to exist in the most degrading conditions.

It is also worth while to remind the Committee that the working class of this country are not to-day content with the standard of living which is provided. We participate in this discussion in the belief that there is something of the nature of stability in society, and that we can build on the existing foundations; but when I remind hon. Members that the majority of the people are members of the working class, and that every day they are becoming more enlightened and more idealistic, that every day they are demanding a higher standard of living and a greater opportunity for enjoying the ordinary comforts of life, it must be clear, if society is to be stabilised at all, that we cannot go on without taking into consideration, not a reduction in the standard of living of these people, but a substantial improvement.

I admit that the Chancellor of the Exchequer and the Financial Secretary made brief references to the working class in their speeches. The Chancellor seemed to regard the workers as the enemies of Britain, not the people of Britain. He told us they were the villians of the play, that they were responsible for all that happened in 1926, and that but for them we would not have had the deficit we are discussing to-day. But for the wicked miners we would have a land flowing with milk and honey, and we would have been able to point to-day to the Chancellor of the Exchequer and the party opposite as the people who had emancipated our country from its industrial difficulties. I hope the party opposite have not forgotten that in 1926 the miners were not the attacking party but the attacked, and that the attack had the support of the influence and the legislative efforts of His Majesty's Government; in every possible way in which they could legitimately lend aid to the employing class, who attacked the miners, aid was forthcoming from them.


I must remind the right hon. Gentleman that I stopped the last speaker when he attempted to develop his argument on those lines.


I merely want to make this point, and I think you will admit that it is in order. We are dealing with a deficit of £36,000,000. The purpose of this Budget is to balance that loss of revenue. I am submitting that the person largely responsible for the deficit was the Chancellor of the Exchequer himself, because during the industrial trouble there was no more enthusiastic supporter of the policy of a fight to a finish than the right hon. Gentleman who is responsible for our finances. I do not think I am going too far in saying that he regarded all the money that was being spent last year as credits in the class war, and that he granted those credits just as cheerfully as he would grant credits in support of a war with a foreign Power. The right hon. Gentleman undoubtedly believes it is easier to deal with a deficit of £36,000,000 than with an independent working class. I have no doubt, also, that if we knew his mind to-day we should know that he feels he had value for his money, that the £36,000,000 had been very well spent.

I can understand the right hon. Gentleman's attitude towards the working class, but for the life of me I cannot understand the attitude of mind he reveals towards British industry in dealing with the financial situation which confronts us. He is, in my opinion, in this Budget, unknowingly dealing one of the heaviest blows to British industry that it is possible to imagine. The right hon. Gentleman the Member for Hillhead (Sir R. Horne), when addressing the Committee this afternoon, asked, "Could anyone imagine a time when British industry more needed to be nursed than now?" I agree with the right hon. Gentleman. During the nineteenth century we could afford to leave the means of life of the British people in the unaided, unorganised, uncontrolled hands of private producers and traders but, as was said with regard to another question a few days ago, we are now living in the twentieth century, and no party believes to-day that unaided, uncontrolled competition is a safe system of society for a country such as ours.

Every party in this House is rapidly repudiating the competitive system. On our side, we believe in our Socialism. Hon. Members on the opposite side submit Imperial preference as a means of national or Imperial organisation. The members of the Liberal party are putting forward a land policy which is quite in conflict with the earlier views of the party. Every single section of the House now recognises the need of the State organising and aiding British industry, in one way or another, if British industry is to survive. What does the right hon. Gentleman do? He comes along and applies what he calls an axe, a very appropriate term for an instrument of destruction to even the flimsy framework of national machinery which conditions compelled us to erect during the past few years to support national industry. We had to establish a Ministry of mines, a Ministry of Transport, and an Overseas Trade Department. Does anyone believe there is no necessity to-day for national control and regulation of the mines. A Royal Commission reported unanimously that, whatever may be said in support of the present methods of production, they have not given us nationally the maximum of efficiency. They went further, and reported that the maximum of efficiency cannot be hoped for under an uncontrolled, unregulated, competitive system. In various ways they have suggested the necessity of bringing in the State in order to help us to work our coal supplies to the greatest advantage.

7.0. p.m.

We have read in the Press only this week that we are on the eve of a new coal crisis, due to world under-consumption or over-production of coal. Whatever may be said for coalowners and coal merchants, can anyone believe that any one of them can represent the nation in a crisis in which all the coal-producing countries of the world are involved? Is it not to-day more essential than ever that the nation as a nation should have the means, and should be alive to the necessity of using the means, of preserving the national interest in the critical period through which world industry is passing? The Ministry of Mines existed primarily and mainly for that purpose. I agree that it has not been perfect, that it has not been used energetically, or even in the direction we would have desired it to be used. But there was the machinery for the beginnings of a national structure, the beginnings of a structure which every observer, irrespective of party, must admit to be essential if our industries are to be saved. The right hon. Gentleman, strange to say, with the support of the Conservative party, and with the support of industrialists who understand British industry as he does not, support him in the policy merely because it gives effect momentarily to the principles of competition and lack of Government control to which they give a theoretic support. They give support to a policy which, if it were proposed to be adopted in a national voluntary industrial organisation, would find the proposer driven from office within 24 hours. The nation requires more than ever to preserve our people in the competitive system in which we unfortunately find ourselves, and the action the Government are proposing to-day is one destined to have deep and lasting evil effects upon the coal industry of this country.

The same might be said about the other Departments. Reference was made to overseas trade. We all know that, as a result of the competitive system of the nineteenth century and as a result largely of the policy of the Liberal party, this country is almost entirely dependent on foreigners for its food supplies. Everyone knows that the food supply of this country is the real raw material of every industry. Look at the position of this country to-day. When we are faced with rivals in the world markets to an extent which was never contemplated in the nineteenth century, we find our food supplies controlled by those rivals. We may wake any morning and find that a well-organised capitalist country like America, which to a large extent controls our food supplies, may increase the price of those foodstuffs to an extent which will make it quite impossible for us to compete with the products of our labour with those of the Americans in the neutral markets of the world. We have set up a Department to look after our food supplies and our overseas trade. It was not costing very much and not doing very much, but the machinery was there ready to be used, and in the hands of a Government which realised its need and importance it would have been one of the most important Departments of State. The right hon. Gentleman himself, not understanding what he is doing, comes along and, in the interest of what he calls economy, demolishes one of our most valuable national structures.

I might go on and apply the same to the Ministry of Transport, but from behind the Chancellor to-day we had a very efficient and comprehensive criticism of the folly of the Government's action in abolishing the Ministry of Transport. What is the reason or excuse given to the House for all this mad political policy? It is that there is need for economy, and speaker after speaker has tried to impress us with the view that this is a very poor and struggling country, that it cannot afford national machinery, and can certainly not afford to do any more for its workers than it is doing at present. There was never such utter nonsense preached to an intelligent audience. This is not a poor country; this is one of the richest countries in the world, and this is one of the richest years in its history. There is wealth flowing in this country as it never did before. Turn to the Report presented by the Inland Revenue Commissioners and you will find that, in the last financial year for which they can present an Estimate, 97,000 persons took £558,000,000—something approaching this terrible figure that has shocked you when presented in the Annual Budget. Ninety-seven thousand persons! That is just about the same number of persons that are registered as unemployed in the City of Glasgow alone. How can you, in face of these figures, suggest that there is anything like poverty in this country?

We on this side of the House in all sections—if you call us sections—agree with you in one thing. If by economy you mean the elimination of waste and extravagance in administration, then we are with you up to the hilt. I do not believe you have any waste. I had a brief experience at the head of a Department, and I have some little business knowledge, and am quite sure that in that Department everything possible is being done to run it on economic lines. I do not believe there is a Government Department in the country in which there is anything in the nature of waste and extravagance to-day. The waste and extravagance is not in the Government Departments at all; the waste and extravagance is where that £558,000,000 is going. If by economy you mean the elimination of waste, then we are with you to the last possible penny. But I do not think that is what the party opposite mean by economy at all. They mean that you should cut down the national needs so as not to encroach on their purses. They mean that the 97,000 people, who get the £558,000,000 per annum, cannot afford to pay the little taxation that is necessary to maintain the national industrial organisation which is being destroyed by the proposals of the Chancellor of the Exchequer. They mean that they cannot afford to give to the working class of this country a decent standard of life. I do not believe that the country is so poor that it cannot afford either of these things. It would be good, sound national economy to spend money on these Government Departments if you could make them more efficient, and to spend more of your national income and of your national revenue in raising the standard of life of your working-class people. I believe that would be sound economy, and on that line of economy we are prepared to go.

I do not know for whom I speak on this side when I say that I do not think that £833,000,000 represents the highest sum that will ever be demanded from the taxpayers of this country. Just think of the position with regard to those 97,000 people. You could leave them £2,000 a year, or £40 a week, and still have £364,000,000 liable for taxation. If the country be as poor as hon. Members opposite would invite us to believe, I submit that it is not asking too much of the patriotic families in this country that they should struggle along into the coming period of prosperity on a paltry £40 a week. The right hon. Member for Hillhead told us to-day, in the course of his speech, that we could not afford the Widows' Pensions Act. The man who says that would be one of the first to rise in this House and say that it was impossible for the 97,000 families, represented by the 97,000 Super-taxpayers of this country, to get along on £40 a week. I know the economic argument that is used by the party opposite, that the more you take out of the super-incomes the more you handicap industry through a shortage of capital. That is sheer foolishness. My hon. Friends use a stronger expression than I would dare to put into the OFFICIAL REPORT, but I do say that it is an argument that to-day cannot be maintained in a decent discussion.

If I may revert again for the purposes of illustration to the nineteenth century, whatever we may say about the competitive system of that century, it can be claimed for it that there was a great need in the national interest of a large proportion of the national income going into capital for reproductive purposes. We would say that that portion of the capital should have been publicly retained, publicly owned, and publicly used for the public benefit; the party opposite would say it was better to have it privately owned and used for private enterprise. That is a point I do not desire to discuss. The point I wish to make to the House is that, whether it was to be publicly owned or privately owned, it was important during the nineteenth century, when the country was being developed, that a certain proportion—and a substantial proportion—of the national income should go into capital for industrial purposes. We have travelled into fresh conditions. There is no outlet to-day in the development of this country for the capital expenditure incurred during the nineteenth century. When hon. Members opposite get to understand the unemployment problem, they will see that one of the great outlets for goods in days gone by was in this very national development, in the laying down of our railways, the erection of our docks, the development of our towns and cities, the building of our mills, the construction and erection of machinery for all branches of our industries. Just imagine the glorious prospect of employment there would be to-day if we were now dealing with a country that had to be developed as this country had to be developed in the early part of the nineteenth century. But all that outlet for goods is closed, and the same need for the national income going into capital does not exist. It is because it does not exist that you have these huge offers of capital at every opportunity when capital is invited.

The proper national course to-day is to divert that which was going into capital in the nineteenth century into the purchasing power of the common people in the twentieth century. There is the only possible relief for what you term overproduction. Is it a sensible or a creditable state of affairs that you should have in Lancashire and elsewhere organisations for the express purpose of curtailing output? Is that a sensible national course? Remember how you used to blame the workers for the ca'canny policy. Here you have the employers in the textile trade of Lancashire compelled for self-preservation to curtail production. Is not that a stupid state of affairs? Would it not be better to use your national resources and national organisation to develop a fresh market, seeing that the market that existed during the period of development is closed? The market is at your door, and you are not going to get a market by fastening your eyes on the ends of the earth. You do not get a market for your goods in foreign countries—you only exchange goods there. You will have to get a greater consumption of goods if British industry is to bound forward, as it is ready to do given a reasonable opportunity. You cannot produce or import goods at a greater rate than the people of this country can buy them. Your imports are determined by the purchasing power of your people, and that is the governing factor in British industry and trade to-day. Instead of denouncing the working class for daring to protest against the low standard of life to which they are condemned, here is an opportunity for an intelligent Government, and for a capitalist Government, to use all its national influence and national power in order to raise the purchasing power of the 70 per cent. of the people who to-day have unsatisfied wants. You may tremble to-day at a Budget amounting to £833,000,000, but you are confronted with a new situation. The people who are suffering, and whose emancipation is absolutely essential to the survival of the State, understand the cause of their social conditions, and they will return a party to this House that will make much greater demands on the super-incomes of this country than are being made to-day. If I am any judge of the movement of which I am a member and the ideals and dreams of the people I represent, the Labour Government of the future will be compelled by the forces behind it in the country to produce a Chancellor who will be a menace to the power, the privileges and the incomes of those who live to-day in a parasitical manner on the industries of this country.


I am not going to follow the right hon. Gentleman who has just sat down in the fantastic suggestions which he has made to the Committee, and I will leave what he has described as "sound economy" to the judgment of Members in all parts of the House. I am going to speak on rather a dull subject, although it is one which touches us all very intimately—I refer to the Income Tax. I should like at the very beginning to congratulate the Chancellor of the Exchequer upon his far-reaching proposals in regard to simplification based upon an alteration in the method of assessing Schedule E. In the view of certain hon. Members of the party opposite, particularly the right hon. Gentleman the Member for Central Edinburgh (Mr. W. Graham), who addressed the House in such an interesting speech earlier this afternoon, the Chancellor of the Exchequer has gone entirely contrary to the doctrines preached by the Royal Commission which dealt with the question of the Income Tax some few years ago. It has been my rather thankless and monotonous duty during each year that I have been a Member of this honourable House to place upon the Paper an Amendment to the effect that Schedule E of the Income Tax should be assessed on the same principle as Schedule D. On some occasions the Chairman of Committees has ruled that Amendment out of Order on the ground that it might impose a charge on certain members of the public. On two occasions, however, thanks to terminological ingenuity, an Amendment to this effect has managed to pass the eye of the Chairman, and some discussion has taken place upon it. On each occasion I was very severely lectured by the right hon. Gentleman the Member for Central Edinburgh, and I think also by my right hon. Friend the Financial Secretary to the Treasury, for suggesting something which was contrary to the opinions expressed by the Royal Commission on Income Tax.

I am afraid that my right hon. Friend the Member for Central Edinburgh must have received a very severe shock when he heard the Chancellor of the Exchequer announce that he was going to perform this terrible act of heresy when he introduced the Finance Bill. The right hon. Gentleman must know very well that any simplification of Income Tax is almost entirely impossible until that anomaly in respect of Schedule E has been removed, and I feel certain that the right hon. Gentleman will somewhat recover from his shock and surprise when he realises how grateful the Income Taxpayers of this country will be for the reform which the Chancellor of the Ex-chequer proposes to put into effect. Let me also tell the right hon. Gentleman that every tax officer in the country will rejoice over the one Chancellor that repenteth. The Chancellor of the Exchequer has indicated what the development of this simplification is to be. Next year we are to have one return of Income Tax and Surtax, and one assessment of Income Tax and Surtax on the same income. Both these reforms have been long desired by the taxpayers, and I know they will be accepted with the greatest gratification.

The following year we are to have still further developments of even more importance, because there are to be combined progressive rates of Income Tax and Surtax, one presentation of combined assessments to taxpayers with more than one source of income, one demand for payment, and one place at which payment may be made. All these reforms will not cost the country anything, in fact I can see in them a considerable measure of economy. At any rate, they will bring home to the taxpayers of the country that the Chancellor of the Exchequer has made a very great endeavour with the help of his official advisers to devise a scheme which will simplify very considerably the payment of Income Tax in the future. May I say on behalf of my hon. Friends around me that we are very proud that this method of simplification has been brought about by a Conservative Chancellor of the Exchequer. I was considerably relieved to hear the Chancellor of the Exchequer state that these reforms and simplifications would not involve any encroachment upon the rights and duties of those protective representatives of the taxpayer, the General Commissioners and their officers. Otherwise I am inclined to think that the whole system of simplification would not have been received with that sense of satisfaction that undoubtedly prevails throughout the country to-day.

I do not think that under our present system of taxation any simplification could be carried much further than what the Chancellor proposes, but I would like to call his attention to one other reform which is a natural sequence, in fact it is the corollary of the other reforms which have been suggested. I am inclined to think that it was probably in the Chancellor's mind when he made his Budget statement, but he omitted to make any specific mention of it. The reform I allude to is that there should be, in addition to the other proposals of simplification, one deduction of allowances. At the present time, as I have no doubt the Committee is well aware, in regard to deductions for allowances, if a taxpayer has more than one source of income, and if any one of these sources is not enough to cover the allowances, they have to be spread in various forms over all his various assessments. That necessitates an enormous amount of trouble to the taxpayer, and a considerable amount of correspondence between the various inspectors and districts where the income arises, for the purpose, obviously, of preventing any excessive deduction of allowances. If all that could be avoided, it would be a very valuable addition to what the Chancellor of the Exchequer has already mentioned, because then all allowances would be deducted from the one return of income which is to be made to the centre selected by the taxpayer. I should be obliged if the Secretary to the Treasury will call the Chancellor's attention to this point.

We have been told that progress in these matters must be gradual. I do not entirely agree with that, because the whole of this scheme of simplification is very much interwoven one part with the other, and one part depends almost entirely upon the other parts. I am quite aware that a, great deal of time must be given to the working out of these various suggestions and a great many adjustments in organisation and procedure must be effected. I am going to suggest to the Chancellor that he should withdraw those parts of the scheme which depend on the other parts he has promised to introduce next year, and that he should introduce a supplementary Finance Bill in the Autumn containing the terms of the complete scheme and then we should get the full effect of the whole scheme next year. I suggest that as this is a matter which would be entirely non-contentious. Obviously, as the whole scheme of simplification is desired by all sections of the House, the Parliamentary time taken in putting through a Bill containing the whole scheme after it has been thoroughly thought out, and which depends so largely one part on the other would be very little indeed. It might even be an advantage to those who have to work out the details of the scheme to put forward their proposals as a whole in six months' time rather than put some part before the House in the present finance year, and deal with the other part afterwards. Other things connected with Income Tax and Sur-tax were mentioned in the Financial Statement, about which I should like to speak, but I do not propose to do so to-day, as I think it is always wise in these matters to wait until you see the actual terms of the suggestions laid down in print in the Finance Bill itself. Many of these things were referred to very shortly in general terms by the Chancellor in the course of his Budget statement, and one might possibly get a wrong impression of what is intended. Therefore, I think, if I may say so, the House will be wise to reserve its consideration of the actual working of the various suggestions until they are in print in the Finance Bill.


I do not propose to follow the hon. Member for Guildford (Sir H. Buckingham) in the criticisms he has made with regard to the Finance Bill. I commend his wisdom in not attempting to reply to my right hon. Friend the Member for Shettleston (Mr. Wheatley), because, to my mind, the questions raised by my right hon. Friend were germane from the point of view of the whole of the people of this country at the present time. I have listened to most of the speeches on the present Budget, and I have noticed that, in the main, they have been of very much the same character as others that I remember during the five years that I have been a Member of the House. We have had pleas for economy ad nauseam. Every Budget that is brought in is accompanied by pleas for economy, and these are always put forward on the ground that, if certain economies are made, we may look forward in the immediate future to a revival of our trade and industry, and the wiping off of the deplorable unemployment that exists.

The Chancellor of the Exchequer, in his opening statement, did what it was anticipated he would do—he proceeded to put the blame for his financial troubles upon the policies of the trade union and labour movement in April of last year. I think he should go further back than that.

The troubles of April, 1926—the general strike and the stoppage of the mines that followed it—did not originate in 1926; they went infinitely deeper than that. They had their origin in the policies which the financiers have pursued in this country from 1920 onwards. The right hon. Gentleman the Member for Burton (Colonel Gretton) described this Budget as a financiers' Budget. Most of the Budgets that I remember in this House have been financiers' Budgets. It was the financiers who first began the policy of deflation; it was the financiers who began the policy of all-round reduction of wages—a reduction, as has already been pointed out by my right hon. Friend the Member for Central Edinburgh (Mr. W. Graham), equal to anything from £700,000,000 to £900,000,000 in the wages of the working classes of this country. These reductions were demanded in order that we might compete with our foreign competitors, in order that we might deal with the problem of unemployment, in order that we might begin the reconstruction of our trade. But every reduction of wages that has been urged by the financiers, and accepted by either Coalition or Conservative Governments, has been followed by a further decrease of employment and an accentuation of the poverty and misery of the vast mass of our people. Then we have had demands for a reduction in Income Tax. That was going to set the wheels of industry revolving once more. But all of these reductions in wages, all of the economies that have been called for, have failed to bring about the results that their progenitors declared they would bring about.

We have the same demand for economies now. The right hon. Gentleman the Member for Hillhead (Sir R. Horne) wants more economy. The nation cannot stand this Budget of £834,000,000. It is too big; the burden is too great. Since the War, I suppose we have paid nearly £3,000,000,000 in interest alone on National Debt that never ought to have been contracted, that to a large extent might have been avoided had it not been for the financial policy pursued by the Coalition Governments from the outbreak of War onwards. The nation has staggered along under that burden, and we are asked for another £300,000,000 this year. That seems to be a burden that no one questions—no one says we cannot stand that. We cannot stand a Mines Department; we cannot stagger along under the burden of a Department of Overseas Trade; but no one on the benches opposite has ever suggested that we cannot or ought not to consent to stagger along under this intolerable burden of interest on National Debt. No one seems to have any idea as to how it is to be redeemed; and because of that the right hon. Gentleman tells us we cannot afford widows' pensions. I suppose that that is where economy will begin, as far as the right hon. Gentleman is concerned. When the widow is required for other purposes, she can be invoked easily enough. When she is required to bolster up some particularly rotten proposition, the widow in a back street can be made to serve a very useful purpose; but, when the widow in a back street dares to ask for a pension, we are told by the right hon. Gentleman the Member for Hillhead that that is what the country cannot afford. Of course, the right hon. Gentleman believes in the principle, but not now; he thinks we ought not to go in for this now.

I say that the policies pursued by the Governments in succession brought about the stoppage of 1926. That was added to by the policy pursued by the Chancellor of the Exchequer himself when he restored the gold standard, which has contributed to bringing about the collapse that we see at the present time. Our home market has been destroyed; we have still 1,000,000 unemployed; we have still a most appalling degree of poverty; we have still most appalling conditions of unemployment and overcrowding in our large centres of industry; and, so far as one can see, the Government seems absolutely helpless to deal with these profound problems. It seems to me that if, instead of considering how we can economise, we had used the powers we possess, we ought to have been considering how to dispose of our surpluses. If our resources were wisely directed and used, we ought to have huge surpluses instead of huge deficits. It has been stated that in this country alone we have four horse-power per head of the population. Under our present method of organisation, our present system of wealth production, we are using roughly only one-twelfth of the power we possess in wealth production. We have progressed thus far that now, in 1927, the hours of labour of our artisans are exactly what they were in 1455. Last year, the Conservative Government brought in an Eight Hours Bill for miners—


This surely is rather remote from the present financial position.


I was trying to point out some of the causes of the deficit we are discussing, and to give reasons why there ought to be no deficit if we had used wisely the resources at our disposal. Sir Josiah Stamp, a little while ago, told us that we were in the Stone Age of economics, and when I consider the economics of the Budget, and the economics that are talked in this House from time to time, I am inclined to agree that he is absolutely right. Whatever one may say about the manner in which the right hon. Gentleman presented his Budget—and I rather admired his adroitness, and the cleverness with which he kept the thing going; it was a marvellous piece of jugglery; he kept the balls in the air remarkably well—after all, it does come back to this, that, in so far as he proposes permanent taxation at all, it comes on to the working classes. The other items are more or less of a temporary and passing character. The tax on tobacco, of course, is going to be paid by the working classes. The Financial Secretary shakes his head, but I feel quite certain that it will come round there, because I cannot conceive that the philanthropic gentlemen who run the huge tobacco trusts are going to accept a reduction of their profits to the extent that the Chancellor of the Exchequer proposes; they will pass on the tax as far as they possibly can. That is the method of commerce; it is the usually accepted practice of business to get the most that you possibly can. Then there is an increased tax on matches, and I suppose that generally speaking, so far as it is possible, that will be recovered from the working classes by those who control the supply. They will most certainly pass on any tax that is imposed.

My right hon. Friend the Member for Shettleston spoke of the remarkable situation that confronts us in regard to unemployment. It would seem to me that, instead of the Chancellor of the Exchequer destroying the hope of finding employment out of the Road Fund, he should have done his level best to increase the amount of money that could have been spent on remunerative work of that description. I hold the opinion, which I think was expressed by the Prime Minister himself, that the position with regard to unemployment has become endemic, that 1,000,000 is about the normal number of unemployed; and there is this to be said, that there can be even a vast improvement in trade and yet no diminuition of unemployment, because at the present moment so much short time is being worked that great numbers of men can be put on full time, and the volume of output can be increased, while the number of unemployed remains practically where it is.

As my right hon. Friend pointed out in Lancashire the cotton trade is working 24 hours per week—a most remarkable state of affairs. Cotton goods are wanted in vast bulk, and while cotton goods are required, Lancashire works short time, and the effect of that upon the cotton-growing industry is that the American cotton-growers propose to burn cotton. We have more than once had to back the Government's proposals for subsidies for the growing of cotton, or the erection of engineering works in Egypt for the growing of cotton, and we are told Egypt is producing too much cotton as well. That is the situation we find ourselves confronted with, and instead of curtailing the purchasing power of the mass of the people it should be our bounden duty as far as possible to increase it by all the means at our disposal. It is not going to be done by pursuing the policy put forward by the Government. I believe if the Government began to curtail the powers of the financiers rather than bending to their will and carrying out their desires, we might stand some chance of doing something to retrieve our deplorable condition. But so far as the speeches we have heard from the Government Benches are concerned, and so far as the Budget is concerned, there seems little hope that there can be any real change in the condition of the great mass of the people. Instead of considering the present Budget as excessive, the time will come when a succeeding Chancellor of the Exchequer will bring in a very much larger one, and its increased size will redound to the interest of the country because its expenditure will be of a remunerative character in contrast with our present wasteful expenditure. We have to bring about a reduction in the large amount spent on interest. We have to reduce the amount spent in the unproductive channels of military expenditure.

Wealth does not rain down from the skies. People talk about Income Tax and Super-tax as though there is a providential tap somewhere. It all comes out of the total annual production of the country. It is produced by the labour of the working people, and they always get the dirty end of the stick. The time will come when a Labour Chancellor will propose a Budget far larger than this, which will have for its purpose to return to those who are in extreme want some of the wealth that is dissipated by Supertax payers, and to increase the purchasing power of the people at the end where purchasing power is most required and, by increasing their purchasing power, increase the employment available for the people of their own class by supplying the needs of their own class.


I hope the hon. Gentleman who has just spoken will not consider me guilty of any discourtesy if I do not follow him into the various topics he has raised, nor discuss with him whether the Chancellor of the Exchequer is a conjurer or a juggler. No doubt that is a matter with which the Financial Secretary to the Treasury can deal. It is of importance to recognise that the hon. Member, together with the right hon. Gentleman the Member for Shettleston (Mr. Wheatley), foreshadowed to the country that this very heavy expenditure, and the enormous Budget with which we are dealing, are going to be as nothing when a Labour Government comes into office, and we must therefore thank him for that amount of ammunition, which we shall not forget when we discuss these matters with our constituents. I want to deal with the action of the Chancellor in taking what he is pleased to call the surplus from the Road Fund. He also said it is the intention of the Prime Minister to abolish the Ministry of Transport. I hope I shall not be considered out of order if, as Chairman of the County Councils' Association, I pay a passing tribute to the Minister of Transport and to Sir Henry Maybury and all the other officials connected with the Ministry for their invariable courtesy towards our association. It is impossible to exaggerate the courtesy and consideration we have always met in all matters in which we have had to deal with the Ministry. I take it it will be equally out of order to discuss what the future of that Ministry is going to be.

The CHAIRMAN (Mr. James Hope)

I have the unusual pleasure of telling the hon. Gentleman that his scruples are unfounded on this occasion. He can go on.


I am not going to take advantage of your courtesy in allowing me to go on when I thought I was out of order. I was only going to say I trust, in future arrangements dealing with roads, the Advisory Committee established by Section 22 of the Ministry of Transport Act may be allowed to continue and we shall not go back to the extremely haphazard method in which grants in past times used to be given by the Treasury for roads. I was extremely disappointed in listening to the speech of the right hon. Gentleman the Member for Carnarvon Boroughs (Mr. Lloyd George). He sent round to the County Councils Association yesterday for information and figures, and we gave him a very large amount of ammunition of which we trusted he would pour broadsides into the Treasury Bench. He quoted our annual report but I am grievously disappointed at the use he made of the figures with which we supplied him. That makes it necessary for me to ask the Committee to bear with me while I prove that, so far from there being any surplus of the Road Fund, there is actually a, deficit, and I think I can prove it by figures which are perfectly clear and straightforward. Expenditure on our roads has gone up by leaps and bounds within the last 20 years. When our county councils were first established in 1889 the cost was roughly £2,125,000. In 1924, the last year for which figures are available, it came to no less than £41,393,000. The problem before us is one of entire reconstruction of roads, and it is obviously impossible to effect that reconstruction out of revenue. May I give one example? Let us take Essex, which has a large amount of traffic, and no one can say Essex is other than an extremely progressive county. They are unable at present to do more than 10 per cent. of the reconstruction of their roads, and all the rest of the roads have consequently to be patched up. There is nothing in the world so uneconomic as the patching-up of roads. The only way you can hope to get your roads in a good condition is by entirely reconstructing them, and then the necessity for patching them up comes at much longer intervals than at present.

I said a moment ago I would try to put before the Committee reasons to show why there is no surplus at all. The liabilities on the Fund on 31st March last year exceeded the balance by no less than £10,700,000, and if we take into consideration the transfer last year of £7,000,000 when the fund was raided to that extent, and on the assumption that the Road Fund has got to bear the liabilities of the Unemployment Grants Committee, which are about £800,000 a year, there is actually a deficiency of no less than £17,661,000. Those are figures upon which there can be no dispute, and it is very difficult to understand how you can talk about a surplus of £12,000,000 being taken from the fund. Every one of the commitments of the Road Fund has been sanctioned and approved by the Ministry. They are not commitments entered into lightly or inconsiderately by county councils. They are definite and unbreakable contracts which the highways authorities, with the sanction of the Ministry, have entered into to the extent of £30,174,000. How can it be suggested, when you have those contracts which you cannot get away from, which under the Transport Act have been sanctioned by the Ministry for £30,000,000, that there is a surplus of £12,000,000, which may be devoted to purposes other than that for which it was originally intended, namely the repair of our roads?

8.0 p.m.

Again, let me ask my right hon. Friend what is proposed to be done with regard to the grants for upkeep and maintenance? We get grants for our first-class roads of 50 per cent., and for our second-class roads of 25 per cent., a very proper and reasonable method of doing it. I cannot do other than remember that when I was responsible for the finances of my county council in the North Riding it used to be a regular scrimmage how we could get any grants out of the Treasury. It was at the time when the right hon. Gentleman the Member for Carnarvon Boroughs was at the Treasury, and one saw gallant little Wales taking what we considered an undue proportion of the grants. To-day it is put on a clear, intelligible and definite basis. The roads are classified into first and second. We have already gone to the authorities and told them we must have an increase of these grants and only the other day we represented that we were entitled to demand, on account of the cost we were being put to, that the grants should be increased from 50 per cent. for first-class roads to 75 per cent., and on second-class roads from 25 per cent. to 33⅓ per cent. When the county councils took over the main roads under the Local Government Act it was decided that one half of the maintenance was to be paid for out of the national Exchequer and the other half by the ratepayers. To-day the proportion is about one-third, instead of, as it should be, one-half. I do not want to deal further with the unclassified roads, but that is a matter which is extremely pressing. Our rural roads to-day have to bear this enormous amount of traffic, for which they were never constructed and which they can-not possibly sustain. It is extremely unfair on the rural district councils, who have charge of the unclassified roads, that they should not be given the in-creased grants which, time after time, they have demanded. There are many roads in the rural areas which have been put into better order and, therefore, ought to be classified and placed in the second class. I will not take up time in discussing what should be done to the rural roads which belong to the rural district councils, except to say that it will be a very grave injustice indeed if something is not done by largely in-creasing these grants. I do not plead here—and I can speak on the authority of the county councils—for what are known as luxury roads. We passed a resolution to the effect that we thought that the roads that should first of all receive the attention of the authorities were the existing roads. A road like that which is being built between Glasgow and Edinburgh is wholly unnecessary at present. Stop these luxury roads by all means, if you like; I am only pleading for something to be done for the existing roads, which have to bear the traffic.

I want, in conclusion, to utter a word of warning to my right hon. Friend the Financial Secretary to the Treasury and to the Chancellor of the Exchequer. The motorists of this country have, with exceedingly good grace, accepted the position of being singled out for special taxation. Unless they get what they believe to be a very fair dividend in return in the shape of improved and reconstructed roads, they will turn round shortly and public opinion will be against this tax being put on at all. That would be a very grave misfortune indeed, but there would be a good deal to be said by those who have to pay this extremely heavy tax. They would be able, quite fairly, to compare their position, in a light two-seater motor car, with a brewer's dray that goes along the roads, or a miller's wagon drawn, perhaps, by three horses; or, worse than all on our roads, with a big wood wagon, drawn by three horses which, when going down a hill, puts on an iron skid. That does damage to our roads to the extent of thousands of pounds. There will be a real grievance on the part of those who have to pay this heavy licence if they see than those vehicles, which unquestionably are doing big damage, are let off. For the moment they are quiescent, but I suggest to the right hon. Gentleman that he will not be wise to put up the backs of motorists and to allow them to draw this very reasonable comparison, when they do comparatively little damage compared with those who pay no taxes at all and do a great deal more injury to the roads, especially in the rural districts.

I agree with the right hon. Member for Colne Valley (Mr. Snowden) that if you stop supplies to the highway authorities who are responsible for the roads, one of two things may easily happen. The first is that we may not be able to repair the roads if they get into potholes, and then there will be a. great deal of trouble. The other, which was quite fairly put forward by the right hon. Gentleman, is that the ratepayers will be called on to bear the burden. I believe that the ratepayers are not prepared to shoulder any further burdens of carrying out road improvements and road reconstruction. They have now, quite rightly, got to look to the Road Fund for doing the necessary repairs, and to those repairs being paid for out of the motor taxes. Therefore, if our activities are stopped, if you prevent us from going forward, and if you take away the money which rightly belongs to the country authorities for repairing the roads, there will be a very strong revolt on the part of the ratepayers. Those of us who have to carry out their behests—and, after all, we are only the servants of the ratepayers—will find it exceedingly difficult to keep up the present standard of the roads. To-day, the roads are the pride of everybody, they are the best roads in the world; and I only hope that during the ensuing discussions sufficient pressure may be brought to bear on the Chancellor of the Exchequer to show him that it is not a wise policy on his part to take the surplus of £12,000,000 which is being spent so wisely and well by the rural authorities.


The Chancellor of the Exchequer has been very generally congratulated on the audacity of his Budget. I think that congratulation was well justified for there could be nothing more audacious than his claim to be a stern, rigid economist, who is prepared to face temporary unpopularity in order that he might do justice by the Sinking Fund. The £32,000,000 which he obtains towards his deficit is money which is taken from the reserves of the national balance sheet. Of that, £12,000,000 was definitely stated to be a reserve, and the other £20,000,000 can properly be called secret or hidden reserves. The £5,000,000 from the brewers' credits was a secret reserve, as was also the £15,000,000 from Schedule A. There is nothing at all virtuous in paying a proper quota to the Sinking Fund unless you are going to pay it out of current expenditure. To do it in a way which the Chancellor of the Exchequer has done, is merely to make a bookkeeping entry, and there is no reason whatever why the right hon. Gentleman should preen himself on his virtue in carrying out a bookkeeping transaction of that kind. The hon. Member who has just sat down referred to the fact that an hon. Friend of mine, in the course of his speech, had given warning that a future Labour Government might find it necessary to expend even a great deal more money than is contained in the figures of the present Budget. The hon. Member expressed concern about that, and said that they must see to it that the electors had their attention drawn to that fact. I do not know what view of economy obtains on the other side of the Committee, but our view of economy is, not so much to corsider the amount of money which is being spent, as whether it is being spent wisely or not. We think that we ought to differentiate between real and false economy. That is the issue between us on this particular Budget.

Hon. Members opposite want to economise on our social services. The right hon. Member for Hillhead (Sir R. Horne) actually had the audacity to suggest that we ought not to have embarked on the widows' and orphans' pensions scheme. The right hon. Gentleman gave that one illustration, but I know that he was only reflecting a general attitude of mind which prevails in the Conservative party that far too much money is being spent on the social services of this country, and that that money has to be cut down. I can say, quite accurately, that there is a very definite and decisive view among the Labour party that, so far from the present amount of money spent on social services being sufficient, a great deal more will have to be expended in that direction in future. The mere avoidance of the spending of money is not, in itself, economy. You may avoid spending money, and, by doing that, so far from practising economy, you may be guilty of something in the nature of criminal waste. We have items of social expenditure like education, the health services and housing. On this side of the House we contend that money which is spent on the education of the children of the people, in maintaining the health of the great mass of the workers of the country, and in providing adequate housing for the people—they have not got anything like that adequate housing now—is well spent, and cannot be called, in any sense, extravagance. Let me give one illustration in regard to education. At the present time, this process is going on. Our boys and girls are being taken away from the schools at the age of 14. They are put into the labour market, and, as a result, are constantly displacing boys and girls of 16 years of age. In the conditions which obtain at present, a large percentage of those displaced boys and girls become unemployed, and remain unemployed for a considerable period. We hold that that is undesirable and uneconomical, and that it would be sound economy for the Chancellor of the Exchequer to provide sufficient money, by way of maintenance, in order to keep those boys and girls of 14 at school until they reach 16, and thus to avoid to a very considerable extent causing the older lads and girls to become unemployed.

I merely give that illustration to try to define what I mean by real economy as against false economy. You can actually increase the amount of your expenditure, and yet because of the great return you get from that expenditure you can be, in fact, practising economy. When we come to consider what is really wasteful in our national expenditure, then we get to grips. What we regard as wasteful, and what hon. Members opposite will not regard as wasteful, in spite of their desire to keep down the Income Tax and Super-tax, is the tremendous expenditure now going on on Debt Services and on the Armed Forces. I find, thanks to the investigations of a friend of mine, that of the money now being spent by the nation, taking out what are called the beneficial expenditures like those on the Post Office and the Road Fund, out of every pound that is being raised by the country at present, no less than 14s. 5d. is being expended either on past wars or on insurance against future wars; that is, on Debt Services and on the Armed Forces of the Crown. Only a paltry 5s. 7d. is being spent on the social services of the country. Yet hon. Gentlemen opposite say that it is on that small item of social services that we have got to concentrate our attention if we are going to get economy. We hold entirely the opposite view.

That brings me to a point I want to raise about this debt burden. I want to know when the Government are seriously going to grapple with the problem of the National Debt. We are paying £305,000,000 a year, or about £1,000,000 a day for every working day, as a result of the National Debt, and it looks as if we may go on doing that for generations. There is an extraordinary strong case in equity—I am not an expert in financial matters—and I think even on economic grounds there is a case that can be made out for dealing with the National Debt burden in a much more drastic fashion than the Government propose to do. We have been imposed upon to a most unwarrantable extent by the debt burden, owing to the fluctuation of prices since the close of the War. From 1920 up to 1925 the purchasing power of money increased by 87 per cent. That means that the 5 per cent. which we were paying to the War stockholder in 1920 is now worth to him £9 7s. We are paying that additional burden and, presumably, we shall have to go on paying that additional burden. Of the total amount of money which was raised for War purposes, and which represents the great bulk of the National Debt, two-thirds was raised at a time when the money value was very much lower than it is to-day. Therefore, we are compelled as a consequence of the fluctuation of prices to pay all this unearned increment to the bondholders.

It is time that some Government grappled with this problem. The Labour party have put forward as a partial solution the idea of the Capital Levy. I understand that the Colwyn Committee, after examining that proposal, rejected it, and the Capital Levy is no longer regarded as an effective method for reducing the burden of the National Debt. If the Capital Levy is not effective, there is an obligation on the Government to get its financial advisers to work and to bring some other scheme forward which will reduce the dreadful burden of the National Debt. It is intolerable to think that the people of this country have to go on year after year, and may have to go on for a generation paying this enormous price of —1,000,000 per working day to the bondholders.

An idea came to me as a result of my reading the Colwyn Report, and it seemed to me beyond the shadow of doubt to establish the equity of our case against the National Debt. The suggestion was that if the cost of the War had been paid for by ready cash while the War was going on, or if an attempt had been made to pay for it by ready cash while the War was going on, instead of by the method of borrowing, those people who had money would have their money earmarked by the Government as belonging to the Government. There would have been no real ethical objection to that. You took the man who had the accident to be young. He had no money but he had his life, and you wanted that particular life for the national needs. You could not borrow the life, because there was no such method as loaning a life; so you took it and thought that you were justified in taking it for national needs. You might very properly, in equity, have done very much the same kind of thing with all the wealth in the country. It would not have been practicable to have taken the cash, because the banks and the manufacturers needed the cash for the purpose of carrying on the industries of the country, but you might have had a valuation made, and you might have debited to the particular individual who had the cash a debt towards the Government. Having got that clearly established, after the War was over, and as soon as practicable, you could have proceeded to collect that debt. That was not done, but on the basis of equity and sacrifice there was justification for doing that kind of thing.

The Budget is a means of reducing the inequalities of wealth in this country hon. Members opposite must admit that the great inequalities of wealth in this country to-day are indefensible, taking the top scale of society and the great mass of people who are living in poverty at the bottom. That wide gulf between the classes cannot be defended in equity, and we ought to use the Budget as a means of reducing that gap and as a means of equalising wealth as between one class of people and another. The Colwyn Report, which is a real mine of information for those who care to study the question of finance and the wealth of the country, points out this astonishing fact, that the standard of living of the working people of this country to-day is no better than it was in pre-War days. The scale of figures, as given by the Ministry of Labour shows that, if anything, the standard of living of the mass of workers to-day is worse than it was in pre-War times. In those days, the House will remember that a well-known Liberal statesmen, Sir Henry Campbell-Bannerman, said that there were 30,000,000 of people living on the verge of starvation, and yet, according to the official figures, the workers are in no better state to-day than they were before the War.

It is an astonishing fact that while the workers are in the same condition as they were pre-War in that respect, we get a preliminary report of the Census of Production which shows that in six important industries of this country the production per man employed is up in some cases three times, in some cases two and a-half times and in some cases twice the amount. Therefore, we have this extraordinary fact that man for man and woman for woman production has increased to an extraordinary extent, and yet the condition of the workers is no better today as a result of that than it was before the War. That kind of thing is indefensible, and it is time the Government started to utilise the Budget as a means for reducing these indefensible inequalities. There is another point in connection with the present burden of taxation. The working people at the present time are bearing a great deal more than their legitimate share of taxation. I get my figures again from the Colwyn Report, which shows that the £3 a week man, the man with £150 a year, on the basis of a family consisting of man, wife and three children, even before the additional indirect taxation which is to be imposed by this Budget, pays out of his paltry £3 a week 7s. 3d. a week by way of taxation; while the man a little better off, the man with £4 a week and the same size of family, pays 8s. 8d. a week in taxation. It is time that the Chancellor of the Exchequer, if he wants to do something like justice to the working people of this country, should look into these things and take from these poor people a great deal of the burden which rests upon them and impose it upon those who are much better able to bear it. This Budget is just like all the other Budgets of the Chancellor of the Exchequer. It is a Budget designed to please his friends; it is a Budget designed to protect the rich in the enjoyment of their wealth, and it is a Budget designed to keep the poor in the state of poverty in which they are to-day.


The hon. Member who has just sat down concluded his speech by describing this Budget as a rich man's Budget. The Opposition must be in a very bad case if they have to go to such a far-fetched argument as that. The only increase in taxation which could possibly affect the poorer classes is the Tobacco Duty, and I have read in the Press an assurance of the chief providers of the commodity that they intend to pay the duty themselves and do not propose to raise the price to the consumer.




By far the largest consumption of tobacco is in cigarettes, and I am inclined to think that competition in other branches will tend to keep the price down. But, surely it will be remembered that in this Budget you have direct taxation which falls upon people like landlords and the owners of property, £14,000,000; and upon motor car owners, £5,000,000; and these will far more than counter-balance and outweigh anything that might go on to the consumer in respect of the Tobacco Duty. Therefore when I read in a well-known Labour paper that this was a rich man's Budget I thought the Labour party must be very hard put to for arguments against the Budget. It is rather hard on one who rises so late in the Debate to find anything new to say, but the speech of the right hon. Gentleman the Member for Carnarvon Boroughs (Mr. Lloyd George) did raise a good many points upon which I should like to say a word. He, and an hon. Member on this side, attacked the Chancellor for removing the balance of the Road Fund from where it rests at present to the Consolidated Fund. It may surprise hon. Members to learn that not one single penny less will be spent on roads owing to the transfer. Neither of the two hon. Members thought it worth while to mention to the Committee the fact that £19,500,000 are going to be spent this year on our roads, and the Chancellor of the Exchequer assured us that this was more than enough to fulfil all the existing obligations, including the London bridges.

The advocates of the motor industry put their case in a way which I think rather cuts against themselves. They have claimed that all the proceeds of the taxation on motor cars ought to go for the upkeep of roads. But the real result of that is that the owners of motor cars are paying far more in taxes than they would otherwise pay, because the upkeep of roads is such a public necessity, and the taxes apparently come so easily from the owners of motor cars, that we are spending an enormous amount on our roads which we should not otherwise spend. And this £19,500,000 is to be spent on 75 per cent of the cost of first-class roads, and, we hope, on 50 per cent. of that of second-class roads, and 33⅓ per cent. on third-class roads and unclassified roads. That is a very big subvention, especially when we remember the small beginnings of this fund. I think it started with about £4,000,000; at any rate, I know that at one time it was as small as £6,000,000. Now the total receipts are £24,000,000, of which £19,500,000 are going to be spent on the roads.

The next point made by the right hon. Gentleman the Member for Carnarvon Boroughs was an attack upon the one attempt the Government have, made for economy, and it illustrates the fact that the path of the economiser is hard. No sooner do the Government do something which has been called for from all quarters of the country and from all sections of the House—the abolition of these three Ministries—than it raises defenders everywhere, who say that never were there three better Ministries in the world. The Ministry of Transport, the Ministry of Mines and the Department of Overseas Trade, are the salvation of this country. The right hon. Gentleman the Member for Carnarvon Boroughs has not got quite a clean record in this case. Last year, when the Admiralty, who are not enthusiastic economisers, abolished Pembroke Dockyard the right hon. Gentleman rose up at once and said that Pembroke Dockyard was the one glory of Wales; take away Pembroke and the flag of Wales is trailed in the dust. And he told us stories of the great men who have come from Pembroke. The only one I remember was a fiery famous buccanneer, called Morgan. It illustrates this, that all superfluous Ministries will find their defenders. I do not believe you could cut off a single branch of the tree of excessive expenditure without raising up all sorts of objections. I thought the axe had been laid at the root of the tree a long time ago, and I have been expecting these three Ministries to go for some time. Now when they are to go we find that they are defended from all sides of the House, from the Opposition side where, of course, every action of a Conservative Government is considered suspect, from the Liberal side, where they are equally abominable, and also by prominent hon. Members on this side of the House.

But the right hon. Gentleman the Member for Carnarvon Boroughs appeared in a new capacity; as a defender of the landlords. He was horrified that the landlords should be compelled to pay three half years' instalments of Schedule A tax in one year, and he extended a good deal of his sympathy to a cause which I do not think he has hitherto defended. If he has I have missed his observations. There appears to be some misunderstanding on this question. All that the proposal means is that in one year the householder who has property will receive from the man who pays the rent on the property two half yearly instalments of rent less in each case one half of the Income Tax, and in the following year all the tax will be deducted from the first instalment. I do not see very much hardship there. It is merely restoring the old state of things. Though as a matter of fact in 12 consecutive months three instalments would have been paid, still the effect is that in any one rental year only one year's taxes will be paid, so that that man will not be any poorer.

The last criticism of the right hon. Gentleman was an attack on the Government for spending too much money on armaments. He called attention to the fact that there was a, Disarmament Conference sitting at Geneva, and he called this country hypocritical for spending large sums on armaments and at the same time taking part in the deliberations of that Conference. I would remind the Committee that we are doing all we can for disarmament. At present Lord Cecil is attending the Disarmament Conference at Geneva. We have accepted the proposal of President Coolidge for a separate discussion upon a reduction of naval armaments, and I am told that that discussion will take place in the first half of June. I do not really see what more we can do, for I think it is agreed on all sides that we should not reduce except proportionately to other countries. But there is one point that I would like to press again upon the Government. It is a point I have often mentioned before. Some time ago the Colwyn Committee reported on the expenses of the Fighting Services. That Report was made to the Cabinet. There it has stood, and, except for the Cabinet, no mortal eye has seen it. It is rumoured that very drastic reductions were recommended, especially in one of the Fighting Services. The Prime Minister has always claimed that that was a Report made to the Cabinet and that it could not be disclosed to the House. Still, I think it is unfortunate that we have not seen the Report of a Committee of that distinction, whose conclusions in a different capacity have been quoted all over the House this afternoon.

I am sorry that the right hon. Member for Central Edinburgh (Mr. W. Graham) is not present, for he made an extremely interesting and able speech, and I want to deal with one point that he made. He said that we were not paying off debt fast enough He wanted a special levy, a levy, I believe, recommended by the Minority Report of the Colwyn Committee, of 2s. in the £ on incomes of £500 a year and upwards. Two-shillings in the pound is 10 per cent. I am not sure that the man who has only £500 a year would welcome the fact that he paid £50 in additional taxation. I expect he would tell you that he was taxed quite enough already. But I take the view that the Government might consider the whole of the Sinking Fund policy. I believe that we are doing the thing in the wrong way. Last year we put £60,000,000 to the Sinking Fund. The effect on the year's finance was that only £21,000,000 of that came off debt. But the whole of the £60,000,000 was spent, a large part of it in repaying our permanent or semi-permanent debt. So at the end of the year you get this: We have a deficit of £36,000,000, and we have paid off £60,000,000, a large part of that of a permanent or semi-permanent character. So you have paid off your more or less permanent debt and increased your floating debt; you have done the very thing that we have been trying to undo for many years past. What will happen this year? £65,000,000 is in the Sinking Fund this year, and the surplus of the Budget is under £1,500,000. There is sure to be a deficit this year. Each £1,000,000 of deficit means that you increase your floating debt at the same time as you are paying off your permanent debt. Again, you will increase your floating debt and diminish your permanent debt. Also we are borrowing to pay off debt.

One hundred and forty years ago there appeared upon the financial firmament a very interesting gentleman. He was a Welshman, his name was Dr. Price and he was a Free Church divine. He brought out a scheme for the paying off of the then national debt. The scheme was a very simple one. The debt was then about £260,000,000 or £270,000,000. £200,000 a year was to be put into a Sinking Fund, and it did not matter whether this sum of £200,000 was raised by taxation or borrowed. Even if borrowed the fund operated in the same way, and in quite a small number of years the whole of the debt was to be paid off, and paid off by borrowed money. It sounds like a thing that no one would believe, but he got a lot of support for it. He talked about the magic of compound interest. The £200,000 was to be invested in Consols. The quarter's dividend was reinvested. You borrowed at simple interest and reinvested at compound interest. Of course the catch was that you paid both, including the compound interest on what you reinvested. He actually persuaded a large number of quite substantial people to back his scheme. It is sometimes said that the astute and deep mind of William Pitt was persuaded also. That is not quite true. He no doubt investigated the scheme and corresponded with Dr. Price, and that correspondence is found in Dr. Price's life, which was written by a devoted relative in 12 volumes. But Pitt actually, during the war with Napoleon, did borrow to pay his Sinking Fund. He knew that you could not pay off debt by borrowing, and he borrowed then because be wanted to keep up the psychological and moral effect of our country, in the throes of a great war, still paying into a Sinking Fund.

What I have respectfully to say to the Chancellor of the Exchequer is that he is doing the same thing now. We are following Dr. Price. We are borrowing to pay off debt because the Sinking Fund only operates when there is a surplus. It is only when there is a surplus that the whole of your £60,000,000 or £65,000,000 goes to debt. As soon as there is a deficit you have to borrow as you go along by means of Treasury Bills and Ways and Means advances, in order to face that deficit, and when, at the end of the year, you are £36,000,000 worse off, as far as your floating debt is concerned, and only the small amount of £21,000,000 better off as far as concerns your permanent debt, the point I want to bring home is that we are undoing the work which we have tried to do since 1920. In 1920 our floating debt was £1,300,000,000, which we have since reduced to nearly one half; but now we are piling up floating debt with all the disadvantages it brings, with all the inflationary features which attach to a floating debt, and all that, because we so arrange our Sinking Fund that it does not operate unless we have a surplus. There is only one real Sinking Fund, and that is a surplus of income over expenditure and there is no good saying that you will make a certain sum a sinking fund, unless you so arrange your finances that your surplus will reach that figure. I believe the only way is to spend your money as soon as the balance is struck at the end of the year and then to invest the surplus in repayment of your debt. I do not believe there is any other way of doing it. Until the year is ended I do not think you can arrive at the sum which you can pay off debt.

Before concluding I must say a few words about the Betting Tax, because the position is too amusing to be passed by without a word. I am one of the few Conservative Members who voted against the tax last year, and our small band was held up to ridicule, and even to contempt. I think some of my hon. Friends who were very amusing at our expense last year would be very glad to be in our place now, because the tax is unproductive and unpopular. It has run now since 1st November, and it has produced 44 per cent. less than the Chancellor of the Exchequer estimated. Now the right hon. Gentleman says he is going to get the whole of the £6,000,000. I wonder. I do not think he will, though of course he may, but the two charges which made against the tax this time last year remain unanswered. The first was that the Chancellor was imposing a duty on the bookmaker who carries out his business in a legal way, and was leaving untaxed the man who breaks the law. That is a very wrong thing for the State to do. It is extremely unfair and it brings the law into contempt. It is not a good thing that you should allow it to be seen that you tax the man who carries out the law while leaving untaxed the man who breaks the law.


It is not so.


But you are not taxing the street bookmaker.


We are taxing the street bookmaker if we can catch him. It is exactly the same as if a person tries to evade an import duty by smuggling. If a person smuggles, and if we cannot catch him, we do not get the duty; but if a person is caught betting in the street, he is not only prosecuted but has to pay the duty.


Yes, he has to pay the licence duty but are you taking the Betting Duty too? Then I come to my second point. I said last year that the effect of this would be to drive betting from the man who is observing the law to the man who is breaking the law, and I am told that this is taking place. I am told that a big change has taken place recently. Before the tax was imposed nobody who wanted to bet a big sum and who was the sort of person who usually bet with a credit bookmaker would think of betting with a street bookmaker. I am told that now there are channels whereby that is done, and that any amount of money can be put on in this way, and that it is perfectly possible to place an untaxed bet to-day in London. I cannot say whether the facts are true or not but I submit to the Financial Secretary that it is extremely probable After all, if you find on sale a taxed article which is dear and an untaxed article which is cheap, the world will buy the untaxed article even though it may involve breaking the law. That I am told is taking place now in this respect and it is a very serious thing. I do not like to see a law passed which is not enforced, and I think it will be very difficult to enforce the law in this case. I shall not say more. I wonder why we are spending all this money in a year when we are poor. I should like to have seen more economy. I should like to have seen the Sinking Fund cut down to £50,000,000 and the £15,000,000 extra carried forward as a reserve to meet Supplementary Estimates and to meet part of the cost of the China trouble; and the balance would have gone in the proper and normal way into the old Sinking Fund to pay off debt.


The Chancellor of the Exchequer may be a bad economist, but he is a first-rate psychologist. We have had ex-Chancellors of the Exchequer and ex-Financial Secretaries to the Treasury vying with each other in every part of the House—except this—in admiration of this marvellous Budget. The right hon. Gentleman knew perfectly well that if only he did not put an extra 6d. on the Income Tax he could juggle with finance as much as he liked. He has juggled with it, and let us see how this juggling with finance is going to affect the only thing that matters at the present time, namely, unemployment. We have often debated unemployment in this Rouse, and we all know that the occasion when we can affect trade and employment in this country is when the Finance Bill is being discussed. Our decisions now will affect unemployment in the whole of next year and possibly even longer. My right hon. Friend the Member for Colne Valley (Mr. Snowden) in his masterly massing of figures comparing the year of the Labour administration with the present time, omitted just one figure which I think is very pertinent to this question of unemployment. He forgot, or he omitted to point out, that when Labour was in power the Bank rate the whole time was 4 per cent., that now for more than two years, with one slight interval, the Bank rate has been 5 per cent., and that now there is no suggestion on those benches that the Bank rate shall come down to the 4 per cent. at which it stood during the Labour administration. We look daily in the financial columns of the "Times," and we see that sterling is sinking steadily towards the gold export point.

There is no chance of getting the Bank rate down, and yet everybody in this country knows that the first necessity for a recovery of trade in this country is cheap money, and that as long as you have the Bank rate at 5 per cent., and likely to become more, unemployment cannot decrease. We, on these benches, all know—I do not know whether it is known on the benches opposite—that the Bank rate is 5 per cent. to-day because the Chancellor of the Exchequer did not understand finance and established dollar parity before this country was ready for it. He established it for a time by putting an embargo on foreign loans thinking he would thereby keep capital in this country, oblivious, apparently, of the fact that, if you have an embargo on foreign loans, you cannot expect your export trade to go on, because loans do not leave this country in cash: they leave in goods. Now we are desperately attempting to keep the dollar parity, to keep our reserve of gold in this country, by a, Bank rate of 5 per cent., which every business man knows cannot be coupled with a real development of our trade and industry.

The Chancellor of the Exchequer is always concerned with being able to convert his loans which are falling due at a lower rate of interest. That is quite right. Every Chancellor of the Exchequer ought to be interested in that point of view, but I would ask the Committee to remember this, that to make money cheap not only enables a Chancellor of the Exchequer to convert at a better price, but it also enables cheap money to be available for all the industries of the country. If you want to get your trade booming, the cost of manufacturing down, your export trade recovering, it is essential that you should have cheap money—cheap money and cheap raw materials—but the Chancellor of the Exchequer does not look at the trade side. Not one word in his speech indicated that he appreciated the importance to us of cheap money, or the disaster which he had inflicted upon this country by establishing a gold currency before the country was ready for it. He was interested in the conversion rate, and he stood at that box, and, in tones almost of superlative virtue, said that never, never while a Churchill was Chancellor of the Exchequer should the Sinking Fund be raided, that never should the Chancellor of the Exchequer in the Conservative Government be responsible for such unsound finance.

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All the time he was doing it with his tongue in his cheek. He knew perfectly well that, although nominally he was not raiding the Sinking Fund, he was affecting the finances of the country in exactly the same manner as if he had been raiding the Sinking Fund. You have to look at the balance sheet of our national accounts—assets on one side, debits on the other. It is true that he continued to reduce the Debt, but how did he do it? He did it by reducing the other side of the balance sheet. He reduced the assets by a mere book-keeping gesture. He removed a reserve fund of —12,000,000 from the assets and transferred it to the other side to the reduction of debt. That is not sound finance, and the Chancellor of the Exchequer knew that it was not, but not one solitary voice from his own side has ventured to point out that unsound finance like that is not maintaining the credit of this country. Nor was that all. We know when we look at a balance sheet, that if an ordinary commercial company begins the year with a tidy sum brought forward and, after declaring its dividend, carries forward a much smaller sum to the next year, that drop in the carry-forward is a loss to the assets of the company, that it is exactly the same as drawing that amount out of the reserve fund. What does the Chancellor of the Exchequer do? He collects in one year a year and a half's taxes from the Schedule A people. He does not really collect any more than the Schedule A people pay at the present time, but in 12 months he collects 18 months' tax, and that is reducing the carry-forward in the national balance sheet. Then he collects in 12 months 13 months' payment of the Beer Duty, and another £5,000,000 is withdrawn from the carry-forward.

That is the sort of finance that they are now proposing to bring in a Bill to stop. It is the sort of finance that would ruin any company, and I see now a delightful suggestion in the newspapers that the present Chancellor of the Exchequer, or one of his successors in the future, may carry on this extraodinarily able finance, as it has been called during the last two or three days, by reducing another one of our assets, namely, by selling our shares in the Anglo-Persian Oil Company for £25,000,000 and re-clueing the Debt by the same amount. You will then be able to show what a magnificent Sinking Fund you have got, and apparently the entire country will forget that this £25,000,000 worth of Anglo-Persian oil shares has vanished from our assets. I hope the present Chancellor of the Exchequer will not agree to do that, but I am certain that our Chancellor of the Exchequer will not, and, therefore, I think the sooner he is there the better. Of course, the Chancellor of the Exchequer contends that he has precedents for all this. He has had the right hon. Member for Hillhead (Sir R. Horne), the gentleman who not only raided the Sinking Fund and abolished it altogether, I think, if I remember aright, for that year, but who also used as assets the sale of War stores. It was quite common for years to treat the sale of War stores, the sale of a national asset, as normal income.

But the Chancellor of the Exchequer is much too clever not to know perfectly well that when he professes to be maintaining that Sinking Fund, or increasing it to £65,000,000, he is, as a matter of fact, transferring £32,000,000 from the asset side of the balance sheet on to the debit side and that his Sinking Fund, far from being £65,000,000, has been reduced to £33,000,000. It would not do in the City to reduce your Sinking Fund to £33,000,000, but it apparently passes muster in this House and in this country if, in effect, you reduce your Sinking Fund to £33,000,000 by a bit of legerdemain, convert assets, and with the proceeds reduce your debt. I want to point out to the Committee that that sort of unsound finance not only makes it more difficult to convert your loans when they fall due in 1928–29, not only insures your having to pay a full 5 per cent. on the money you raise to repay those loans, but also injures the whole trade of the country by forcing the man who wants to borrow money to pay 1 per cent. or 2 per cent. more than he other wise would pay. By keeping the rate of interest up to 5 per cent., by envisaging, as you must, a 6 per cent. Bank rate, you are preventing the trade of the country recovering, increasing the number of the unemployed in this country, and increasing the price of all British goods produced here, so that we cannot compete in the neutral markets of the world.

That is not the only way in which we could improve trade and reduce unemployment. By reducing the Bank Rate, making cheap capital, by producing plentiful capital, you would help our trade to recover. What we could also get, if we had a Chancellor of the Exchequer who meant business, would be cheaper raw materials and cheaper land. In the cost of production of every article to-day you have four component parts—the cost of land and raw materials, the cost of capital, the cost of labour, and the overhead charges, rates and taxes. Hon. Members opposite, when they want to urge cheaper production, somehow inevitably turn to the working man, and say, "You take less, and then we shall be able to produce more cheaply." I wish they would turn to the other three factors —rates and taxes, cost of capital and cost of raw materials and land. They always forget them.

I have shown the Chancellor of the Exchequer how by sound finance, by a real Sinking Fund instead of a sham Sinking fund, he could make money cheaper. I have shown how he makes money dearer by establishing the gold standard at dollar parity. I have shown how he could reduce taxation upon industry, reduce rates and taxes, and, at the same time, produce cheaper land and raw material. I am sick and tired—and I am afraid the House is, too—of arguing here that if the Chancellor would levy a tax on land values, including the minerals under the land, that that would not be an additional burden upon industry, but would simply put into the public pocket part of that communally created land value which is at present going into private pockets. It would be no additional burden whatever upon the trade and industry of this country, but it would have this very valuable effect, that paid, as it must be, upon all land and minerals, whether used or not, it would force owners who are not using their land and minerals at the present time, to part with them on reasonable terms—some would say, to throw them on the market—and thereby enable the price of land and raw materials everywhere to come down, and so enable industry to get coal, steel or land cheaper. In my own home town of Stoke-on-Trent, where, I may say, the fathers of the city have some common sense, they are faced by this unemployment problem, and they have met it, as my right hon. Friend the Minister of Health knows. They want to start new industries at Stoke-on-Trent. They are not bothering about London—they want new industries in Stoke-on-Trent. They hear that Michelins are wandering about this country to build a new factory in which to make tyres. They do not allow them to go to Nottingham or Manchester; they let them have the land, not quite for nothing, but at cost price, which is next to nothing. They also let them have a remission of rates for a period of years. They have to get a Private Act passed through this House to enable these people to start construction in that district, to absorb the unemployed of Stoke-on-Trent, by relieving them of the burden of paying a fantastic price for the land on which their factories are built, and by relieving them of the burden of rates.

We are discussing taxation to-day, and it would not be in order to discuss rates, but the effect of rates on industry is far worse even than the effect of Income Tax. The Minister of Health recognised that two years ago, for one moment, when he removed the rates from machinery. Why cannot you see that rates, which are now penalising industry, are levied on land values, and that money, which is at present falling on industry and going into private pockets, is diverted into the public pocket, and, at the same time, force more land into the markets? We have done it in Stoke-on-Trent. We have that factory going up; we have increased employment and improved trade. What is done by common sense at Stoke-on-Trent might be done in Great Britain. It is being done in all our Dominions, from whom we are so willing to learn bad Protective habits, but from whom, apparently, we cannot learn common sense methods of taxation. In both these cases, both by cheapening capital and by levying taxes on land and mineral values, whether used or not, we could improve trade by means of the Budget, reduce unemployment, and be of far more service to the general future of this country, than by this marvellous piece of jugglery, of financial dishonesty, which has gone down, because the vocal part of the people of this country are so delighted at not having to pay that extra 6d., that they forgive the Chancellor the disastrous first step on the downward road of economic instability.


My right hon. Friend the Chancellor of the Exchequer, in opening his Budget with that gift of picturesque representation that he possesses, compared himself to an Alpine climber surmounting rocks and difficulties until he had reached the top of the mountain. I wished that I had that gift of pictorial representation which is also among his talents, so that I might picture him at the head of the Parliamentary procession toiling up behind him, and at the rear of the column the stalwart figure of the Financial Secretary to see that there was no back-sliding up that mountainous path. I was one of those who welcomed his reaching the top of the precipice without his having to increase the Income Tax, and yet, at the same time, able materially to increase the Sinking Fund to £65,000,000. He gave us facts and figures, looking 20 and 40 years ahead, as to what might happen if we kept our finances on a thoroughly sound—I will not use the word conservative—basis, as regards the decrease in interest which will be paid in 20 or in 40 years if we can re-borrow the money at a lower rate of interest.

I want to give a figure I have taken from the Colwyn Report, and which is of even more vital importance to the Committee than the figures he gave. The Colwyn Report said that if loans which mature prior to the 31st March, 1932—less than five years, not in the lifetime of this Parliament, but in the lifetime, in all probability, of the next Parliament—if those sums can be re-borrowed at 4 per cent., there will be a direct saving in interest of £32,000,000, and, in the event of our being more successful, of our being able to re-borrow at 3½ per cent., there will be a direct saving in interest, in 1932, of £50,000,000—an immense sum representing not only, one hopes, a considerable reduction of Income Tax, but also of indirect taxation. It may be argued that the chance of re-borrowing at 3½ per cent. in the next five years is infinitesimal. I would like to point out to the right hon. Gentleman opposite that it is only six years since our credit stood on a 6 per cent. basis. I remember quite well that the 4 per cent. funding was done in the neighbourhood of £66; in other words, our credit was on a 6 per cent. basis. Our national ciredit has, therefore, improved from 6 per cent. to something over 4 per cent. in that period, and if we go on at the same rate we shall actually be down to 3½ per cent. in 1932. Obviously a good deal depends on the action taken in the meanwhile, only it does stand to reason that if we increase our Sinking Fund in the way the Chancellor has done this year, replacing roughly in this year one-half of the amount by which we were short in cur Sinking Fund, owing to the untoward events—I put it mildly—of the last two years, we shall then go a good long way towards getting our finances into such a state that we can borrow certainly at 4 per cent., and I hope at even a lower rate in 1932.

With regard to reductions in the Estimates generally, no one can sit, as it is my privilege to do for some hours each week, on the Public Accounts Committee, or have sat, as I have, for a good many hours in each week on the Estimates Committee, without knowing that it is absolutely impossible for any body of back benchers to effect material reductions. The Public Accounts Committee has an admirable staff to back it up in the Comptroller and Auditor-General's office, but questions of policy are obviously ruled out from the consideration of either the Estimates Committee or the Public Accounts Committee, and so long as policy is outside their purview it is not possible to suggest administrative savings amounting to any appreciable sum. I would refer those who think it is possible, by means of economies, to knock off £30,000,000 or £40,000,000 or £50,000,000 a year to the speech made by my right hon. Friend the Chancellor of the Exchequer when he opened the Debate on the Economy Bill in March of last year. He dealt then with the various Services item by item, and I think he showed definitely that it was impossible to make material reductions. I do not often find myself in agreement with the right hon. Gentleman who was Minister of Health in the last Government, but he said this afternoon that when he was at the head of the Ministry of Health he found that Department to be well administered, and there was not a big possibility of reduction in expenditure.

For a good many years past it has been my privilege to cross-examine witnesses from the Ministry of Health and other Ministries, and I have come to the conclusion that all this talk about the big waste that goes on in the Civil Service is absolutely beside the mark; there are no such possible savings. The idea comes partly from the very misleading title of "Civil Service Estimates." A great many people in the country think, because these are called Civil Service Estimates, that the money goes in the stipends of the civil servants. Many people think the whole cost of the Ministry of Labour is borne by the State. Very few people realise—it may be that many hon. Members in this House do not realise—that 97.2 per cent. of the cost of Employment Exchanges is borne, not by the Treasury, but by the National Insurance Fund, of which the State contributes only one-quarter, the other three-quarters coming from the contributions of employers and employed. In other words, as nearly as possible one-quarter of the cost of Employment Exchanges is borne by the State—not, as most people think, the whole cost.

There are two points in connection with Super-tax with which I would like to deal. I think my right hon. Friend was not quite accurate in his statement made in reply to a question with regard to the taxation on companies. I do not think it can be intended that the taxation on companies should be deducted at a rate which includes Super-tax. If that be done, every dividend warrant in the country will be subject to a deduction at the highest rate paid for Income Tax and Super-tax, 10s. in the £ I think my right hon. Friend, in answering that interjection, was not quite accurate, and I have no doubt it will be put right in the course of the Debate. One further point I wish to make concerns the single graduated tax on income which is now to replace Income Tax and Super-tax. I want to know whether allowances, personal and family, are going to be allowed off Super-tax in the future. Hitherto they have been allowed off Income Tax, but they have not been allowed off Super tax. It has occurred to me that logically, Income Tax and Super-tax being practically the same, logically they ought to be allowed off Super-tax. The obvious difficulty is that it will cost a very considerable sum of money. I think it would be a good thing if my right hon. Friend made that point clear.

Last year I ventured to call the attention of the Chancellor to the fact that there was a very considerable amount of leakage going on in connection with the Channel Islands. Attention was first called to it in the Geddes Report five years ago, and for five years I have been doing what little I could to bring to the attention of the House the evasions and leakage in connection with the Channel Islands. Therefore, I was very glad to hear on Monday that action was being taken to deal with tax dodgers who go to Jersey and elsewhere. As the Chancellor has adopted a suggestion which I, and I have no doubt others, made last year, I want to make a further suggestion to him so that he may bear it in mind next year. I have some knowledge with regard to the Wine Duties. I think the compromise he has arrived at by which Continental wines of low strength are to pay a higher duty above 25 degrees, and the Australian above 27 degrees, is a very fair compromise, but I fear he has made one slight mistake. I should like to have seen wine made over here from musk imported from abroad pay the same duty as is borne by wines coming from the British Dominions. I understand this musk comes from Greece and other countries outside the Empire.

Dominion wines are obviously grown inside the Empire. This is a rapidly increasing trade. A company largely interested in it floated its shares at £1 apiece. The rose to 50s., and yesterday, as a result of the Budget, they went over £3. In other words, the country was very appreciative of my right hon. Friend's attentions. I suggest he might give the subject a little more advertisement and a little more attention, and might raise the duty to the same figure as it is for Dominion produce, in other words, 2s. if the wine is at the lower strength and 4s. if it is at the higher strength. In that way he could get an extra revenue of £150,000 or so, and he would put produce from abroad on the same footing—not on a better footing—as produce grown within the British Dominions. After these comments, I must say that I congratulate my right. hon. Friend the Chancellor of the Exchequer most cordially on having got out of an extremely difficult position, and I think this side of the House, at all events, will give very warm approval to his proposals.


The hon. member for Lewisham (Sir A. Pownall) takes, I think, a rosily optimistic view as to the possibilities of improvement in the national credit in the years which are immediately before us. I shall come back to that point in a moment. I would like to say at this stage that I hope, in view of the line he has taken, that his hon. Friends on the other side will insist upon a vigorous Sinking Fund policy, because it is perfectly evident that without a large Sinking Fund it will be more than ever impossible to get the national credit on to a 3½ per cent. basis within the period of time we are considering. To-night we are discussing the third Budget of the right hon. Gentleman. He has compared his progress on this occasion to that of an Alpine excursion from crag to crag, but we, taking a wider view of the three Budgets he has introduced, are more inclined to think of this as the third stage in the Rake's Progress on the downward course—not upwards from crag to crag, but downwards from depth to deeper depth. In his first Budget he inherited from my right hon. Friend the ex-Chancellor of the Exchequer a surplus of £4,000,000, and inherited a prospective surplus, on the basis of the then existing taxes, of £27,000,000. This surplus was thrown to the wolves by the large remission of Super-tax and Income Tax. It was thrown to the wolves, namely, the Super-tax payers, who crowd round the doors of the offices of the Conservative party to see what they can get. In the second year, when he was on his own, unassisted by my right hon. Friend, he had a deficit of £14,000,000 and in the third year which we are now considering he has a deficit of £36,500,000. What next year will bring remains to be seen—God knows, as one of my right hon. Friends says, but I think the right hon. Gentleman's progress up to date deserves the description I have given it, of being a Rake's Progress downwards. If the right hon. Gentleman has, as I believe he will have, a third deficit next year, he will break a new record. I do not think in modern times of peace any British Chancellor of the Exchequer has ever performed the inglorious hat-trick of three successive deficits in successive years, but that record will, I believe, be accomplished by the right hon. Gentleman. The reasons why that seems to be likely I will not elaborate, for they have been dealt with by other speakers. The chief and most obvious of them is the prospect of continuous expenditure in China which is likely more than to absorb the whole of the small surplus on which he is counting.

In view of the previous rulings given this evening, I will be careful not to elaborate the point which I wish, however, very briefly to make, which is that it is misleading—I am deliberately using a mild and colourless term—for the Chancellor to attempt to take shelter behind last year's industrial troubles as his explanation of the serious mess into which the national finances have been plunged. It would be possible, were it in order, to elaborate in detail the right hon. Gentleman's share of responsibility for these industrial troubles—in his journalistic and other spheres of activity, such as his censorship of appeals for peace by Archbishops and other acts.


I am afraid that is hardly relevant.


I was just indicating a line of argument, but as the Chair has ruled that it is not relevant to-night, though it will be on a later occasion, I will go behind the events of last year and suggest to the Committee that the personal responsibility of the right hon. Gentleman goes back to the gross financial blunders which, as it seems to me, he committed in the first year of his office. First of all, there was the surrender of £42,000,000 of revenue to the Income and Super-tax payers and, secondly, the precipitate return to the gold standard. With regard to the former, it is quite clear that, if the Super tax and Income Tax had been retained at the level at which they stood when he came into office and only the other changes in taxation had been made—for we never opposed the increase in Death Duties—he would have had an additional £42,000,000 which would have been sufficient to have prevented both his deficits and to have enabled him to do a good deal more in reducing the National Debt, to have improved the national credit, and to have facilitated his own conversion operations. The surrender of that revenue was needless and was made in a direction where it was least deserved and that is one of the origins of our present troubles.

With regard to the gold standard, several of my hon. Friends and notably the hon. Member for Finsbury (Mr. Gillett) last night developed this line of argument. I do not wish to repeat their arguments, which seemed to me very just and accurate. What I wish to make clear, in the first place, is that the criticisms that we make of the return to the gold standard at the time and in the manner chosen by the Chancellor of the Exchequer are not necessarily criticisms of the gold standard itself—much less a denial of the very solid advantages of a stable exchange. At the same time, it seems to me clear that we have paid a very high price for that stable exchange and have paid for it in several different ways, as I shall venture to submit. In the first place, although some proximate responsibility for the industrial troubles may rest with the attitude of the Chancellor last year, the ultimate responsibility for the industrial troubles rests, in my view, upon his precipitate return to the gold standard in 1925. It seems clear that had we not returned to the gold standard at that time and in that way, and had we postponed it for a little, keeping in view our exports, the coal industry would never have been plunged into the economic crisis which eventuated in the industrial trouble. In the second place, the result has been a period of high Bank rate and dear money, which has not only hindered trade revival but has increased the cost of the floating debt, and by means of its deflationary effects has been responsible for what the Chancellor has called the visible bending of the Income Tax in the year which has passed. We have always found in the past that in periods when prices were falling the Income Tax receipts have remained stationary or declined. When prices were rising the Income Tax receipts were most buoyant and most productive, and we can clearly trace the stagnation which has been experienced to the return to the gold standard and the deflation involved therein.

I pass to the question of economy, which has been much discussed in this Debate, as on previous occasions. Many melancholy voices have been raised in different parts of the House demanding economy in this direction and that, but finding very little satisfaction in the achievements of the right hon. Gentleman. Economies are of several kinds. There are true economies and false economies and bogus economies.


What is the difference between false economy and bogus economy?


I think I shall be able to illustrate them both from the right hon. Gentleman's own practice. The only scope for true economy of any size which now remains is the sphere of debt services and armaments. With regard to the debt charges this presupposes a vigorous Sinking Fund policy, with conversion possibilities, but here, in order to make economies you must first spend money in repaying the debt. I will come back to that in a moment. With regard to armaments great disappointment has been expressed in previous debates at the way in which the Chancellor of the Exchequer has been beaten by the heads of the fighting services in all attempts towards appreciable reductions in the cost of the Army, Navy and Air Force.


The hon. Gentleman was beaten in 1923.


I am now discussing how the right hon. Gentleman was beaten in 1926. Although reference to the past may be of value, I do not think it would be proper for me to go back too often to ancient history, nor is it clear that it would be altogether to the disadvantage of myself and my hon. Friends. I may remind the House that in 1923 there was a Conservative Government in office and therefore no blame for what then happened can rest on my hon. Friends. Turning to the latest stage of this history, which is the present, it appears at this moment that Lord Cecil, who, I assume, is under instructions from His Majesty's Government, is failing to make any progress at all at the Preparatory Commission for the Disarmament Conference from which many of us hoped further economies would spring. We have not yet got a full report of what has taken place, but it is disturbing to read that almost a complete deadlock has been reached. I hope that when fuller accounts are available it will not appear that any share of responsibility for that deadlock rests upon Lord Cecil and those who instructed him. If so, one of our last hopes of economy in regard to armaments will have evaporated.

With regard to false economies, this Government has perpetrated many, chiefly in respect of social services and under the Economy Act of last year. Many of those economies were harmful and vexatious out of all proportion to the savings effected. There were small economies on education, the only effect of which was to harass the local authorities. Then economies were instituted with regard to health services, and so on. They were all economies which have been small in the amount of money concerned, but large in the damage they have done and the discouragement they have caused in the circles of those who have had to administer the social services of the country. I was glad to hear the right hon. Gentleman admit in his Budget speech that, after the gleanings made under the Economy Act, there was little more left to glean from those sources.

Now I come to bogus economy. A bogus economy is an economy which economises nothing, and a false economy is one which economises that which ought not to be economised. An illustration of bogus economy is the latest proposal made by the Government to scrap three Ministries. The Chancellor himself has told us that the saving effected by those changes will not amount to a very large sum. I do not understand that a large number of civil servants will be dismissed in consequence. Some of them will move from one building to another, and some will be moved from one room in one building to another room in the same building and the three Ministers will be moved' from the Treasury Bench and probably sent to the House of Lords. I only hope the right hon. Gentleman who paid such a high tribute to their services—de morituris nil nisi bonum; we also can quote Latin—will make an appeal on their behalf for a remission of the entrance fee which I understand is generally exacted from new entrants on behalf of the financiers who control the political fund of the Conservative party. I hope the Chancellor of the Exchequer is conscious of the very valuable work performed for the enlightenment of public opinion by the Colwyn Committee appointed by his predecessor. I think the right hon. Gentleman made a speech the other day to a deputation in which he stated that the Colwyn Report had been a very valuable corrective to certain popular ideas. I entirely agree with that judgment. I am not surprised that the right hon. Gentleman the Member for Norwich who represents that constituency in a different political interest from that in which he was elected, does not like the Colwyn Committee. He called them economists with a sneer in his voice. As a matter of fact they are nearly all bankers and business men. They include Lord Colwyn, Sir Arthur Balfour, the distinguished steel manufacturer, Mr. W. L. Hichens of Cammell Laird and Co.; Sir Alan Anderson, the ship-owner; Sir Charles Addis, a great authority on Chinese finance, and Mr. Henry Bell, a banker of the old school.

These are the people who have made a number of pronouncements of the greatest educational importance, which the Chancellor of the Exchequer says have proved a valuable corrective to a large number of arguments which have been used by many hon. Members and particularly by representatives of the Federation of British Industries in this House and out of it. They have pointed out, in the first place, that taxation cannot be intelligently considered apart from the objects of the expenditure. Consequently, to speak as the right hon. Gentleman the Member for Hillhead (Sir R. Horne) spoke about an enormous and impossible burden of taxation is quite futile. As a matter of fact you cannot argue about the burdens of taxation without considering the destination of the money collected, and inasmuch as the money has been spent for beneficial purposes, no burden has been cast upon the community.

In the second place, the Colwyn Committee, in their Majority Report, have pointed out that the burden of direct taxation has been grossly exaggerated in the last few years; that its effect upon trade has been relatively small; that its effect on savings is not appreciable, and that savings would have been reduced much more if no attempt had been made to restore the Sinking Fund. They lay down that the Income Tax cannot be passed on from the Income Tax payer to the public. I have always been suspicious of the argument to the contrary because if it were a fact that the Income Tax was so easily passed on, it is difficult to understand why hon. Members Opposite have so strongly protested against it. The Colwyn Committee have also laid down that the repayment of the National Debt through the Sinking Fund makes new capital available to the amount of the capital repaid, and therefore if there is any shortage of capital from the point of view of industry the right way to remedy that is to increase the tax on wealthy people, and apply the proceeds to increasing the Sinking Fund because, in this way, according to the opinion of the Colwyn Committee, that money becomes automatically re-invested. If that is true, then the remedy is heavier taxation and a higher Sinking Fund.

The Colwyn Committee have laid down that the debt should be repaid more quickly than in the past, and they condemn the policy which has been adopted by the Chancellor of the Exchequer of issuing new loans at a heavy discount. I have summarised some of the points which I think have very great educational value, and in view of the authoritative source from which they come I hope they will in due time sink into the general public opinion, not only of the business world, but also of the Conservative party and the members of His Majesty's Government.

Let me allude to one final recommendation which the Colwyn Committee makes. As a result of their summing up of objections raised to various forms of taxation, they take the view that the strongest case is to be made out for a reduction not of Income Tax or Super-Tax, but of the sugar duty in view of its great increase since the pre-War period, and therefore sugar is most deserving of the Chancellor's attention. I am not surprised that the series of propositions I have tried to state summarily have caused some disillusionment in the ranks of hon. Members opposite. If those recommendations had emanated from a Labour Commission they would have rejected them, but when they come from people who are regarded as high and expert authorities, from such an array of financial and industrial Daniels come to judgment, it is easy to understand the intellectual turmoil in the heart of the right hon. and gallant Member for Norwich (Mr. Hilton Young).

The Chancellor of the Exchequer has evidently read the Report, because he adopted a motto from it in his opening speech—that an increased Sinking Fund is the highest form of economy. That is one of the propositions in the Report, re-stated with the right hon. Gentleman s habitual literary grace in a form very suitable for quotation. I quite agree that an increased Sinking Fund is the highest form of economy, and I am only sorry that the right hon. Gentleman has limited his achievement in the higher ranges of economy to the promise of a £65,000,000 Sinking Fund this year, which I am afraid, for the reasons I have already given, will not be achieved, because there will be a deficit at the end of the year, according to all present prospects. The majority of the Colwyn Committee recommended a Sinking Fund of £75,000,000, even if that should involve increased direct taxation, and that this should be raised as soon as might be, to £100,000,000 a year. I could have wished, in view of the Chancellor's recognition of the fact that the highest form of economy is an increased Sinking Fund, that he had, at any rate, travelled as far as the majority of the Colwyn Committee. As a matter of fact, his record with regard to sinking funds has not been very happy. His practice has fallen short of his promise in both of the past two years. In 1925–26, he promised £50,000,000, and only repaid £36,000,000; in 1926–27, he promised £60,000,000 and only repaid £24,000,000; this year he has promised £65,000,000, and we do not know how much will be repaid. His sinking funds are rather like the Irish chieftains of old, they went out to battle but they always fell. They always fall short of the promises made at the beginning of the year. I hope they will not fall too short this year, for the Super-taxpayers in the future, under another Government and another Chancellor of the Exchequer will have very large arrears of taxation to make up in order to reach even the orthodox level of carrying out the recommendations of the Majority Report of the Colwyn Committee.

The Chancellor of the Exchequer, dealing with national credit in the course of his speech, dealt with the possibilities of conversion. I will not follow him in the details of the picture he drew, but he expressed the hope that within 40 years we should, perhaps, find that we were within measurable distance of having repaid the whole of the debt. I am very doubtful whether, at this rate of progress, we shall be in anything like as good a position as that. Since the Armistice, as the right hon. Gentleman informs me in answer to a question, we have paid a sum equal to about one-third of the principal of the National Debt so far as interest payments are concerned. We have paid some £2,586,000,000 in interest since the Armistice, but the reduction of capital has proved, not only to have been very small, but, as was shown by my hon. Friend the Member for West Leicester (Mr. Pethick-Lawrence) yesterday, when full account is taken of the dissipation of assets, when the loss of assets is set against reduction in debt, and when account is taken of conversions at a discount, there has not only been no reduction in debt during recent years, but, rather, the net liabilities of the State have increased.

I should like to say one word about the relation between the Sinking Fund and increased social expenditure. It is sometimes said that there is a conflict between the obligations of an increased Sinking Fund and the obligations of increased social expenditure, both of which are recognised on this side of the House. I see no such conflict; I see two duties both of which must be performed. The advantage of building up the Sinking Fund and paying off debt more quickly is partly the direct advantage of reducing principal and, consequently, reducing interest, thereby setting money free for future uses, whether for reduction of taxation or for social expenditure; and, in the second place, the indirect advantage of raising national credit and facilitating conversion operations, thereby effecting a further reduction in interest charges in the future, and equally again setting money free, either for social expenditure or for reduction of taxation. That is a straightforward duty resting upon any Government in this country, and it is recognised to some extent by the right hon. Gentleman; but, in addition, we would recognise the duty, which he does not, of building up and extending social services which were cut into by the Economy Act of last year. All that it means in terms of taxation is that, if Super-taxpayers and others in the past have paid too little taxation to enable both of these duties to be fulfilled, they will in the future have to pay whatever more is necessary. I would like to observe that at the present time Super-tax and Income Tax payers in the aggregate are practically paying no taxation under these two heads. They are getting back in War Loan interest, in the aggregate, nearly everything that they are putting in, though some of them, apparently, are unaware that that is so. Let me illustrate that from what has happened during the past year. The Income Tax yielded last year £235,000,000 and the Super-tax £66,000,000, or a total of £301,000,000 from the two. On the other hand, interest on the Debt amounted to £318,000,000 from which it is only proper to deduct the interest paid to the United States Government, namely, £28,000,000. That leaves, on the one hand, an Income Tax and Super-tax yield of £301,000,000, and, on the other hand, interest paid within this country amounting to £290,000,000. Consequently, practically the whole of the interest returned, either directly or indirectly, to the Income Tax and Super tax payers. [Interruption.] Is that seriously denied?




Who found the money?


I am not talking about who found the money, but about who gets the money. I am not talking about past discoveries, but about present facts and what I am saying cannot be denied. The proposition I make is that the interest on the War Debt paid within this country, after deducting interest on the American debt, was £290,000,000, and the Income Tax and Super-tax yielded £301,000,000. I, therefore, say that what we see is the operation of an enormous penny-in-the-slot machine, with certain people paying taxation in and drawing it out again in the form of interest. It is impossible to get round arithmetic. The hon. Member is, perhaps, one of the fortunate people who puts more into the slot than he draws out again. If that be so, it only proves that some people are less fortunate or more fortunate, as the case may be, and in the aggregate the thing cannot be denied.


What about the capital?


I cannot talk about everything at once. I am contrasting the interest payment on War Debt in this country with Income Tax and Super-tax payments in this country. The hon. Member may very much prefer that I should talk about something else. In view of this disclosure, it is about time we re-adjusted our finances so that the Income Tax and Super-tax-payers really began to pay their footing in this country, instead of claiming all their money back again. That is in itself an argument both for increasing the Sinking Fund and for developing social expenditure, and financing these to a great extent, as recommended in the Minority Report of the Colwyn Committee, by a tax upon unearned incomes graduated according to size. The net result of the inquiries of the Colwyn Committee and of the present financial situation shows that it is vitally necessary for the future credit of this country, and for getting relief for the taxpayers of this country, that we should push on, as my right hon. Friend the Member for Central Edinburgh (Mr. W. Graham) impressed upon the Committee, with the task of debt redemption. It is not in conflict with any of our other duties in regard to expenditure, and it is not less urgent than any of them, particularly in the next four or five years during which, as the Chancellor himself pointed out, there will be a tremendous onrush of maturing debt and during which it will be possible, if the national credit has been improved to the extent of 1 per cent. and he can re-borrow at 4 per cent., he will be able to make large conversions at a lower price. Such opportunities will not recur for many years. Strong, therefore, though the argument is for a vigorous Sinking Fund policy at any time, it is particularly strong in the next four or five years. The deterioration of the national credit, which has been one of the symptoms of Tory rule, is a discouraging prelude for these conversion operations. The hon. Gentleman who spoke last and painted such a glowing picture of future conversion possibilities said the national credit had improved in the period of the last six years. He might have added that it has sadly deteriorated in the last two years since the right hon. Gentleman replaced my right hon. Friend the Member for Calne Valley at the Treasury. Figures to that effect have already been quoted.

In view of the difficulties I have been putting before the Committee, it is astonishing to find that no permanent additions to direct taxation are included in the Budget. A straightforward way of dealing with the situation that has been disclosed would have been to replace the Super-tax that was taken off two years ago, and add something to the general rate of Income Tax, and not simply make a temporary and very inequitable addition, amounting to an additional 2s. in the £ on the standard rate, to Income Tax under Schedule A alone. We should have been entitled to expect that some permanent addition would have been made to the sources of revenue derived from those with the greatest capacity to pay, instead of which we have permanent addition made to indirect taxes—tobacco, matches and the rest. The people of the country will be invited to strike fewer matches and smoke fewer pipes. I am told pipe tobacco is going up in price, according to the statement of the Imperial Tobacco Company, the day after the Budget statement. A certain increase in price, they say, will be unavoidable, though the priced quality of cigarettes may remain unchanged. My hon. Friend suggests that a bargain has been made to keep the down the price of cigarettes, but with regard to pipe tobacco no such undertaking has apparently been given. It is this kind of small, irritating, pettifogging impost which has been relied on by the Chancellor in the sphere of indirect taxation. In the sphere of direct taxation we have merely these makeshift arrangements for a single year, which leave us in great doubt as to what the financial position will be when next year's Budget comes to be made up. Not only shall we have a deficit, as it appears, on the year, but we shall have a prospective deficit of a larger amount on the basis of the then existing taxation when these makeshifts of one year's duration will have passed away. This Budget is, it seems to me, quite out of tradition with the series of Budgets we have had in the past which, whether good or bad, have always had a certain amount of firm basis in principle. This arrangement of putting on temporary makeshifts for a year at a time is a new feature of British finance, and a very bad one. This Budget is not only out of line with tradition in that respect, but also it does not make provision for the urgent requirements of the present time in the degree we consider necessary. Our opinion of the Budget has been expressed and will be expressed on future occasions. We regard it is disingenuous, improvident and socially unjust, and we shall take steps to oppose it on future stages of the Finance Bill.

10.0 p.m.


It is a very old saying that one man can make more assertions in the course of half an hour than another can offer in a week. Certainly, the hon. Member who has just addressed us has covered the whole vast, vaiegated field of our finance, and given us his opinion of almost every aspect of it. I could not in the time at my disposal attempt to deal adequately with a tithe of the propositions he has advanced, and therefore I will select only one for immediate treatment. He used the well-known argument that the whole of the taxation derived from Income Tax and Super-tax goes back into the pockets of the wealthy rentier class through the medium of the interest on the War debt. The hon. Gentleman, in covering the field, advanced many different propositions, and it is difficult to find any underlying principle which united them all. If there was any rock on which he seemed to be building, it was the Report of the Colwyn Committee, in which he seems to have found, in a vast, vague, wide, mysterious world of flux and change, one sure solid base on which an honest Socialist could rest. On pages 98 and 99 of the Colwyn Committee's Report there is a detailed analysis, approved by all these gentlemen whose qualifications and impartiality have been referred to by the hon. Gentleman, of the distribution of the National Debt throughout this country and the world. It appears, according to this, that out of £6,592,000,000 of Debt only £2,350,000,000 is held by private persons liable to Estate Duty, joint stock banks £750,000,000, and the Bank of England £70,000,000. [Interruption.] That is a valuable comment on a Budget Debate. [An HON. MEMBER: "You made it; no one else did!"] If my ears misled me, I withdraw my remark. I understood when I said the Bank of England held £70,000,000 that some hon. Member said "Shame!" [HON. MEMBERS: "No!"] I withdraw my remark, but I am sure the hon. Member felt it, if he did not say it. I have no doubt he felt about that £70,000,000 just as I did about this £12,000,000—that it ought to be transferred to some other authority. The Post Office Savings Bank holds £250,000,000; the Insurance Offices hold, approximately, £250,000,000; the railway companies hold £80,000,000; and there is held by foreigners, trusts, charities, trade unions and joint stock banks £1,650,000,000.


I only rise to explain that I was careful to say that the greater part of this interest returned directly or indirectly to the Income Tax payer and Super-tax payer. That covers the case of banks, railways, insurance offices and joint stock companies to which the right hon. Gentleman refers.


I am also supported by high authority in saying that only about one-sixth of the National Debt is held by Super-tax payers. I think that these very solid and, at the same time, very simple facts ought to lead the hon. Members to expatiate less over the general field of finance, and more thoroughly to penetrate and persevere in the study of some particular selected aspect of it.

We are met here to-day, in this closing phase of the Committee stage of the Budget Resolutions, not so much to discuss any controversial matter as to register what is almost the uanimous approval of the financial proposals of the Government. When I compare the reception which the Budget of 1925, the first which I was responsible for introducing, received, with the reception which this effort has gained, it induces in my mind several curious reflections. The Budget of 1925 offered to the public at large some of the greatest boons which it was possible to concede. In the first place, a reduction of 6d. on the Income Tax, and a special additional reduction on the smaller class of Income Tax payers, at a cost, I think, of over £35,000,000 to the Exchequer, constituted a great remission of very onerous taxation. In the second place, we inaugurated—and it will never be upset—a gigantic system of widows' pensions and old age pensions at 65, with other improvements for which we were much criticised and mocked at in certain quarters, but which, nevertheless, will stand as a social landmark in this country when many other things which we debate for hours and weeks in this House, have long been forgotten. That I have shared in this development of insurance, in spite of all that has been said against it, and about the burden which it lays on the State, I have never for one instant regretted. On the contrary, I shall always rejoice that we took advantage of the only year possible in this Parliament to carry out, in the fullest possible measure, our pledges in regard to widows' pensions.

But what is so remarkable is that, whereas this Budget of 1925, which really had nothing in it but good things and relaxations, reliefs, benefits and advantages, was received in the illest possible manner and with disfavour—I think the right hon. Member for Shettleston (Mr. Wheatley) denounced the Widows' Pensions as about the most inhuman Act ever passed by Parliament, and hon. Gentle men opposite never stinted the language of censure with which they marked the crime of reducing the Income Tax by 6d. —whereas that Budget was received in the worst possible manner, and I found myself almost hunted out of public life as a criminal, this Budget, which, after all, gives nothing away, unless it be a threepenny bit to charity, has, as far as I have been able to estimate, given absolutely undiluted satisfaction in every quarter. It only shows the British public, and the great nation which inherits this somewhat foggy island, are less likely to be grateful for benefits received than they are for evils averted. We all ought to profit from the fruits of experience, and I shall certainly bear that in mind on future occasions.

The Debate, like the very excellent speech of the hon. Gentleman who preceded me (Mr. Dalton), has been very discursive in character. It is quite a task to try, in a short space of time, to focus fairly the principal and most solid criticisms which have been advanced against the proposals of the Government. I shall endeavour to select the most substantial and pertinent criticisms, and one at least of the impertinent criticisms. First of all, there has been a great deal of discussion on economy. There is a general feeling in all parts of the House —I think I am summing up the opinion held in every quarter—that the expenditure of the country ought to be vastly reduced, coupled with an equally strong determination to resist every conceivable suggestion for reducing it.

I am very sorry that the right hon Member for Colne Valley (Mr. Snowden) is not here to-night, and am still more sorry for the cause. [HON. MEMBERS: "Hear, hear!"] It must have been an effort which required a great deal of fortitude to enable him to deliver the extremely fine and vigorous speech which he made yesterday while he was suffering from very severe indisposition. Therefore, I shall only refer to the right hon. Gentleman in his absence as far as is necessary to deal with some of the arguments which he placed before the Committee. It seemed to me that he did not make, nor did any other speaker make, any attempt to deal with the contentions which I have put forward in the Budget speech on the subject of national expenditure. It is really no help to economy to talk nonsense about national expenditure; to repeat the total figure, and compare it with some other total figure before the War or, if you like, in the days of the Labour Government, without attempting to analyse it, and without attempting to discriminate between expenditure which is mere book-keeping expenditure—expenditure which can only be reduced by repudiation of public obligations, beneficial or self-supporting expenditure—and ordinary extravagance. It is no help to economy to deal with the topic in such a muddled way.

There is no excuse for doing that, because in connection with the Economy Bill last year I took the trouble, with the aid of the very efficient staff I had at my disposal, to prepare elaborate tables showing exactly how the expenditure of this country is divided. There you see what it is that the country has to pay or to repudiate. We have to pay or to repudiate the pensions which have been promised; to pay or to repudiate the interest which has been promised on the stock which we have issued. There you also see the cost of the grants which are paid to the local authorities for their education, housing, health, police, sanitation and so forth, which grants go up not through any wickedness of the central Government, but entirely because of decisions taken by those local authorities, and taken in many cases out of a sincere desire to improve the social and physical wellbeing of the people in their districts. There you also see the Post Office and the Road Fund expenditure, which I have called, for want of a better name, self- supporting—it is not only self-supporting, but it helps to support the national exchequer—or remunerative services. Finally, in the fourth category, you see what in Mr. Gladstone's day, and virtually in all Victorian times, was considered to be the public expenditure—the Army, the Navy, Civil Service, and all the administrative functions of the central Government. The whole of that great category is included in the fourth category, and its cost amounts to less than £157,000,000 out of a total of £818,000,000.

It is really no use hon. Members deluding them selves by making speeches, however effective, in the House on a false basis. If you wish to economise you must either cut the grants to the local authorities, or you must repudiate your obligations in regard to the National Debt, or you must curtail the Road Fund and the Post Office, or you must make the economy entirely out of the limited sum of £157,000,000. Let me say a word about the Road Fund and the Post Office. During the three years that we have been in office, the expenditure has increased by nearly £15,000,000 and the revenues have increased by £18,000,000 or £19,000,000. We are not at the end of it. They are going to increase at the rate of at least £5,000,000 a year— certainly at the rate of £5,000,000 a year—in expenditure, and more than that in revenue.

In the next two years, therefore we must look forward to an increase of £10,000,000 in this expenditure at least. I ask the Committee where they stand in regard to that. Are they going to abuse me for that increase, and to say "You rascal! You promised to reduce the expenditure by so much, and it is increasing!" If that be so, if that be your wish, do not delude yourselves. It is a thing that can be dealt with by a mere stroke of the pen. The Cabinet have only to take a decision that the expenditure of the Post Office and the expenditure of the Road Fund shall be stereotyped at the figure at which it now stands. That can be done without discharging anybody, without failing to carry out any contracts upon which we have entered, and without throwing anybody upon the labour market. It can be done simply by arresting development, because the existing income is enormous and continuous.

I do not suggest that; but I think I am entitled to say to the right hon. Gentleman and to other right hon. and hon. Members opposite: Where do you stand in regard to this? Are you going to press that there should be active development of the Post Office, active remunerative development of the Post Office, active remunerative development of the Road Fund? Are you going to do it? If that be your view, then you have no right whatever, when that leads to increased expenditure—and you know that it leads to increased expenditure, and to increased beneficial expenditure—to include the amount of the increase in your total figures, for the purpose of making an attack upon the Government. What is more, such action tends only to divert attention from the real subect of criticism, which ought to be made the aim of true economists. I said that I have heard no attempt to deal with the general contentions about expenditure set forth in the Budget speech. Let me repeat one thing which I then said, that the increase of automatic expenditure, over which the Government have not the slightest control, almost exactly equals the total increase of expenditure which has taken place since our predecessors were in office. No one has challenged this. In the category of National Administrative Services, the Army and the Navy and the Civil Service, tax collection, and so on—if you compare the figure of £150,000,000 for this year with the figure of £96,000,000 before the War, and making the proper allowance, as you are bound to do in logic and reason, for the alteration in the nominal value of money in the ratio of 100 to 175—it will be seen that the expenditure of the Government on all these Services is actually and positively nearly 10 per cent. less than it was before the Great War. I dare say it ought to be still less, but what is the use of people deluding themselves that it is possible to have cuts of £40,000,000, £50,000,000 and £60,000,000, without throwing this country into absolute anarchy and chaos.

I do not think we have had much help in the Debate for the cause of economy. The right hon. Gentleman the Member for Colne Valley scolded me terribly for my extravagance. But he had to make his position clear that he was only scolding me for my extravagance in regard to what I have said, and not in relation to what he and his party would do. He did not explain exactly what that was. But he did say, "We are not in favour of parsimonious collective expenditure."

Then there was the speech of the right hon. Gentleman the Member for Shettleston (Mr. Wheatley), which I am sorry I did not hear. I understand that he made it quite clear that a Budget of £830,000,000 had no terrors for him. He would have been equally glad had it been £900,000,000 or £1,000,000,000, as he believed the country could well afford it. A future leader of the Labour party uses language of this kind, and hon. Members are ready to applaud him. That is not much help towards economy. Have we had any help from the Leader of the Liberal party—I think I may almost put it that way; if the right hon. Gentleman is a stickler for etiquette I will say the Chairman of the Parliamentary Liberal party—have we had any help from him I He delivered a long argument on the subject of the advantages of wise productive spending.

Look at what has happened with regard to the three Ministries which it has been decided to absorb in larger and older organisations. There was a very widespread feeling in the country that the central Government ought to set an example in endeavouring to contract these establishments, in endeavouring to some extent to reduce the size of the hierarchy which had grown up since the War, it being argued that we were not so much richer since the War as to be able to afford a more elaborate system. That was a widespread opinion: My right hon. Friend the Member for Carnarvon Boroughs (Mr. Lloyd George), forgetting himself for a moment, and, perhaps, with a certain vein of amiable malice which came to the top at the moment, said that there was a vulgar and ill-informed agitation and stunt on this subject, and so on. I received a very careful and very full report to-day of the discussion which took place in another place. I always feel it my duty to keep in touch with what goes on there. Lord Oxford had made demands that the post-War Ministries, of most of which the right hon. Member for Carnarvon Boroughs was what is called the putative father, should all be scrapped, and my informant told me that as he uttered those words such a shout, or something as nearly approaching a shout as has ever been uttered in those precincts, was raised, that it nearly lifted the rafters of the roof. The right hon. Member for Carnarvon Boroughs described this as ill-informed criticism. He is, I fear, lacking in respect for the other institutions of the Realm.

When the Government endeavour to set an example, and at some self-sacrifice—because it is very inconvenient when Ministries have to be absorbed, and valued colleagues are disturbed—what happens? Not a single speech have I listened to in the past two days in favour of the step. On every side of the House the argument has been—[HON. MEMBERS: "No, no!"] I may not have been here at the time, but every argument I have heard has been in denunciation of the plan. My hon. And gallant Friend the Member for Chatham (Lieut.-Colonel Moore Brabazon) this afternoon was almost indignant at the intention to abolish the Ministry of Transport. I think that that came with an ill grace from him, for the first fatal step towards the abolition of the Ministry of Transport was taken when he withdrew his valuable services from that Department, because with a full knowledge of the circumstances and of the situation, he did not feel that it was of sufficient importance to require his further attention. How typical this treatment of the Government proposal to reduce the three Ministries is of the attitude to the whole question of economy! Everyone is for economy, but the moment any proposal is put forward, all join together to attack and oppose and criticise, in a tone of quite unwonted asperity sometimes, the Government or the Minister who is responsible for putting the proposal to the House.

Take these tables, and look through them, pick out, if you like, any one item of £2,000,000 or £3,000,000, and let me come forward and propose that it shall be wiped out, and you will find exactly the same opposition in almost every quarter of the House. However, we have had from the hon. Member for Greenock (Sir G. Collins) a positive contribution. He said that instead of proposing economies in general, he would propose economy in a definite form. I greatly admire his courage; none the less I am bound to criticise his suggestions. He said he would reduce expenditure by £35,000,000, and that he would state the way in which it could be done. In the first place, he said we were spending £4,500,000 on Imperial Preference, and we should wipe out that. In the next place he said we were spending £4,500,000 on the beet sugar subsidy, and we should get rid of that. Let us take those two proposals for the moment. After all, Imperial Preference is a policy which has been adopted ever since the Imperial Conference of 1917, which the right hon. Gentleman the Member for Carnarvon Boroughs summoned in the crisis of the War. We there committed ourselves to the principle of giving a preference on all commodities which for our own purposes we taxed, or might hereafter tax, it being clearly understood that there was to be no question of any protective tax on food. In pursuance of that policy, all sorts of arrangements have been made both here and in the Dominions, and if it is costing a good deal of money that is the measure of its success, and the increasing quantities of Dominion and Colonial products are being marketed which are building up very strong ties of commercial connection between us and those great potential markets and associate nations.

The hon. Member proceeded to say that the sugar bounty should be withdrawn. It is a great surprise to me that the sugar bounty should have reached the total of £4,500,000 this year. It only shows how these subsidies have a tendency to grow. They are talked about as if they were quite small things, but before you know where you are they have risen to very formidable heights. But, after all, the increase of the sugar-beet subsidy to this point is again a measure of its success. [An HON. MEMBER: "While the subsidy is being paid!"] A great new industry has been established in this country, and it may continue long after the subsidy has been withdrawn. I will not say that this is a matter to which we were committed by right hon. and hon. Gentlemen opposite, but it is a matter to which they committed themselves, and it it is a policy which was never opposed on the Liberal benches. [HON. MEMBERS: "It was!"] It was not divided against officially by the Liberal party. Incidentally in the coming year it will fall by one-third, and I expect a saving of £1,500,000. Conceive the situation if we were to repudiate a policy of this kind, when people have built factories on the faith of a Government assurance, definite and formal, and when farmers have sown beet and made all their arrangements. I think these two suggestion are impossible. And really, when all is said and done, most of the criticisms from the Opposition have resolved themselves into the proposal that the Navy Estimates should be substantially reduced. That was the proposal which the hon. Member for Greenock added to his scheme of economy. He said there might be £25,000,000 taken off the Navy, or it may have been off the Navy and the Army. I will not admit for a moment that further economies in armaments are not possible. Certainly they must be pressed for. I do not think the limit has been reached at all, but it is foolish not to face other considerations to which I am sure any body of men, sitting with the responsibility of a Cabinet, no matter from which quarter of the House they were chosen, would be compelled to address their minds.

Take, first of all, the Air Force. There was an almost universal decision in this country that we ought to have a stronger Air Force for home defence some three or four years ago, and there was really no resistance to the idea. A certain standard was set up, and that is to what we are working. In point of fact, we have gravely retarded the original programme, but I quite agree that, as the world gets more peaceful, as our relations with foreign Powers become more friendly, and as progress is made in regard to disarmament, the development of the Air Force ought certainly to be the subject of periodical review. But in the absence of that review and of those new facts, it is difficult to see how it is possible to interrupt the efficient development of a policy which has been agreed to by all parties.

Then there is the Army. We are told that the Army can be reduced, and there again I have in my own mind considerable proposals which would effect economies in the Army. But they would not effect reductions in the war power of the Army available to defend our interests and our Empire. I cannot think that the war power represented by our military forces is excessive for that purpose when we see what is going on in China at the present time, when we see what the situation is in Egypt, and, above all, when we see on the frontiers of India now again growing up a vast military Power, potentially dangerous, which for nearly 20 years has not counted in our calculations at all, because the European situation was such as to neutralise possible hostilities on that front. If we look at the situation in India, and the whole position of our country and its responsibilities all over the world, when we consider that and think of the little handful of troops which we have to dispose of, how completely we have disarmed since the Great War, how utterly we have dispersed the vast Armies which marched to victory in the Great War, I say that, although we must be perpetually seeking to save money and reduce expenditure upon armaments, he would be a bold man and a rash man who started recklessly and ruthlessly to cut down the already exiguous military establishment of Great Britain.

Lastly, I come to the Navy. It is a sort of maxim, as far as I can make out, of both the parties in opposition that all money spent on the Navy must, and that no money spent on education can, be wasted. Those are both what are called hard sayings. At the outset of all questions in regard to Naval expenditure, we must face the principle upon which our Navy is maintained. Before the War we used to have the Two Power standard, and later we had the 60 per cent. over the strongest Power standard. But since the War we have accepted—by a great submission, of which personally I strongly approved, and for which I share the responsibility, but to which I should never have believed I could have been forced to subscribe—the condition of equality, the One Power standard. Before we are going to get any large reduction in Naval expenditure, Parliament and the country must decide whether they are prepared to abandon the One Power standard or not. [An HON. MEMBER: "Only in capital ships."] No, it has always been understood that we must have the means of protecting our trade routes, because we live on imported food. But unless this standard be altered, no vast, sweeping economy in Naval expenditure is possible except as the result of some Disarmament Agreement. I should not myself be prepared to subscribe to the repudiation of the One Power standard in any circumstances, and I do not believe the people of this country would be well advised to do so. After all, our position is absolutely unique in this respect. We are dependent, as no other nation is, for our existence upon a reasonable security of sea-power. But within that standard I am of opinion that the Admiralty have Made a very great effort to save money.

I am frequently mocked at for having been defeated by the Admiralty in 1925 If the contentions which I then advanced are corapared with the facts of the Naval programme at the present moment, it will be seen that the difference between those contentions and what is now being carried out is infinitesimal. My right hon. Friend (Mr. Bridgeman) taking advantage of the fact that some other Powers are in arrear—and they are in arrear, I am glad to say —has retarded the programme for six months, because the Admiralty were quite certain that they would not lose their standard or position by making that alteration. Moreover, whereas the Admiralty undertook to pay for the additional cost of the extra cruiser construction for which they pressed in 1925, they did, in fact, not only by other economies produce the money, but they have produced, I think, £1,000,000, or £1,500,000 more. I do not by any means believe that this economy is at an end. Further efforts are being made, and we are greatly assisted by the Board of Admiralty and my right hon. Friend the First Lord.

But, after all, what is the greatest hope of Naval economy? It is some agreement between the three Naval Powers. The right hon. Gentleman this evening spoke about our having a Navy stronger than all the four Powers of Europe put together. What has that got to do with it? There are only three great Naval Powers in the world at the present time, and, luckily, they live at opposite corners of the world. They are the only three great Powers that are able to keep a battle fleet in existence. An agreement between these great Naval Powers to abate the rate of their construction, or to limit the size of their ships, or some other agreement of that kind—in that lies the greatest hope of contraction in naval expenditure, and, although I have no intention of disclosing their policy or plans, I am bound to say in all that matters there is no more helpful factor, no more energetic agent than the Board of Admiralty and my right hon. Friend.

I have tried to deal with the economy proposals in the discussion, and one thing I should have liked to have heard would have been some suggestion to the local authorities that they might try to economise in their own sphere. At present they are encouraged to spend as much money as they can by the hope of getting an equal sum as a percentage grant from the National Exchequer. It is the ordinary way in which you raise a sub-scription. "Our valued friend Mr. So-and-so says he will give £1,000 if all the ether persons present will contribute an equal sum." It is one of the best-known recipes for getting up a subscription, or for forcing up expenditure.

The theory is that, while all expenditure by the central Government is criminal and wrong, all expenditure by local authorities is bound to be beneficial, and ought to be encouraged. For my part, I think it is a most unpleasant position for the Chancellor of the Exchequer and the Treasury to be placed in—not to know from year to year what sums of money he is to be called upon to find; to have decisions taken by local authorities all over the country, over which he has not the slightest control, by which the fortunes and the character of the central Budget are governed. If these local local authorities, in despite of the most earnest wishes of the central Government, push up their expenditure, the national expenditure must rise accordingly, and Parliament and the Press will abuse and criticise the Government of the day for that very rise of expenditure.


The cure for that lies in the Government's hands.


I should be very glad to know it. I should be very glad if we could convert percentage grants into block grants. It would pay us to give a substantial sum in excess of what is being paid now in order to get a good settlement of that question. But on trying to deal with it one found that there were so many authorities and interests—public interests—which have means of making objections, that it looked as though the change would be far more expensive than even the evils of the present system. However, that is a matter which is still being studied.

Now I turn to the discussion on the Road Fund— "raiding the Road Fund." The right hon. Gentleman the Member for Carnarvon Boroughs attacked me for my misdemeanours in that respect. He spoke of the importance of road development. Of course, road development is very important, but there must be some proportion between road development and other development in this country. The development of the roads must have some relation to the general wealth of the country, and some relation also to the railways and other means of transportation. We have no right to have the whole country hampered and stinted in every direction while one particular fund, which happens to be fed by a particular class —not by any means the most unfortunate class—who are multiplying very much should remain the one prosperous feature in the whole of our national development. It is a question of proportion. I am all for road development. I have a right to plume myself on making far greater road developments than ever were made by my right hon. Friend (Mr. Lloyd George). I have the figures here of the sums of money he contributed to the Road Fund in those days of which he reminded me this afternoon.

In the latest year before the War, 1914–15, the right hon. Gentleman provided £1,528,000 for the roads. This year we are providing £19,500,000. [Interruption]. Great as has been the development of motors, the development of the State contribution has been in a greater ratio. It is nearly £20,000,000 this year, and, after all, in the interval between 1914 and the present time, many very serious injuries have been done to the wealth of the British nation. I have made it my duty to see that every undertaking for which the Road Fund is responsible will be met. Nothing will be curtailed. A growing fund will be provided each year for the upkeep of the Road Fund and really it seems to me, with these facts definitely established, that, it would have been folly to leave this immense sum of £12,000,000 as an additional incentive to unbalanced and disproportionate expenditure, while at the same time every other part of the national system was strained and impoverished.

The right hon. Gentleman spoke about Schedule A and its hardships. I am glad they are recognised, because it was never represented as not involving an element of hardship to the taxpayers affected, but I believe they will, in fact, bear that hardship without undue complaint. The right hon. Gentleman spoke particularly, as have other Members, of the case of the small taxpayers— the small owners of property. The smallest of these are exempt from tax, and those whose means are a little above this limit are charged only after the allowances are deducted, and they are charged only at 2s. in the £ on the balance. For a married man, the first £225 is exempt and the second £225 is taxed at 2s., that is to say, the instalment accelerated from July to January is only 1s. in the £ to this class of taxpayer. It can, in these case, only be the minutest fraction of the total income.

The right hon. Gentleman spoke of the aged taxpayers of both sexes, but in the Budget of 1925 we made a special concession to the aged taxpayer whose income did not exceed £500 a year. We said "Never mind if it is unearned income. It will be entitled to the relief which is accorded to earned income." Consequently, this relief operates like the other reliefs which are continually operating in the lower ranges of income. I cannot for a moment believe that these burdens will be found unduly oppressive, though I recognise the hardship of every form of taxation.

Finally the right hon. Gentleman pointed out that the Schedule A taxpayers as a whole are called upon to pay three instalments in 12 months and how unjust that was. But if they are called upon to pay three instalments in 12 months in 1927, it must. not be forgotten that they paid only one instalment in the 12 months of 1918, and so, if we take the period of years the number of instalments works out at an average of two a year. Anyhow I have no doubt whatever that these taxpayers, in spite of the fact that they have been singled out for taxation, would all far more readily accept the solution proffered in the present Budget than its alternative, which undoubtedly would have meant 3d. or 4d. on the standard rate of Income Tax.

I have only one more point to make, and it is this. It is said "You are facing your expenditure this year by means of windfalls, and next year our position will be that the windfall money to the extent of £32,000,000 will not be available, and there will be no means of meeting the ordinary annual charges." We are passing through an exceptional dip in the revenue—a dip caused by the events of last year. We are passing through this dip, and next year there will be a recovery of the revenue. I am not counting on any tremendous boom of trade, but in ordinary circumstances the trade results of 1927, if there be no great upheaval, must be incomparably better than those of last year, when we had an unexampled breakdown.

I shall get the benefit of those results in the Income Tax of 1927, just as I got the evils of 1926 in the present year. This is not a case of altering the true balance of permanent expenditure and revenue because both are adequately maintained; but, in view of the exceptional crisis, we have thought it right to use these special aids. Next sear we shall certainly expect a recovery of the revenue by a considerable amount. There also remains, in the last resource, as a margin, although I earnestly trust it will not be necessary to use it, the amount of the Sinking Fund over and above the statutory limit.

I do not think we have been left in any unsound position by the Budget of this year. It is quite true that we have only a small surplus of £1,400,000, and that China will certainly cost more than that. When I had to make up my mind whether an additional tax should he put on to give us a larger margin in regard to China or not, I could not help feeling that it would be more in the interests of the country to make an earnest effort to effect savings of at least £3,000,000 or £4,000,000 during the present year, especially as they would probably provide a larger sum next year. Therefore, I thought the best thing to do, instead of putting another 2d. or 3d. on the Income Tax, was to endeavour to get through by the means I have adopted. With that in view we have thought it better to nurse the country in the difficult situation in which we find ourselves. What has been said about the anxious position of our trade is quite true. We have jeopardised our position in the world by what has taken place, and unless trade can recover, there will be further adverse effects on our situation. All these evils lie before us, and our only hope is that trade and enterprise will grow stronger and revive. It is for that reason that, at this critical moment, faced with this decline in the revenue, I thought it advisable to adopt these exceptional expedients, in order that we may give industry every chance of recovery and revival.

Question put, and agreed to.

Resolution to be reported To-morrow.

Committee to sit again To-morrow.