HC Deb 15 September 1931 vol 256 cc681-802

Question again proposed, That—

  1. (a) the standard rate of Income Tax for the year 1931–32 shall he increased to five shillings in the pound; and
  2. (b) in connection with the said increase, amendments shall be made in Section two hundred and eleven of the Income Tax Act, 1918, as amended by Section twelve of the Finance Act, 1930, and special provision made in relation to income chargeable under Schedule C, under Rule 6 or Rule 7 of the Miscellaneous Rules applicable to Schedule D, or under Rule 21 of the General Rules; and
  3. (c) such other amendments shall he made in the Income Tax Acts as are consequential on the said increase."—[Mr. P. Snowden.]


When the Chancellor of the Exchequer addressed the House on Thursday afternoon it was only possible to offer a few general observations on the statement. Since that time we have had the opportunity of considering the speech in detail and of studying the White Papers which have been issued, and I think the House, this afternoon, will agree that irrespective of party feeling this is perhaps one of the most important Budget Debates we have approached. I only wish it had fallen to one of longer experience to initiate to-day's discussion. I am in a certain difficulty in view of the close personal and political association which I enjoyed with the right hon. Gentleman the Chancellor of the Exchequer, hut I know that he would be the last to expect that anything of that kind should in any way he permitted to interfere with the criticism which we on this side of the House feel bound to offer to the Budget proposals.

It will, I think, be generally admitted that this Budget cannot be considered apart from very important influences which have been operating on the finance of this country particularly since the War and largely in the international field. I propose to look at one or two of these problems by way of introduction; and, in the second place, to try to analyse the broad effects of the Budget proposals on the masses of the people. In the third place, I propose to devote some analysis to the larger or wider problem which has been put forward and is now occupying attention, namely, that the real question before the country is not the balancing of this Budget, but some method of dealing with the adverse trade balance of Great Britain, and to raise within the scope of that problem, the tariff issue which very largely divides the two sides in the House of Commons. I propose to try to state this case in view of what I have seen in certain conferences which have taken place during the past 2f years and to give hon. Members very frankly, and I trust very fairly, the impressions which those conferences have made upon my mind.

There is no doubt that this crisis was very largely precipitated by events in Germany. Some months ago there was the acute difficulty which overtook the Credit Anstalt, the almost immediate effect which that had upon the German financial position, the growing difficulty which it involved for the City of London, and, more particularly, the heavy drain on gold in the month of July. I cannot help feeling that very valuable-opportunities of preventing this situation were lost in the immediately preceding months. HOD. Members will recall that in May there were certain suggestions by the French Government, very largely as a counterblast to the proposed Austro-German Customs Union, in favour of large-scale credits in the interests of Germany. It is certainly true that that was not pursued with the enthusiasm which the proposals deserved. At a later date there were suggestions for £100,000,000 loan or credit which we and other countries were invited to participate in or guarantee, also for the purpose of trying to save the situation in Germany. It was clear even at that time that that situation might involve very great difficulty for Great Britain. These opportunities were very largely lost.

France was naturally anxious regarding the effects of the proposed Austro-German Customs Union. Certain people saw in that a development of the Free Trade area in Central Europe; they saw the probable cooperation of those countries which were in undeniable difficulties under the burden of their reparation payments, and it was felt that this was a plan which might be capable of very wide extension. But we know now that it was passed, so far as related to the treaty provisions under the Treaty of Versailles, to the Permanent Court at The Hague, and by and bye it became abundantly plain that whatever view was expressed by that tribunal on the large political or international issue that was raised, the real question was the financial problem, the economic problem, which was assuming acute form so far as Germany was concerned. Partly for that and partly for other reasons, there was a very great strain on London during the month of July, and hon. Members will recall the provision which was made in a. £50,000,000 credit, arranged by France and by the United States of America, which at that time was held by a great volume of financial opinion as likely to save this situation.

Just about the time that that was finally settled or adjusted, there came the publication of the. May Committee Report, very largely undermining the confidence which had so far been secured and capable certainly of widespread misunderstanding as to our social position in Great Britain and our general financial strength, capable of widespread misunderstanding on those points in America and other great creditor countries. Is it unfair to suggest this afternoon, and more particularly in the light of the discussions of the past week, that that Report presented a grossly exaggerated picture of our difficulties in Great Britain? The "Times" newspaper has been lecturing all and sundry about their patriotism, but the "Times" was perfectly well aware of the precarious sterling position at the end of July. They knew that it would require very sustained and very substantial support, but that did not stop them, first of all, anticipating the terms of that Report and then placarding to all the wide world that this country was living far beyond its income, that we were spending enormous sums in unproductive outlay, and that our Budget could not possibly be balanced, thereby accentuating the difficulties which rapidly accumulated at the beginning of August.

Foreign opinion could not be expected to understand that the £120,000,000 deficit which was described by the May Committee Report included the full provision for a £50,000,000 sinking fund in redemption of the Debt; outside opinion could not be expected to understand that account had been taken of certain windfalls and other considerations. It saw this picture in its blackest hue, and in a very short time there was a great fear that London would be forced off the gold standard, with all the crisis that subsequently supervened.

That, as I see it, is a short summary of the events which underlie on the financial side our Debate this afternoon. But that leads me to the second point, and it is also closely associated with the German position. Every hon. Member who wants to do justice by an analysis of this situation must remember that there have been growing up steadily the two great forces which have been operating-first of all, an attempt to meet these impossible reparation payments, and, in the second place, an attempt to maintain a form of the gold standard in operation which had no relation to the operation of the gold standard as that was commonly understood. Let us notice, first of all the reparation payments. Here is a movement on this side of the House which has been exposed to abuse and opposition, because almost from the very start we said that these reparation payments could never be made without grave dislocation of international finance, without peculiar disadvantages for Great Britain, an island community with a great export trade, and without pressure on parts of Central Europe under which that part of Europe was almost certain some day to succumb.

I attended, with the Chancellor of the Exchequer, two conferences at the Hague, in August., 1929, and January, 1930. Now that I am free to speak without the bondage which necessarily applies to Government delegates, what was the impression that those two conferences made upon many of our minds? It was clear that the conferences contained no permanent solution of the reparations problem. Certain sums had been paid by Germany immediately after the War. Then came the Dawes plan, which was admittedly provisional with no fixation of the capital liability.

Then the Young plan, which was designed, first of all, to reduce the annuities to what some people regarded as manageable proportions, and above all to fix the aggregate liability and to spread those annuities over a period of 60 years. But during the whole of the operation of the Dawes plan there had been no effective test of German ability to pay because during that time Germany was importing large quantities of capital, and those importations of capital into Germany obliterated the real meaning of or the real test of reparation payments. When we passed to the Young plan, even on the reduced rate of annuities, we had got down to a more acute form of the depressed commodity price level in Europe, and almost immediately observers recognised that these payments could not be maintained.

During all that time there was not the slightest sign, notwithstanding the appeals of the people who believed that this was detrimental to international finance, of any substantial movement in the United States of America to reconsider those wartime obligations and reparation settlements. The Hoover declaration came very largely as a surprise some months ago; but, in my view, it was dictated by this fact, that the banking authorities or the Federal Reserve Bank in the United States felt that they had a certain responsibility for the large sums which had been invested in Europe, that unless there was going to be some moratorium in the public debt very large quantities of private obligations would never be met at all, and that the German industrial system would break down and would probably drag after it important industrial countries in Europe and elsewhere. We now have the moratorium and these debts have been suspended for a period of one year. They make their contribution to the Budget difficulties which we are discussing-to-day, but I suggest—and it is certainly our view on this side of the House—that the sooner we and other countries make up our minds that all these hopeless and, indeed, suicidal efforts to make the reparation payments at all are abandoned, the better it will be for European industrial recovery and for the position of Great Britain.

It may be suggested in some quarters that that is a selfish desire on our part. It is true that we have been largely just a channel through which these payments have passed from Europe to the United States, but we are entitled to say that that has had a very detrimental effect upon our industry and commerce; and it is also fair to point out that much of the payment has only been possible by the literally enormous sacrifices which this country made during and after the War. It cost us £11,000,000,000. We wrote off £1,000,000,000 to our European allies. We gave great concessions in the debt settlements. In short, we made sacrifices in every direction, and it is one of the essential elements of this Budget tragedy, as I regard it, which we are facing this afternoon, that the meaning of all that has come home to roost. What I regret most is that it should involve an attack upon millions of the people in this country whose contribution to that sacrifice has already been very great indeed.

May I turn for a moment to the second part of this external difficulty. Hon. Members will be the last to say this afternoon that we are not discussing something which is not closely related to this Budget, because it is common ground that, unless the commodity price level can be raised all over the world, this Budget may not be balanced at all, because there may be a deepening unemployment in Great Britain, ever-increasing charges for the relief of that distress, and there may be a situation in Germany and in other parts of Europe and—I do not know—even in the United States, which will make the maintenance of the gold standard in any kind of form absolutely impossible. We have not taken the view that the gold standard can be abandoned, but we have been very strong in our criticism of the way in which it has operated since the return to it in 1925. Obviously, the world requires some international basis in gold reserves for its industrial and commercial transactions, but when we made the return in 1925—I very well remember the speeches of the right hon. Gentleman the Member for Epping (Mr. Churchill)—the whole idea was, first of all, that that moment was opportune for the change, and in the second place, that there would be a contribution to security in world commerce.

By that I imagine that the right hon. Gentleman must have meant that the gold standard would soon operate in something like the normal way. It was plain to everybody that there was not much chance of a speedy return to normal form because of the influences of heavy reparation payments in gold to America and to France, but, even allowing for that, there was a feeling that we had got out of the currency chaos of the War period, that we were becoming linked up again to former standards, and that this would be the basis for healthy commercial development. But since that time there has, of course, been a marked deflationary effect; in other words, a great and continuous fall in the commodity price level, and that fall has been most marked since the autumn of 1929. That fall, of course, was very sharply aggravated by the collapse of the boom in the United States. I venture to suggest, on behalf of this movement, that never has any great cause spender ground for criticism than of the wholesale speculation and trafficking in securities far above their real worth which accentuated a state of affairs which led to widespread unemployment, not only in the United States but in Europe.

That is the price which the masses of the people of this country have to pay for this unbridled speculation in what passes for private enterprise at the present time. There are always the arguments that the people must not interfere with the security market and private finance, but it remains undoubtedly true that Governments and taxpayers have had to put up hundreds of millions of pounds for the relief of the distress which follows speculation of that kind. It is part of our case this afternoon that all that is inseparable from the industrial and financial system which hon. Members opposite support and which this movement exists to dethrone.

What was the effect of commodity prices tumbling down? Of course, the obvious effect was an enormous increase in the numbers of the unemployed. In the next place, that commodity price fall wiped out almost at a stroke all the advantage that Germany obtained from the lower scale of reparations in Europe. It has been computed by competent authority that it was a matter of a very brief period before all that advantage disappeared. Side by side with that there has been no proper distribution of these gold reserves; on the contrary, the very opposite. In a return in the early part of this year it was shown that over £1,500,000,000 of these gold reserves were held in a handful of creditor countries, and little more than £500,000,000 in the debtor countries. I have not the least doubt that that mal-distribution will become even more acute than it is now. There is £1,000,000,000 or thereabouts in the United States and £500,000,000 in France. I may have understated it. In short, there is a state of affairs in the reserves which makes any kind of true gold standard absolutely impossible as we ordinarily understand it.

4.0 p.m.

What are we going to do, or try to do in the international field to remedy that state of affairs? Let me say to the House of Commons this afternoon that, whatever view we take of this Budget, whether we think it is right or wrong, balanced or unbalanced, it will be of no avail whatever in a very short time ahead unless this world gold problem can be definitely dealt with. Great Britain may go off the gold standard altogether with some of the consequences forecast in recent days. The remedy was suggested by the gold delegation of the League of Nations, and it was made abundantly plain in the report of the Macmillan Committee. In short, these documents urged that there should he immediate and drastic action by Governments or by central banks to secure the economical use of these gold reserves, and above all to take the earliest steps for using these vast immobilised resources to furnish the long-term credits, or the large-scale credits that the debtor countries in particular require. That is the situation as we see it this afternoon. There is no sign at the present moment of any improvement in commodity price levels. So long as this continues, the problem of unemployment will continue to increase, and we are looking forward to a time this winter when, in the leading industrial countries of the world, there will not be fewer than 30,000,000 people dependent directly or indirectly upon some form of public assistance. That is the background of the Budget which we are considering this afternoon, and so, first of all, we have to make our contribution in the reparations question and, above all, the biggest and the best contribution that we can make, occupying as we do a very influential position in world finance, to this gold difficulty which, whatever may be said by Governments or by those who plead that the problem lies in the industrial field, is, in my judgment, related to price level, and is at the root of a great deal of our present distress.

We come to the actual proposals of the May Committee and their effect on this Budget statement. I have tried to give the Committee a picture—I admit inadequate and in summarised form—of the external influences which are playing upon the lives of millions of people in this country. We can very speedily relate the May Committee's Report to these external influences and to the Budget proposals and to the future course of our industrial progress. All through, in order to get a better distribution of world gold resources, there was running a sharp controversy as to whether the disease lay in the economic field at all or in the industrial field, and in the industrial field the plea usually took this form, that the sound course was to try to reduce our money costs of production in this country to fit that lower price level which was true of the greater part of the civilised world. They washed their hands, or in many cases washed their hands, of an effort to deal with the situation. They said that British prices by a variety of forces were being kept above the world level, and until we could bring our prices to that level, or approximately to that level, we could not regain our export trade; we could not, in short, deal with this adverse trade balance which has rightly occupied a very large part of our Debate. The object was to try to force down salaries and wages to meet that state of affairs, ignoring the fundamental causes affecting the existence of millions of our people.

There is a violent contrast between the message of the report of the May Committee and that of the Macmillan Committee. The Macmillan Committee, which had two years to study and investigate, took evidence from a great body of experts and skilled witnesses, men in all walks of life, and had time to survey the field in a manner which was not the case with the May Committee, and they reached a conclusion which I will summarise to the Committee, namely, that these steps must be taken as a matter of urgency, and they went on to show that any attempt to reduce wages and salaries in Great Britain to meet those low prices in trade, would be accompanied by a great deal of social and industrial unrest that would, in all probability, defeat the object which they had in view.

The May Committee approached the question from the very opposite angle. It simply adopted the criticism which had been running in the American Press and some parts of the Continental Press, that we were spending too much on our social services, and, above all, spending too much on our unemployed. The £96,000,000 of economies which they recommended included £88,000,000 which was to he found from unemployment insurance, from education and from the Road Fund, and of that total, £66,000,000 was to be found at the expense of unemployment insurance in one form or another. Was there ever a more lopsided and a more hopelessly unjust proposal? It is true of the May Committee, just as it was true of the Geddes Committee nine or 10 years before, that they literally rushed at these problems without understanding them, and, at any rate, the picture presented to Americans became in their newspapers a gross distortion of the real state of affairs in this country. There was nothing new in our policy of borrowing for the Unemployment Insurance Fund. That had been necessary through successive Governments in the presence of large-scale industrial distress. As I have already pointed out, the report did not observe or make perfectly clear that this deficit included £60,000,000 of our Sinking Fund. Those things had their effect on the influence that this report exercised abroad.

In justice to millions of people outside these walls this afternoon, and laying aside the admittedly strong and even bitter criticism which has been exchanged in recent days, let us just note the sacrifice which has been made, not in terms of theory, but in terms of actual figures and facts by millions of the British people since prices collapsed in 1921 and since this period of industrial depression set in. During part of that time we had a national income of approximately £4,000,000,000. That national income today has fallen, according to the very latest figure I can get, to perhaps about £3,600,000,000, but the great mass of the people in this country get less than one-half of that total. An analysis on the £4,000,000,000 basis shows that the millions of wage-earners in Great Britain got in the aggregate £1,600,000,000 and the rest of the vast sum went to an infinitely smaller proportion of the community. They have suffered more in the wage changes of recent dates. In a period of nine or ten years, not less than £800,000,000 per annum has been taken from the income of 10,000,000 people in this country, that is since these commodity prices fell. But the retail prices have not kept pace with that decrease, largely because of the growing trust power in the retail trade. Retail prices have operated against millions of our people, and, as my hon. Friend pointed out in a question a few minutes ago, rents have also played a very large part. At one stage the Rent Restrictions Acts were held to do less than justice to the proprietors of house property, but with the diminution in prices they have begun to do more than justice, and there is not the least doubt that they represent a steady element in the cost of living for millions of our people which has undoubtedly aggravated the suffering of recent times.

Take this Budget proposal. There are those drastic cuts in the social services. There is the bringing down of the Income Tax level to large numbers of people not previously affected. There is the undeniable fact that the increased taxes on beer, tobacco and petrol, whatever view we take, will be paid in large part by millions of working people in this country. They have suffered those wage reductions to which I have referred, and it is no exaggeration to say that this Budget, so far from representing equality of sacrifice, if anything of that kind were possible in this industrial system, will in due course exercise an ever increasing pressure upon these people. It has been computed, not by a Socialist, but by someone of eminent respectability outside our ranks that the almost immediate effect of these cuts will be to add 250,000 to 400,000 people to the ranks of the unemployed in Great Britain. Side by side with that there will be an inevitable tendency to pile up the burdens of the local authorities which are even more disadvantageous to the recovery of trade than a national tax. All those elements are at work in the situation.

Of course, when we are in office we are sometimes asked across the Floor of the House from the Opposition, "What would you do?" The Committee will agree that during those 2i years, world economic facts were hemming us in. We could not affect them in any way. They are even now hemming this Government in. The new Government may not last six weeks if the pressure increases. These forces were in evidence then. We had no majority in this House for any drastic change—[HON. MEMBERS: "Oh!"]

I am making a perfectly fair statement, we had no majority in this House for any Socialist plan. Hon. Members will not dispute that. As one who had to discuss matters with Members on the Liberal benches, I am making no criticism of the fact that they were unable, obviously, because they were anti-socialist, to support any change of policy. It is perfectly clear to hon. Members in all parts of the Committee.

As alternative suggestions are so often requested, let me say first of all that sooner than make that attack upon the social services, I would much rather suspend the whole of our Sinking Fund in this financial year and in the financial year 1932–33, because, let the Committee observe, we are not dealing this afternoon with a Budget to 31st March next; we are now legislating for what is, in public finance in this country, a rather long-term proposition, namely, to 31st March, 1933. Our aggregate national indebtedness is £7,500,000,000. Is any hon. Member going to tell me that British credit is going to be damaged at home or abroad if, while making provision for this contractual £32,000,000 in the Sinking Fund, we re-borrow that at the end of the financial year, add it to the capital of the debt and liberate at least £32,000,000 to avoid an attack upon some of the poorest people in our midst? What is there wrong or fantastic about that? And there is a very strong underlying economic reason for postponing some of this debt payment.

What has been the effect of this fall in prices? It has added enormously to the real burden of the National Debt. To a very large section of the holders of that Debt it has given an unexpected and an unfair bonus at the public expense. It was calculated that between 1924 and 1929 the fall in prices had added about 30 per cent. to the money value of important blocks of our British National Debt, and probably between 1929 and 1931 there was another 15 per cent., or some figure of that kind. These great changes have taken place in other lands as well. They have aggravated the problem in Germany and in every country afflicted with a great national obligation of this kind.

In the second place, I would without a moment's hesitation withdraw the Berating relief to brewers, tobacco manufacturers, newspapers, and other undeniably prosperous concerns in our country, although in the case of breweries there was admittedly a countervailing excise. When de-rating was introduced—and it now imposes a burden on the Exchequer amounting in the aggregate to rather more than £30,000,000—any differentiation of that kind was rejected because it was said that we could not draw a distinction between efficient and inefficient industries, or, in other words, if we differentiated in that way it really meant putting a premium upon inefficiency. We showed at that time, and we say to-day, that that argument entirely misunderstands the case. It is only a matter of taking out certain sections—tobacco factories, newspapers and breweries and others—all of which are admittedly prosperous. It is not proposed to interfere with the agricultural rating relief, because nobody disputes that agriculture is distressed, nor is it proposed to withdraw the de-rating concession from important and struggling export industries. The differentiation can be made. Of course, I am aware of all the technical difficulties which can be put forward. I sat beside the Chancellor of the Exchequer for two years, and, if I may say so, I tried to take some part in defending his proposals. Of course, there are endless technical difficulties. At any moment you can get a memorandum which overwhelms you and convinces you that it cannot be done —until it is done! We are not considering such a proposal this afternoon in terms of normal British public finance. We have been reminded, and I do not complain of it, because it is perfectly true, that every Member of this House is debating to-day in terms of an emergency situation. Well, then, withdraw this bonus to those undertakings that do not require it. It is a sheer dole, if I may use that ugly word, as applied to an industrial concern.

Next, what objection is there to a further increase of taxation on the undeniable wealth in the hands of individuals? The Chancellor of the Exchequer has proposed a 10 per cent. addition to the rates of Surtax in this country, designed, if I remember aright, to yield about £6,000,000 in a full year. Is there any objection to doubling that addition? Is it not true that during the past 10 years, in spite of all this industrial depression, there has been a normal, steady growth in that block of the national income in this country flowing to the Surtax or Super-tax section of the community?" According to the latest returns of the Inland Revenue authorities, for the year 1930 that sum represented not less of our national income than £541,000,000. Is there no room for additional taxation there? There are endless proposals of that kind to be made, and they are all less unjust to individuals and less detrimental to the purchasing power of millions of the people than the proposals embodied in the Budget statement.

I must turn, in the fourth place, to the only other argument I would venture to offer to hon. Members. We have reviewed the Budget situation and the Budget has been balanced; but there is a doubt in every honest financial mind as to whether this country can stay the pace and keep on the gold standard. If Germany's unemployed rise to the figure of 7,000,000 in the coming winter, if the unemployment figures are higher in the United States than is expected at the moment, and if we get more than 3,000,000 unemployed in Great Britain, then my frank belief is that it is going to be remarkably difficult to save the situation. Therefore, I am not surprised that a very large number of hon. Mem- bers on the benches opposite—although without offence I must now describe them as a miscellaneous team—say that now that we have balanced the Budget and can see at all events a short time ahead —they do not put it higher than that—we must look to the adverse trade balance which may sooner or later—probably sooner—engulf all the proposals to which the Chancellor of the Exchequer is now committed.

I do not intend to burke that problem this afternoon. I hardly know what I shall say to my right hon. Friend opposite but it raises the whole fiscal issue of Great Britain. [HON. MEMBERS: "What does your leader say?"] Hon. Members have been very patient, and I am grateful to them. We have observed the growing difficulty of our trade balance. In past years we have normally enjoyed a very substantial balance after the charges for our imports had been met from our exports plus invisible services in insurance, shipping and yields from overseas investments, and the rest; and I suppose the ordinary economic view is that that balance remained available for overseas investments and the development of our economic appeal to the markets of the world. We have seen that balance declining within recent years. Up to the present point in this financial year there is an adverse trade balance of about £246,000,000. It is true that we still have to set against that certain invisible services, but the idea is that at the end of the year, even after all those things have been taken into account, there will be a considerable net balance against this country. And if that situation becomes more acute than it is now, I am not prepared to dispute that the Budget may be speedily unbalanced altogether.

But before we fly to remedies of the kind suggested by hon. Members opposite it is our duty in this Debate to take into careful account the possible effect on British trade and to weigh up what is likely to be the net balance of advantages, if any, or disadvantages in a transaction of this kind. Will the House allow me to state the problem very briefly in the light of 2¼ years' experience at the Board of Trade, where I was in daily contact with industrialists and commercial leaders in every department of British industry and commerce, who put their views, as I must fairly and gratefully acknowledge to us, as Labour Ministers with complete impartiality, although never disguising the remedies which they themselves recommended, whether we were able to adopt them or not.

The first suggestion is that this situation might be met in some way by a revenue tariff. Hon. Members opposite asked me just now "What is the view of your leaders? "—the view of my right hon. Friend the Leader of the Opposition, of myself, and other Members on this bench, and of the rank and file of our party? There is no disguising the fact, it is quite public property, that when some of us were confronted with the choice, if it had been boiled down to that, of a reduction in the rates of unemployment insurance benefit on the one side—if there was to he absolutely no escape from that proposition—and a revenue tariff on the other, I have not the least hesitation in telling the Committee that we should have preferred the revenue tariff, dangerous as that device may be. But if we could meet the situation, as I believe we can, without resorting to any tariff restrictions, it is certainly our duty to point to the dangers of tariffs as we see them in international commerce.

Of course, it would not be a revenue tariff; there would be no countervailing excise. The whole idea is to impose a duty of 10 per cent., or whatever the figure is, partly to get a certain revenue in order to ease the burdens of the State, and partly to give a stimulus to the price level and a certain encouragement to the great range of British industry and commerce. That was all very faithfully analysed under the late Government. Side by side proposals were put up by the people who recommend a revenue tariff that it should be accompanied by a bounty on exports, because they realised the idea would fail unless there were some method of supporting the export trades. But, of course, it will be plain to every hon. Member that no sooner do we apply this bounty to exports in this country than we bring into operation against our trade the anti-dumping legislation of other lands. Any export bounty of that kind is regarded as an artificial device, as a form of dumping which they consider they are entitled to treat under that legislation. Moreover, I do not take the view that with the price level as it, is at the present time 10 per cent. is going to make very much difference one way or the other. Even on the benches opposite there is a widespread doubt as to whether that is of any efficacy as a remedy at all.

There is another proposal to which my right hon. Friend the Member for St. Ives (Mr. Runciman) has committed himself. He proposes to put a prohibition on the import of luxuries into Great Britain. Speaking for myself, but I think for a very large number of our Members, we have no particular objection to any step which is going to restrict, the consumption of luxuries in an emergency of this kind. I think no one would object to cutting down the consumption of luxuries in the present state of industry and commerce, a state of things which is reducing the income of millions of our people. The consumption of luxuries in these circumstances should not be encouraged, and those resources should be liberated for the benefit of the people. On the other hand, any proposal to cut out luxury goods altogether is a perfectly fantastic idea unless it is done in relation to the whole problem. If you include foodstuffs and raw materials our imports amount to about £1,000,000,000, whereas I doubt whether luxuries cover a field of more than £20,000,000 or £30,000,000. Therefore, if you applied prohibition in this way it will be nothing more than an agreeable demonstration, and, if I were a Protectionist, I should reject the whole idea as fantastic and simply regard it as something put forward by a political opponent to ease the difficulties of the Parliamentary situation.

The Prime Minister has told us that the Government have appointed a committee to consider the whole question of the adverse balance of trade. This subject has been very carefully examined in the past, and I think I could almost forecast the result of the committee's deliberations. One side will say, "We believe in Free Trade. We joined the emergency Government and we are to be released at the end of a short time and go our several ways, but we stand by our allegiance to Free Trade." The other side, probably led by my successor at the Board of Trade who is a Protectionist who has never dis- guised his views and with whom I have had many agreeable exchanges in this House, will go hot and strong, I have no doubt, for something which they concede to be necessary at the present time, and that is a Tariff. I have no doubt that the Conservative members of the committee will bring forward proposals which will bring comfort not only to the manufacturing industries but also to agriculture, because the Protectionist case in existing conditions is absolutely hopeless unless it is extended to agriculture and unless foodstuffs are included. If the Government are going to embark on a scheme of that kind, I think we ought t5 be told what the duty is going to be and how many members of the present Government are going to remain in office.

That is only one side of the picture. I do not dispute that there are many people who have changed their views in the different political parties on this subject, and I am not going to maintain that this is a fundamental matter so far as the Socialist movement is concerned. [Interruption.] All along we have made it abundantly clear that in our view neither Free Trade nor Protection will solve the problem. It is our duty, however, to point out that if steps of this kind be taken, there would be a repercussion on British commerce in different parts of the world and our export trade would be in danger. A remedy of this kind would have to he judged by its effects on our foreign trade and more especially upon our trade with countries like France from whom we have just received large credits. In this way, a vital blow might be struck at our export trade, and any proposals of that kind might meet with much opposition in France. Prohibitions of the kind suggested might have a widespread effect at a time when we have enjoyed assistance from France in the shape of large credits for our exchange.

I will summarise what I mean in this way. For a long period of years our commercial policy has been built up upon the most-favoured-nation treatment in the markets of the world, and the moment we take the step which has been suggested in Great Britain there will be a movement in most of the countries of Europe in favour of forcing up the tariffs of foreign countries. The proposals which have been suggested would be a reversal of the policy laid down at the Economic Con- ference of 1927. In that way, you would create a force which would defeat the financial arrangements which have been made and the steps which have been taken to secure a better gold distribution and you would be doing this at the very time when according to every economic argument you want the maximum of freedom in the European market. In this way, other countries will do us far more harm than we can ever do them. [Interruption.] I think Sir Charles Addis was quite correct when he said that other countries were now less interested in our markets than we were in theirs. In these circumstances, I think we are entitled to know what is to be the guarantee for industrial reorganisation in this country and what protection is going to be afforded to the great mass of British consumers.

This afternoon I have tried to trace what will be the effect of this Budget, and no one will dispute that a tariff will be absolutely ineffective unless it raises the price level in this country. A tariff has no real meaning unless it achieves that result. [HON. MEMBERS: "No!"] I think it is agreed that a high price level is something which operates to the detriment of the great body of the people. In the discussions which have taken place during the past few years most financial authorities have insisted over and over again that reorganisation must precede the imposition of a tariff; otherwise, a large section of British manufacturers will simply hold back and undertake no real reorganisation. I want hon. Members to believe that I am not stating merely a Socialist view of that proposition, but one which was put forward with great force by some of the leading industrialists in this country, if I were at liberty to give their names.

There is one general thing I should like to say in conclusion. You have your international and central banks and you have a collapse of world commodity prices. You have no sign of early improvement. It is now the invincible belief of large numbers of people that nations and Governments cannot carry on very much longer in that state of affairs. I know that these central banking authorities always want to keep their effort and what they describe as political effort apart. No one is going to suggest running our banking system from the Floor of the House of Commons. But we are going to suggest that that banking system, and more particularly the international banking system, shall be run publicly and openly in such a way as to minister to the economic needs of the nation and to what is necessary in the public interest and in such a way as will prevent these great falls in the price level. These are the things upon which so much of our prosperity depends. That is the issue which has to be fought out. I have not the slightest hesitation in saying that when the mass of British people appreciate the terrible penalties they have had to pay for this colossal monetary mismanagement of recent years, they will send, not a minority but a majority Socialist movement to the House of Commons.


I do not know what the experience of other hon. Members may have been, but, for my part, whenever I have the good fortune to listen to a discourse by the right hon. Gentleman the Member for Central Edinburgh (Mr. W. Graham), I always have the feeling that the right hon. Gentleman knows all about everything and could go on expounding it for ever. After listening to his capacious harangue and its immaculate delivery, one would never have thought that the speaker was the representative of an Administration which, having reduced this country almost to beggary, had fled from their posts in terror of the consequences which were approaching them.

A great part of the right hon. Gentleman's speech was divided between reproaches of his former colleagues and of the Chancellor of the Exchequer for their lack of foresight in dealing with the approaching crisis, and a very interesting disquisition upon the root causes of our present misfortune. I am not in marked disagreement with the right hon. Gentleman in a great deal of what he has said—[Interruption.] I am most anxious to be as brief as possible, because there are so many Members who want to speak. Already large inroads upon our time have been made, and I propose to curtail my remarks, if hon. Gentlemen will help me as much as possible. I agree with the right hon. Gentleman that the root cause of our troubles is the unnatural accumulation of gold in the two countries which have alone benefited from the payment, across tariff barriers, of these accursed War Debts and reparations. I agree with him in that respect.

Up to the summer of 1929, the swift accumulation of gold in France and America had not become apparent; it had been masked by the great American lendings to Europe. But since that time the United States have added £170,000,000 to their reserve, and France has added £183,000,000, while at the same time the stocks of the rest of the world have been diminished by over £130,000,000, and at this present moment the position, as the right hon. Gentleman said, is that, out of £2,275,000,000 worth of gold, France and the United States together hold £1,350,000,000, or two-thirds of the whole gold of the world. And observe that not only is this immense sum held by these two States, but a very large portion of it, amounting probably to one-third of the whole visible gold of the world, is held sterilised, that is to say, it plays no more part in the operations of the world than it did when it lay in the virgin rock of the Rand. It has been dug up out of a hole in Africa, and put down in another hole that is even more inaccessible in Europe and in America.

Gold, as I see it, is the accepted measure of human effort, which enables the services, the exertions, and the fruits of the toil of the coolie in Japan or the coffee planter in Brazil to be exchanged against the work of a London cabman. If all things are to be measured against one another, before they can be measured they must be referred to this standard of gold. Let me take a couple of simple analogies—[Interruption.]—if I may with the courtesy of hon. Gentlemen. Suppose that A great bridge were being built—[Interruption.] I am sure the hon. Member for Plaistow (Mr. Thorne) will not deny courtesy to a brother private Member. [Interruption.] Suppose that a great bridge were being built, or a great modem building, requiring accurate measurements at every stage, and that three-quarters of the foot rules required were locked up in one or two of the fore-men's offices. Imagine how the work would slow down, and finally be brought to a standstill. To take another similitude, which may well appeal to hon. Gen- tlemen opposite, who are so well acquainted with the workshops of this country, suppose that a great factory were full of the most wonderful machinery—full of the most perfect modern machinery—and all the lubricating oil, or practically all of it, were monopolised by a couple of departments, while all the other splendid machines, finer than had ever yet been seen in the world, were left to heat, and grind, and rack, and shatter themselves to pieces. That is the situation which, it seems to me, is undoubtedly being created by this altogether abnormal and artificial abstraction of gold from its honourable and hitherto indispensable function as a measure of human effort.

Nothing in what I have said in any way conflicts with the advocacy or adoption of the gold standard. It fell to my lot to take the final steps of seven or eight years of policy in that respect, and there is not a person in this House, wherever you look—and there are six or seven ex-Chancellors of the Exchequer—who has the slightest ground of reproach against me for that. Do not let it be thought that, in adopting the gold standard, we were seeking simply to bolster up the rentier interest. The whole essence of the gold standard is that it secures, or was intended to secure, a stable return for the wages of labour, and to promote the continued cheapening of living. If the fight which is now being waged on this side of the House to preserve the pound sterling—a most difficult task—should be lost, it will not be necessary to debate in this House the cuts that are to be made in the livelihood of this country; they will be imposed automatically by irresistible price movements over which you will have no more control than you have over the weather.

This abstraction of gold, which is a quite recent feature, having, as I have said, only come into naked publicity in the last 2½ years, has raised an entirely new position. There is nothing wrong with the gold standard, but how could the gold standard be enforced if there were no gold? The standard may be all right, but two-thirds of the gold has been impounded, and we are, therefore, reduced to a position where an enormous reduction has been made in the vital output of the world, and where a great part of the life-blood of the world has been frozen. As gold becomes scarce, it becomes dear, and, as it becomes dear, everything measured against it falls in price, and so you have this hideous, purposeless, unreal, uneconomic, ceaseless fall in prices, which, in its first stage, one might have deluded oneself into acclaiming as a cheapening of the cost of living, but which is now clearly at a level that was never foreseen by any of the old economists. It goes on and on, downwards, until the credit of one institution after another is affected, and all the pillars of the structure of our civilised life are one by one successively undermined. That is the position.

If I may continue my argument on this point, I want to know what would happen supposing that what has been going on for the last three years went on for the next five without interruption, and the acquisition of gold by these two countries—I am not blaming them; there is nothing malevolent in their action; it has happened simply by certain rules working out—supposing that in the next five years they acquired all the gold in the world, what would happen then? Are we really to assume that all the rest of the world would be valueless—[Interruption]—that there would be no means of exchanging the fruits of toil, that all human exertion would be at a standstill? No. That is a point which we are rapidly and steadily approaching. Of course, the impounding or sterilisation of a great part of this indispensable medium, or vehicle, of commerce and of exchange, must lead to the breaking out of barter. You have already had barter, and you have had it in the most unlikely place. You have had it already in the United States—barter between the United States and Brazil for coffee—coffee against, wheat; so that the United States are not only gold standard, but on a coffee standard too. Could there be clearer proof that the whole world is off the track in this matter of the relation of gold in world prices? I have no hesitation in saying that, unless all the countries of the world can either utilise the gold for the function which it has hitherto discharged, and make it available for that function, or can devise among themselves some new index of exchange—those which are not gold-possessing countries—the continued fall in prices and the continued destruction of credit will reduce our civilisation surely, and in no very great interval of time, to a bleak and ferocious barbarism.

It is curious that my right hon. Friend the Member for St. Ives (Mr. Runciman), who made from this bench a speech which interested us so much the other day, did not appear to be at all conscious, though of course he knows it perfectly well, of the great change which has taken place in the handling of gold, in the monetary situation; and I must say that up to the present the Chancellor of the Exchequer has not shown us what place these considerations occupy in his general scheme of thought. All these arguments about orthodox finance, the sanctity of contract, austere and rigorous economy, fine bills of exchange on which everyone wrote their names as they went round the world—all these arguments, which are perfectly sound, have a completely new and decisive factor rupturing them when the supplies of gold are, to the extent of one-third, actually rendered beyond the reach of man. At the very time when science was about to offer us the facilities for the making and exchange of all kinds of delectable goods, the vehicle which should have transported those goods, the indispensable measure, has been reduced by nearly one-half. That is the evil from which we are suffering. It rests entirely with the Government to devise the method, but I hope and trust that they will, without a moment's needless delay, place themselves in contact with the other Powers in order to convene the most powerful conference or assembly of nations which it is possible to bring together, in whatever place that is best suited for their deliberations, and to take the resolutions of the Genoa Conference of 1922 as their foundation and proceed immediately to enter upon the grand inquest of mankind into the loss and abstraction of gold and the consequent fall in prices.

5.0 p.m.

Let me say that our position is not so weak as would be supposed. It must not be imagined that the two countries which have the gold are entirely contented with their lot. The United States may reach £1,000,000,000 as its gold reserve at almost the same time that its unemployment figure reaches 12,000,000 or 14,000,000; and France, a country for which I have the greatest regard and admiration in so many ways, has, I say without hesitation, heavy troubles ahead if the present cracking of the whole economic system continues from artificial causes. Therefore, I say to the Government, do not suppose that you are powerless in discussing these matters with other nations. They may not see it in the same light as you. They have problems of their own of a most grave kind and nothing would suit them less than if events were forced to their logical conclusion and those nations which did not possess gold had to establish some separate and independent means of interchange among themselves. You may be sure that nothing I am saying would weaken the hands of His Majesty's Government to deal with the matter. On the contrary, the facts are inherent in the situation. I hope and trust that, when this Conference meets, it will not only deal with the fall in prices and the gold question, but that out of its deliberations in some form or another a final quietus will be administered to the payment of War debts and reparations.

The second great question which governs the Budget is, of course, the balance of trade, which was referred to by the right hon. Gentleman in the closing portion of his speech. We owe it to the right hon. Gentleman the Member for St. Ives that practically complete agreement has broken out in the House on one particular step, namely, the curtailment of a particular class of luxury imports. I welcome the announcement that has been made that the Government are inquiring into this matter, with the intention of acting forthwith. Treaty obligations do not apply to tariffs which are raised to prohibitive levels but only to direct prohibition, or so I have always been informed. I should like to point out that a tariff which is prohibitive on luxuries in no way excludes a tariff which on other parts of the list is both protective and revenue in its effect. A large majority of the House knows, as the speech of the right hon. Gentleman clearly accepted, that such a tariff ought to be an integral part of the main proposals of any British Government to deal with the present emergency. [HON. MEMBERS: "No!"] I wonder if, after Prayers one day, when everyone is at his best, we had to vote by ballot, how large the majority would be of those who would feel that without this element in our policy at present we cannot treat our problem in a complete or comprehensive way. I do not press that, because obviously there is a growing measure of agreement, and obviously that question, even in the life of this Parliament, is going to come increasingly and irresistibly to the front and to claim its logical place in all the measures necessary to restore confidence abroad and a revival of trade at home.


Another step in the madness!


We ought to have regard to the hon. Member, and we make allowances for the peculiar mental disposition which always throws him off his balance when land values are mentioned.

It is only in the third place that I come to the immediate and imperative task balancing the Budget of 1932. I am only dealing in what I say with the Budget of 1932. The right hon. Gentleman's proposals can only be judged in their true perspective in relation to this arrest and fall of world prices and in relation to measures to correct the adverse trade balance. No discussion of the method of balancing the Budget would be intelligible except on the foundation of these two primary tasks and I shall, therefore, have to take up some of the time of the House in dealing with that. But the balancing of the Budget is a matter of purely domestic finance. We are all agreeing that it must be balanced. Both sides, and all parties, are pledged to that, and the only question is the method, and on this we are entitled to have our opinion. It has often been complained that under our franchise British Ministers are prone to take the line of least resistance. Certainly, no one could accuse my right hon. Friend of having been guilty of that weakness on this occasion. I desire to make any criticisms on his proposals in a spirit of entire goodwill. He is in the position, very common nowadays in the great capitals of the world, of a very big firm which has got into a very bad strait and has to be held up at all costs by everyone else. I can assure him that, although I did not in my day get treated with very much consideration from him, when I had my difficulties, like the general strike, nevertheless, I am of a generous and forgiving disposition and I will treat him with consistent mercy, tempered only here and there with justice. I cannot, however, pretend that his solution of our difficulty of balancing the Budget, apart altogether from tariffs, is what I should myself have proposed. I am supporting his scheme, and I am going to vote for it steadily on every occasion. I have no difficulty or doubt about that. If we do not support that, what have we got? It is all that stands between us and collapse. Therefore, I am supporting his scheme and, of course, any criticism which I should make is only minor and subsidiary and I trust may be found practically helpful.

There are, however, some criticisms which I must make. The first is a very small one, though not so small as it looks. I think it is an abuse of language to speak of the prospective deficit of 1932 as £170,000,000 and not to mention that it includes £52,000,000 of Sinking Fund. It is an abuse of language to speak of a deficit or to talk about an unbalanced Budget when you are in fact paying your way and also providing large sums for the amortisation of debt. I am not blaming the right hon. Gentleman, because he has followed a precedent which many Chancellors have set in speaking of it in that way but, when we have to consider the effect on public opinion all over the world, there is no need to make our case out worse than it is. The actual statement should, therefore, be that the prospective deficit is £117,000,000 with a surplus of £53,000,000, out of which £52,000,000 is available for debt redemption. The right hon. Gentleman says at this juncture that the Sinking Fund ought to have been suspended altogether. There are, of course, respectable authorities, although I am bound to say I have not been able to find the references in Sir Michael Hicks-Beach's speeches which I have been looking for, which favour and justify suspension of the Sinking Fund in times of great public emergency or acute trade depression. But with the hope of conversion, to which the whole country must lend its efforts, I consider that the right hon. Gentleman is fully justified in maintaining the Sinking Fund at the reduced figure he has done, although the fact of raising taxation to a ruinous level will itself entail a very serious evil. But I cannot feel that this argument applies to the £9,000,000 which was going to be borrowed by the Road Fund, but which the right hon. Gentleman is now going to pay out of taxes. The Road Fund has large and increasing revenues. [Interruption.] Perhaps I have not properly understood the proposal. The right hon. Gentleman is cutting down expenditure, but not to any great extent. I understood that the £9,000,000 which would have been borrowed by the Road Fund out of its own resources is now to be found out of taxation. Is that so or not? There is no addition to expenditure in that respect. I listened very carefully to the right hon. Gentleman's Budget speech and I thought he included it among the additions which he was making—I am not sure that I am not right after all—to the burdens that he had to bear. It was one of the constituent factors in this deficit of £170,000,000.

The CHANCELLOR of the EXCHEQUER (Mr. Philip Snowden)

I will explain.


We all very much admire the right hon. Gentleman and his work, especially the latter part of it, and we wish to know exactly what form that work is taking in order that we may render him his due need of approbation. But I hope that this suspension of the borrowing power of the Road Fund is not going to indicate an undue curtailment of telephone and telegraphic extension work throughout the country and public works of all kind, national and municipal, because, if that were to be so, the financial gain would emerge immediately on the other side of the ledger in a heavy increase of unemployment. We cannot conceive a more violent reversal of policy than would be involved in the virtual cessation or drastic curtailment of all borrowing on capital account for development purposes. I remember the late Government being attacked for net borrowing more. I remember having to stand at that Box and show at length all that we were doing and why we could not do more. Since then others have been responsible and borrowing has been increased and boasted of. Only a few months ago the Prime Minister was reading out a long catalogue of all the measures that were being taken to increase loan expenditure in order to deal with the unemployed during the winter. As for my friends on these benches, the echoes of their perorations still linger in our ears. Certainly a corrective should be administered to extravagance in every form. But surely such a change in outlook, so sudden a reversal of policy, deserves profound consideration. It is contrary to all the processes of thought to which all parties in this House have become accustomed, and until it is fully explained it will leave Parliament devoid of any coherent theme which they could present to an anxious and a bewildered public.

Apart from the question of the confidence of foreign Powers in our management of our affairs and our credit, which must not be under-rated, but which must not be over-rated, because nothing will save us except right action, we shall not be saved because of what others think of us, but because we handle our national affairs in a right and proper manner. So that, apart from foreign opinion, there is nothing in this policy of internal deflation which is in any way relevant to our economic problems. There are immense sums lying, not idle but on deposit, in the banks. I was given a figure of over £2,000,000,000, and really at a time like that, it seems to me that to place upon the taxpayers—for that is what is being done—a charge of £39,000,000 to be raised by taxation at these destructive levels instead of allowing the Road Fund to borrow, if the Road Fund is solvent in relation to its revenue, is carrying the financial burden higher than practical wisdom would justify. The policy of further severe internal deflation added to the necessarily high extra taxation may easily defeat the right hon. Gentleman's own purposes. If, for instance, 200,000, 300,000 or 400,000 additional persons are thrown out of employment, the expenditure of keeping these persons, however it may be reduced, will again destroy that very balance of the Budget for which all our sacrifices have been made. Therefore, I hope and trust that the right hon. Gentleman will review with great care all these questions of borrowing on capital account by solvent bodies or solvent funds for the purposes of constructive development during the forthcoming winter. Do not let your panic lead you into further trouble. We may have gone far in one direction, but let us get back to the high road, and not simply plunge into the ditch on the opposite side.

I have a great difficulty this afternoon in criticising the economies and the taxes. I know these taxes very well. I know their ugly faces one by one. The various taxation problems of the country have been brought before me in the last five years in the most direct form. I feel a great difficulty in criticising individual economies, cuts and taxes, because I do not want in any way to break the solidarity of the national effort to place its housekeeping on a far stricter and more secure foundation. I do not want to do that at a time when a great party and its Leader have shown such inconceivable meanness—I can use no other word. It is surprising that men we have known all our lives in the House of Commons should dissociate themselves from all their declarations and the responsibilities they had undertaken, and devote themselves generally to manufacture the utmost party capital out of the tribulations of the country at the present time. Therefore, I, for one, will not attempt to examine, as I would otherwise have liked to do, all the relative hardships imposed by the different cuts and taxes, but generally I should like to say that I am very much surprised that my right hon. Friend has forgotten that Tea Duty which Mr. Churchill so mistakenly took off three or four years ago. He has forgotten all about it. I took it off, and there is no reason why he should not put it on. If it had not been taken off, it could not be put on. One might almost say that it was foresight on my part to prepare this reserve for this occasion. A tax remitted is a tax in reserve. Most certainly an old, well-tried tax should be a, tax which should he brought in to meet an emergency. It would be possible, I am told—private Members have great difficulty in getting accurate figures, but I give them to the best of my ability—that the Tea Duty should have been imposed yielding £6,000,000. I suppose that the coffee and chicory group would have added another £500,000 to that. It could have been reimposed without raising the price of tea above what it was in 1928. Surely that might have played some part in the right hon. Gentleman's proposals. But the sugar story is more remarkable still.


The sugar subsidy is still more remarkable.


But this story is surprising, as the hon. Gentleman will see. Sugar at present is 2½d. a lb. The addition of 1½d. a lb. would raise sugar to 4d. a lb. That would give the Exchequer nearly £20,000,000, and it would leave the price of sugar substantially lower than it was after the great and memorable remission which the right hon. Gentleman made in 1924. That appears to me to be a very striking fact. Not only is this £18,000,000 for the revenue, but the subsidy ceases to be paid. Really, when we consider all that is being done and all that we are going to support, I think that the right hon. Gentleman might have weighed and balanced these duties against some of the other steps he has found it his duty to take. But I am not, as I say, going further into these matters. The night hon. Gentleman has appealed for sacrifices from all, and I suggest that he should participate in this general process by making from time to time some sacrifices of his own pet indiosyncrasies. Although I have criticised the right hon. Gentleman's Budget, I am, as I said, going to vote for it in all its stages, and even if it were much worse than it is, I, and I think everyone on this side, would still unquestionably support him in this Budget and the same attitude will, in spite of any misgivings, be followed, in my belief, throughout the country as a whole.

But we cannot stop here. Surely there ought to come behind this Budget a larger and more carefully considered constructive and remedial plan, overtaking, overriding and mitigating the effects of this Budget, a plan which will deal with causes as well as with effects, and which will be constructive as well as merely disciplinary. This is the question I ask in conclusion. Can this Parliament achieve such a task? The situation changes from day to day. It is extremely uncertain and difficult to judge, but if this Parliament were able to make a contribution of this kind, it would be a very great advantage. Joint action in the first stages of a great change of policy would command a far higher degree of national unity than would ever be won in the fiercest and most successful electoral contest. Anxious as I am on party grounds, I admit, for a. General Election, I am sure that Parliament, this Parliament, ought to try to discharge its full duty, and the instrument ought not to be broken and placed aside until it is definitely proved incapable of rendering the essential services required from it. A declaration by a majority of this House upon the principle of immediate Protection for industry and, as the right hon. Gentleman so rightly pointed out, for agriculture too, would fortify and consolidate our whole position, would give encouragement where it was most needed and would draw, clearly and plainly, the lines of battle between friend and foe. We should see the next step quite plainly, and those who had agreed to the first step would be able to take other steps together in loyalty and comradeship.


I think that those of us who have listened to the speech of the right hon. Member for Epping (Mr. Churchill) will have been struck by three or four things in connection with it. The first was that we would rather greet the right hon. Member as a back bencher than as a Chancellor of the Exchequer. Secondly, we regret very profoundly that the early part of his speech was not made somewhere about 1924. Had it been so made, subsequent history would have been very different. The third point is this: How does he reconcile the last part of it, which contains the suggestion for protective tariffs, to the first part of it, which demands a scientific management of the gold standard? There is one more point, and that is how, having made that speech, he manages to vote for this Budget?

It is to those four points I want to address myself for a few minutes. I should like, first of all, to go back to the relation of this Budget to the crisis, and in that connection there are a few things that ought to be said from this side of the Committee. I do not believe for a moment that it is to the ultimate welfare of the Labour party, or, in fact, of the country, that we should attempt to minimise the fact that there is a crisis. That has been stated by the leaders of this party. It is evident that if we are to face facts and to inspire our colleagues in the world with confidence —because if we are to be saved by international action, and I believe we shall be saved by that alone, we must regard foreign fellow sufferers in this crisis as our colleagues—we must not evade the fundamental fact that there was a panic.

The pound was in danger, and as the situation presented itself on 20th August or thereabouts, it was not a question of how it arose and who was responsible. It was not a question of whether it was justified by fundamental facts or not, because it was a crisis of confidence, and the essence of a crisis of confidence is that opinion about the facts is more important than the facts themselves. As a youngster I travelled in countries whore I found that the gold sovereign was quite useless, because the villagers in the Mexican mountains where I was travelling had never seen one. Although I had my pockets nearly filled with sovereigns, I came near to starving to death. It is the opinion of those to whom you are offering your medium of exchange that counts.

I am trying objectively to see the position from the Government's standpoint, to be tolerant and not too partisan, because the issues are too serious. Those who take this thing seriously have to ask themselves the question, what is the line best calculated to get us out of the difficulty? I cannot agree with some of my colleagues who say airily: "Let the pound go hang. Rather than accept 10 per cent. reduction we will let the pound slide." That is exactly equivalent to saying: "We will reject the 10 per cent. cut, even if it costs 50 per cent." But I do not come to the final conclusion of the right hon. Member for Epping. I hope hon. Members will note that Lam saying these things on this side of the House. As I see it at present, I shall continue to associate myself with the Opposition. But I want to emphasise the fact that I do so only after giving full weight and consideration to the fact that the pound was in danger, and that the flight from the pound would have been a catastrophe which, once it had happened, we could not have stemmed.

There is a case for going off the gold standard and there is a case for keeping on with the gold 'standard; but there is no case for confusion. There is no case for landing ourselves into an unmanageable confusion and a chaotic situation. Yet, despite that view, I believe it right to exert a measure of opposition to the proposals of the present Government. If it had been simply and purely a question of a temporary remedy, I am not sure that I should not have joined the few Members of this party in support of the Government. The problem that we have to face is whether the temporary remedy will be of such a nature as to make art effective permanent remedy for our difficulties almost impossible. This is a money crisis. It is not a commodity crisis. It is a gold crisis, and everything which preceded it in the way of depression and of falling prices was due to our failure to manage gold. It was due to our failure to manage gold internationally.

Although I may traverse ground which may be familiar to some hon. Members, I should like to put before the Committee the nature of the problem which confronts us. Everyone watching the fall in the price level in the last few years realised that money should have been so managed as, at least, to stop that fall. But that cannot be done nationally by one nation alone, for the simple reason that raising the price level means to that degree cheapening gold—that is, if you are on the gold standard—and if you cheapen gold in one country while it remains dear in other countries you are pushed off the gold standard in a very short period. If the gap is considerable you will be pushed off with corresponding rapidity. It is not feasible for a country in the position of ours simply to go off the gold standard in disorderly fashion and have unstable money in terms of foreign currencies.

Think of the methods by which we live. The Tyne is building ships, and the shipowner has to enter into a contract to deliver a ship for £100,000, in two or three years' time. He must know what kind of pound he is going to get three years hence. If there is danger of variation in the value of money in the intervening period, when he comes to deliver his ship or his bridge he may find, as has happened very often on the Continent of Europe during post-War years, that the total amount he gets may not be sufficient even to buy the paint for the ship. You get then these conclusions: You cannot act alone in lifting your price level. You cannot solve the problem by going off the gold standard in disorderly fashion. You must do it in such a way as to ensure that your money unit shall be a stable unit. If it can be done at all, and heroic efforts should be made to do it, it must be done internationally. To do it internationally certain things are indispensable. I will put my proposition very briefly: You cannot stabilise gold internationally unless you stabilise tariffs.


Stop them.


It is an astonishing thing that the right hon. Member for Epping, who has been Chancellor of the Exchequer, concluded with an appeal for a protective tariff but did not seem called upon to reconcile his demand for Protection with his first demand for a scientifically managed international gold money. How does one affect the other? A country can only pay its debts in these ways: goods, services, further debts or gold. In fact, however, as soon as the influx of goods begins to increase there is a demand for a tariff on those goods. That demand is not presented or considered in relation to any general policy. The big industrialist, exercising what pressure he can, says: "I am being beaten by the foreigner. I want these imports of foreign goods stopped. I insist upon a tariff, and you have to raise it." It is always the case when you start on Protection, that the industrial interests concerned are so powerful, as in the United States, that it is difficult to resist. What happens? It means that you have created a balance which must be settled in one of two ways, either by gold from the debtor or by investment by the creditor.

Political disorder, which is part of that nationalism of which Protection is a part, has made investment during the last 10 years almost impossible. That method of correcting the balance has for the time being dried up. You are thrown back upon gold. So long as that goes on in the international field you will always have this maldistribution of gold which has made it impossible to create a scientifically-managed gold standard. When we demand, therefore, as has been demanded from all quarters, an international conference to deal with this thing as a whole, the scope of that international conference will have to cover tariffs. I put it in the most challenging form that I can conceive, and I defy any Protectionist to show me how, with the normal and inevitable operation of Protection, you are going to prevent the creation of balances which have to be paid in gold, and which will create the very maldistribution that is the root of the whole problem. But what hope is there of getting an international conference covering the question of tariffs and tariff stabilisation, in view of past history? The Genoa Conference urged the very kind of thing which the right hon. Member for Epping is urging. The Economic Conference of 1927 urged the same thing. You had resistance from the Conservative element in this country to both suggestions.

I do not believe that there is any hope of an international conference being effective unless those who have up to the present managed our industry and finance feel vividly that they must do this thing in a thorough-going way, or perish. Unless that is done the whole capitalist system is on the eve of collapse. I am by no means alone in suggesting that. The other day we had read from the Front Bench a letter from the Governor of the Bank of England to the Governor of the Bank of France, prophesying the utter collapse of the whole capitalist system throughout the world within 12 months, and that he wanted the letter filed for reference. That is beginning to be the psychology of the capitalist world. But what will be the psychology if every demand made by an ad hoc Government, helter skelter, in a mood of panic, to put through anything without too much examination, is agreed to? There will be great danger of slipping back to the old inertia, the old methods.

I admit that I went through a mood in which I thought it would be necessary for me to cross the floor of the House, and I may do so yet; but what causes me to hesitate at present is the realisation that if this task of temporary appeasement is made along the old lines, and is made too easy, we shall repeat in the next 10 years the inertia of the last 10 years. In other words, I believe that an opposition to the proposals of the Government is necessary in order, if you will, to keep alive the psychology of crisis, so that we may be prepared to do for peace necessities what we were prepared to do for war necessities. The tendency inevitably will be, if this temporary situa- tion is eased, for the old solutions to be accepted as adequate, for the nationalist outlook to become once more predominant and for limiting the scope of any international conference which may be held so that we shall go into that conference with tariffs excluded from the agenda. If that happens you will not secure any international stabilisation of the value of gold. You cannot manage the gold standard if you exclude tariffs from your consideration, since tariffs are ultimately the thing which creates that maldistribution of gold which has led to the present crisis.

I was discussing the other day with a city man this suggestion of a great conference, and he said that what you will be up against is not malice or any plot—I take no notice of the story of bankers' threats—but inertia. He described it later in grosser terms when he said that it was crass ignorance. The bankers themselves are coming almost to that view. It is reflected in the letter of the Governor of the Bank of England, and Dr. Schacht, the head of the Reichbank has written a book on Reparations, in which he expresses the view that we cannot be saved because the commercial world does not realise with sufficient vividness the measures which they must be ready to take if we are to have an international money. That is what, finally, it comes to. We are attempting to live by an international money—which must be international for all the reasons I have given—in a nationally organised world. It cannot be done, and I fear greatly that unless those who are now managing our monetary system are faced by the fact that the world, the workers of the world will not too readily accept the old solution they will do nothing radical, but will slide back to the old methods, the old inertia.

For these reasons, but with some doubt, I am supporting the Opposition, although I recognise that there is a crisis and that exceptional and temporary measures may he necessary. If I felt that the really indispensable, exceptional and temporary measures were being jeopardised by the Opposition I should not hesitate to dissociate myself from it; but it seems to me that it is the duty of those who have thought on these things to see that it is made quite plain to the great financiers that the old methods, the infinite miseries of the deflationary processes, are not going to be too easily accepted. Moreover, we should not forget this—and has not been sufficiently stressed—that if we are dependent upon the co-operation of others, as we are, they are also dependent upon us. It seems to me, therefore, that the Government should welcome a certain measure of opposition so that when too harsh demands are made upon them they will be able to say: "Well, really you must not press us too hard. The opposition is there, and it may grow and make it impossible for us to concede your terms. We must go to the more fundamental remedies." If the Government availed itself of that fact, it could go into an international conference with more powerful hands to carry out these fundamental solutions, by which alone we can reach a remedy.

One last word. I have sat for 27 months in this House of Commons, and hon. Members will do me the justice to bear witness that I have not troubled the deliberations often. I have heard the discussions on reparations and debts, and the international disorganisation of the monetary system, questions which were familiar to me 25 years ago. I hope the Committee will forgive a personal word. I think I was the only economist in Europe who 25 years ago said that on the morrow of the next great war there would be no indemnity—we had not yet found the word "reparations"—and that the dislocations which the nationalist system of management would bring about would destroy civilisation. The issue is not really between a fantastic pacifism and militarism, but between national management and international management. The first test will come in this problem of money. If we cannot manage somehc4 to devise an international money this country will not be able to support its people on a decent standard of living. If we are to have an international money we must shed some of our nationalist prepossessions; we must be prepared to go into an international conference, not with reservations which exclude all those things which are vital, but facing the fact that things like tariffs are an indispensable part of the problem. I will conclude by putting this proposition to the right hon. Member for Epping, that if he desires the perpetuation of economic nationalism by the imposition of tariffs he will not get an international stabilisaton of gold. If he does not get an international stabilisation of gold he will not get any system under which this country can live.


The opening speeches in to-day's Debate have ranged over a very wide field, and ordinary Members like myself, who do not claim to be experts in the more difficult branches of finance, will admit, as I admit, that they have learned much and sometimes been a little puzzled by some of the arguments advanced. After all, the immediate object of the discussion is to determine whether or not the Committee supports the proposals put before it by the Chancellor of the Exchequer. I believe I am expressing the view of the majority of private Members in the Committee when I say how much I admire the resolute courage with which the right hon. Gentleman has saved his fellow-countrymen from disaster in an hour of crisis. He told us in his Budget speech that he was undertaking one of the most disagreeable tasks in his life, and we can well believe him, but the consolation which he and others who were in the old Government as well as in this have is, that by refusing to desert their posts, by refusing to avoid responsibility and leave the disagreeable task to others, they have done more to restore the confidence of the world in British credit than anybody else in the country.

As I understand it, that is the sole Purpose for which this Government was formed, and the news which reaches us from the world at large is enough to show that that purpose is in course of being accomplished. Indeed, I can imagine no less compelling purpose which would induce the Chancellor of the Exchequer to sit side by side with some of his right hon. Friends now, or, for that matter, would induce them to sit side by side with him on the Treasury Bench. One would have thought that everyone would acknowledge that this was the purpose of the Chancellor of the Exchequer and the purpose of the Government, but the first day's Debate on the Budget Resolutions was closed by a speech by the hon. Member for West Leicester (Mr. Pethick-Lawrence), and this is the way in which he wound up the Debate. I do not speak in terms of exaggeration. I choose my words with the utmost care. I am not speaking the language of hyperbole. I am speaking with deliberate intention and a careful use of words and I say that this Government has been formed for the express purpose of placing the neck of this country underneath the foot of foreign finance."—[OFFICIAL, REPORT, 10th September, 1931; col. 407, Vol. 256.] As a deliberate and carefully phrased judgment upon the purpose of the Chancellor of the Exchequer, a judgment formed and pronounced by an hon. Member who was his lieutenant at the Treasury, it is the very acme of absurdity. I can quite understand a difference of opinion as to the best measures to be taken, but if there is anything that is plain it is that those who have gathered together in this Government have done so for the purpose of saving the country. May I also say that there is another thing which hon. Members opposite must remember? They might remember that nobody outside this House seriously supposes that the men on the Treasury Bench, in making themselves responsible for these fearful cuts and terrible burdens, are not honestly aiming at an all-round sacrifice, as fair as they can devise it. The right hon. Member for Edinburgh Central (Mr. W. Graham) said quite truly that in one sense there could not be equality of sacrifice.


Not under the present system.

6.0 p.m.


We are living under this system; this Budget is proposed under this system. You do not propose to postpone everything until you have changed the system. It may be that equality of sacrifice, in the sense that it is the same kind of sacrifice, is not possible to attain, for it is impossible to equate the kind of loss, the kind of suffering that may be inflicted by a cut in the case of a very small income, and say that it is the same kind of loss and suffering as even a big subtraction from a big income. But, after all, how long ago is it that the Labour movement in this country, and its spokesmen and newspapers, had the greatest confidence in those members of the Labour party who are sitting on the Government bench now? Why, it is exactly a month ago, on the 14th August, that the "Daily Herald" in its leading article wrote this: With Mr. MacDonald and Mr. Snowden at the helm the nation can be assured that it will get a fair deal, and that whatever sacrifices are called for they shall he fairly related to the capacity to pay. There has been a very sudden change somewhere. For my part I should rely on the good sense of my fellow-countrymen to judge whether the men who have given their longest service to the Labour movement are likely now to be trying to favour the rich and rob the poor. At all events, it is not denied that the Government was formed at a moment of most serious crisis. I do not think it can be denied that the action which they have taken, so far as balancing the Budget is concerned, has been taken with energy and with promptitude, and that it is justified in the immediate result.

But what one noticed in the speech of the right hon. Gentleman who opened the Debate to-day—it is everywhere spoken of in the newspapers and in conversation—is a growing conviction that the balancing of the Budget, as it has been accomplished now, is a very small part of the problem that has to be faced. The hon. Gentleman who has just spoken is entitled to claim that he has taken a long view. He is taking a very wide and long view, it may be, now, but we have to face the immediate present, and in confining ourselves to the immediate present ask the leave of the Committee for a short time to put before them the reasoning and the conclusions that I have been forced to adopt in studying as well as I can and endeavouring to form an opinion upon the present and the prospective position of British currency in relation to external trade. It is manifest, of course, that this and the Budget are related. I will not delay my argument with why and how.

I noticed this afternoon that the right hon. Gentleman who opened the Debate did what so many people do. He referred to the general subject of the balance of trade, and gave a short exposition of its elements, but it seemed to me that his exposition stopped just at the point when it becomes really important to examine it. I do not know a place where the broad elementary position is more clearly explained than in an early passage of the Macmillan report. If, indeed, this was solely a matter for experts, I think most of us, if we did what was right, would be silent. But I take comfort from the remark made by the Prime Minister, just when this Government was formed, in his broadcast addressed to the public, when he said this: Questions of international finance are very complicated. A good many people talk about them with much assurance. For myself I am no authority on them, but I have consulted every shade of opinion and given the situation the most careful thought of which I am capable, paying attention primarily to the actual pressing facts. In my view, it is more important that ordinary Members of the House, who are not experts, and ordinary thoughtful members of the public outside, should bend their attention to the actual pressing facts on this subject even than that we should consult the great experts and specialists. For two generations at least, and I suppose for more, the characteristic of Britain's external trade, in contrast with that of some other great countries, if we confine ourselves to commodities, has been that we have annually bought more commodities from abroad than we have sold to purchasers overseas. In this small island, crowded with some 46 millions of population, 80 per cent. of them living in towns or urban districts, with an enormous industrial development, under existing conditions 60 per cent. of our food is imported horn abroad, and in 1930, according to the Macmillan report, taking all imports, the average purchase per head of the population from abroad in 12 months amounted to no less than £20 17s. In those circumstances it is not difficult to understand that there should be, as far as visible exports and imports are concerned, an adverse balance of trade. As everyone always says, that adverse balance has in our past experience been made up from receipts from abroad othe7 than receipts which represent the purchase price of goods, by remuneration for services, by interest on foreign investments and securities—by "invisible exports."

It seems to me, making a rather closer analysis, that the first point which needs to be stressed at the present time is the difference between the two branches or kinds of these invisible exports, what you may call the earned and the unearned—the earned, the freights which our shipping has been accustomed to earn on foreign account, the commissions which banks have earned in connection with their foreign transactions, the profits which have been made by insurance companies in connection with foreign business. All that is earned, just as much earned by effort at the time, as is the receipt of profit made from the manufacturing of some palpable physical thing. But it seems to me that it is very important to distinguish between that and another kind of invisible export so called, the interest which we have been accustomed to receive from investments which have been made abroad. This is strictly analogous to unearned income, and would count as such in an Income Tax classification.

I beg pardon for insisting on what is obvious, but I do not think the public always notes it. The striking thing is, when you begin to examine the relative figures, that for a very long time past and until comparatively recently, it has been possible to fill up the gap between the figure of visible exports and the figure of visible imports, to meet the adverse balance mostly, sometimes almost entirely, by using the earned invisible exports of the year, without using up and sometimes almost without trenching upon the unearned element which also exists. When that happens the country, in relation to its foreign trade, is paying its way in the strictest sense, for the contemporary purchases which we are making from abroad are bought and paid for by the outcome of contemporary exertions and contemporary manufacture and services of equal value. But the all-important fact—the fact that has impressed me, is that a change has been slowly coming about. It has been observed, it may be, after the event, for these things are difficult to record at the time, but a most important and most serious change is now taking, place. That change is this—that in order to fill the gap, in order to meet the adverse visible trade balance it is no longer true that you can substantially disregard the interest on foreign investments, but more and more we have had to draw upon that element in the calculation before we can say that our exports are paid for.

Consider three figures selected for three separate years. Take the year before the War. In 1913 the adverse visible balance on our external trade was £158.000,000. What was the sum total of our invisible exports in 1913? If you add together the remunerations on foreign account for services, with the interest on foreign investments, it was no less than £339,000,000. Therefore that left a balance, after completely meeting the cost of imports, available for re-lending overseas, of no less than £181,000,000—a very strong position. The Committee may be glad to know that the £181,000,000 was not very far off the total unearned foreign income of the year. We only drew upon our unearned foreign income to the extent of £29,000,000. One-sixth was needed to settle the account, and the remaining five-sixths was available for investments. Pass to 1928. Of course values vary enormously, but the proportions can be seen. What was the adverse visible balance as found by the Board of Trade in 1928? It was put down at £358,000,000. That had to be met out of the invisible exports. Out of what sort of invisible exports was it met? If you have set against it all the earnings of shipping, of banking, of insurance, all the commission business in London, you have also to rely on no less than £133,000,000 of unearned foreign income before you have paid your interest. You are left, not with five-sixths, but only with one-half—some £137,000,000 more of interest on foreign investments available for re-investment. That was 1928. Take 1930. The adverse visible balance of trade, according to the Board of Trade figures in 1930, was £392,000,000, and, in order to pay off, to cancel out, that adverse visible balance, we had no option but to add in with the remuneration for services, the whole of our foreign investment income except some £39,000,000. In other words, five-sixths of our interest on foreign investments was necessarily set off in account in that way.

The explanation, of course, is, first, the very heavy drop in exports of goods. Taking values, British exports which were £844,000,000 in 1928 dropped to £657,000,000 in 1930 and this was combined unfortunately with a contemporary drop in remuneration for services, like, for instance, shipping, which dropped from £130,000,000 in 1928 to £105,000,000 in 1930. I do not believe that any business man, any thoughtful citizen, any man or woman who cares to follow these figures, can fail to come to the conclusion that a very serious change has been gradually taking place which makes us deeply anxious for the future. Much has been said in denunciation of the rentier. In point of fact, the British working-class family which has been maintained so largely by imported food and other imports of recent years, has had that food paid for very largely owing to the circumstance that Britain herself was able to rely on her position as a rentier and to bring in the interest on her foreign investments.

What are the prospects for 1931? This, I imagine, is one of the things now being closely studied by the Cabinet sub-committee. I only wish to open the subject and I need not say that I do not offer any dogmatic judgment upon it. But unless some step or other is promptly taken to prevent the continuance of this process, all the indications are that for this current year, 1931, not even the whole of our income from foreign investments, added to the remuneration for services, will suffice to till the gap and pay for the imports of the country. Foreign investments which last, year produced £235,000,000 are regarded, I believe, by the best authorities as likely to produce this year not more than £160,000,000 or £165,000,000. Shipping, depressed as it was last year, is now suffering further from the laying-up of more ships. Shipping, which last year produced the diminished figure of £105,000,000 is believed to be going to produce not more than £85,000,000 or £80,000,000 this year. It is perfectly manifest, as a matter which the figures have plainly recorded, that if that situation continues, if it neither mends itself nor is altered by Governmental and Parliamentary action—unless one of those two things happens—we are not going to be able to make ends meet in the matter of purchasing our foreign supplies.

How much the difference will be, is of course a matter of dispute. I see that Professor Henry Clay who is, I think, one of the economic advisers of the Bank of England, in an article 10 days ago declared his belief that there would be a gap of £100,000,000. I have seen a very careful estimate made by most responsible people, of £80,000,000, and some of our principal financial papers mention figures like £50,000,000 or £60,000,000. Whatever the precise figure may be, I find myself immensely impressed and I wonder how far others are impressed, or the country will be impressed, by the fact that this situation and the prospect of what may follow from it threatens an even greater cause of anxiety to sterling than the temporary unbalancing of the Budget. Let me point out how deeply it cuts at the root of some propositions which, for my part, I had believed to be completely unassailable. Some of my hon. Friends below me and I, at hundreds of meetings, year after year, have effectively demonstrated, in all honesty, the working of Britain's external trade by the proposition that "exports pay for imports." The really serious thing is that while that has been true throughout our history, it is not going to be true this year.

Let me illustrate it, as I have tried to illustrate it to myself, by taking the analogy of an individual. Let us get rid of these vast millions and assume the case of an individual. As I see it, the position is this, comparing, say 1928 with the present year. Assume the case of a man whose income has been, in all, £1,000 a year and who has been accustomed to spend £900 of it. Assume that his £1,000 a year has been drawn, as to £800 of it from contemporary exertions, and as to £200 of it from the interest on foreign investments. Those are very much the proportions of British external trade two years ago. What has happened to that man according to contemporary figures is this. Instead of continuing to earn, by his manufactures and sales abroad, £800, he is earning £625, either from serving the foreigner or making things and selling them to the foreigner. Instead of the unearned income of £200 a year which he had two years ago, his unearned income has dropped to £155 a year and his total income instead of being £1,000 a year, is now £780 a year. But he is still spending his £900 a year. That is the real analogy. These figures, I believe, are sufficiently in proportion to the actual facts, taking the income and the expenditure in both cases as corresponding to the figures which I have given.

What is the consequence of continuance in that course? In the case of the individual, there cannot he any doubt. He may be able to conceal his expendi- ture. He may be able to put on a bold air in the face of his neighbours and the world. He may, though this is extremely improbable, he able to "bluff" his banker for the time being. He may induce some of his friends to back his overdraft. But it is certain that sooner or later his credit is going to disappear and that he is on the way to the Bankruptcy Court. In the case of a nation, and especially, it seems to me, a nation in our present position with regard to reserves of gold, the effect is certainly not less disastrous. I would be very slow indeed to endeavour to explain the niceties of the foreign exchange market. I remember Mr. Asquith telling me once that of all the Chancellors of the Exchequer he had known, it was Mr. Goschen who had the most intimate knowledge of that complicated mechanism. But, with all respect to experts and specialists, I cannot help thinking that there is nothing mysterious about the general principle which guides the foreign exchange market. It seems to me to be nothing at all except the law of supply and demand.

The position therefore is plainly this. If this country were to put itself in a position, fur any length of time, in which we were unable, with visible and invisible exports added together, to settle our balance of trade, then, manifestly, there would be on offer a larger amount of sterling representing our purchases, than there would be of foreign currencies representing their dealings with us. The price of anything which is offered for sale in excess of the demand is bound to drop. No one can alter that consequence and the inevitable result must be that sterling is exposed to exactly the same kind of strain as that which the vigour and energy of the Government have saved it from at the present time.

I do not speak either with the confidence or the fervour of some hon. Gentlemen. I am perfectly conscious that I am dealing with a very difficult subject which has endless ramifications and on which some of my colleagues may he better informed than I have ever claimed to be. But I cannot help thinking that in dealing with this crisis and with the prevention of the flight from the pound, it is essential that Members of Parliament and public opinion generally should ask now: "What step is it which Parliament can take under the guidance of the Government, promptly and effectively, now to prevent what would be unquestionably a most serious position, and a possible disaster?" I know of no way in which you can test that question and try to answer it, other than to take the four elements which are available, the four factors which between them make up the sum and test each in turn and see if it is within the power of Parliament, within the power of the Government, promptly and effectively to alter any one of them.

There are four elements, two of them invisible and two of them visible. Take the invisible elements first. Is there anything that the Government can do or that Parliament can do swiftly to secure that there is going to he an increase in the return from our foreign investments? I well understand that the pacification of the world and the restoration of better relations and all these things will help, but whatever is to be done has to be done quickly, and it is perfectly manifest that, on that head, it is not possible to get a quick result. In fact, as I have pointed out, the general inference is all the other way, because, unhappily, owing to world depression and other things, our returns from foreign investments have dropped and are dropping in a single year from £235,000,000 to £160,000,000. No help there! I take the other element which is invisible. Is there anything that can be done promptly and effectively by Government or Parliament, which will be a guarantee of an increased return to this country from the remuneration which it receives for the services it renders abroad, in connection with banking and shipping and the like. Why, the laying up of ships, the difficulty of earning freights—these things are notorious even to the least informed of us. Shipping is dropping this year, it is believed, from £103,000,000 to £85,000,000. No help there!

It follows necessarily that you have to attack these two other elements that remain, the visible exports or the visible imports, one or the other, or both. There is a very profound economic argument that the touching of one may adversely affect the other, but at the same time what can you swiftly do to increase 'the sum total of exports? Our domestic exports, the exports when one has taken the re-exports out, are not rising; they are falling. The Board of Trade published a most interesting paper the other day, in which, reducing matters to a common price level, they showed that there has been a 30 per cent. drop in the volume of the domestic exports of this country in the first six months of this year, as compared with the first six months of 1924. But take a more recent figure still. Take the figures which are just available, which the President of the Board of Trade has just published, for the first eight months of this year as compared with the first eight months of last year. There is, in fact, as between these two periods separated by 12 months, a drop of British exports of no less than £135,000,000, a drop of 34 per cent.

Nobody doubts that steps, long distance steps, might be visualised and ought to be taken to try to make exports better, but does anybody say it can be done between night and morning? Does anybody say it can be done with the sort or rapidity with which the flight from the pound might take place? That. seems to me a perfectly impossible proposition. Whatever steps might be taken to stimulate production in this country for foreign sales could not have an immediate effect and would indeed do exceedingly well if for the time being they stopped the continual drop in our exports. I find myself—I take no pleasure in it—driven to the conclusion, as I can see it, by a pure course of deduction and reasoning, that if it is true that our broad condition has changed in connection with our oversea trade, if it is true that even when you bring in the whole sum total of invisible exports and add it to our sales, you cannot make a figure which pays for our imports, if it is further true that it is absolutely necessary to stop the consequences which might follow, I ask myself and I ask my colleagues in the House, if these facts are true, is there any alternative but to insist upon putting at once some block in the way of the flow of free imports?

Let it be observed that so stout a Free Trader as my right hon. Friend the Member for St. Ives (Mr. Runciman), impressed with these figures as he was, and as I believe any practical business man is, came here the other day and put forward a suggestion of prohibiting imported luxuries which everybody remembers. I am bound to say that I did not know that prohibition would be consistent with our treaty obligations, but be that as it may. I am bound to go a little further. I doubt very much indeed, on the scale of these figures, whether the absolute prohibition of pure luxuries is going to make enough difference. And be it further observed that if indeed a step of this sort has to he taken, whether it is the right hon. Gentleman's step or any variety of it, you do not, by prohibition, avoid some of those unfortunate consequences which I quite agree may well be associated with a tariff policy. You do confer by prohibition the opportunity on the home manufacturer, unless you somehow could control him, of exploiting the home market; you do give the opportunity, in connection with prohibition, because you must have a licensing of exceptional cases, for those private interviews and secret appeals which beyond all question arise in connection with tariffs. And you also do this—you inflict a most powerful blow upon a selected body of merchants and put them completely to ruin, and as far as I can see, if burdens have to he borne, there is no reason why in this matter there should not be more equal distribution.

But whatever the form may be, the point, and the only point, that I seek to make is just this: unless it is going to be suggested that this fundamental change in the position of our export trade is a matter of small importance, unless it is going to be suggested that it is a mere passing event which will disappear in a very short time, unless it is going to he suggested that it can be satisfactorily dealt with by some long-range methods, then I defy anybody to point to what element of the four that are involved can be touched except the one which, for my part, I feel obliged to say here, publicly, I think must be adopted. I am very far from saying—I do not in the least believe—that the adoption of an emergency tariff is more than a negative and partial step. I trust that whatever may happen to me, I am never going to be heard to main- tain that it makes a new heaven and a new earth. I have heard so much nonsense talked in the old tariff reform days that I trust I shall never be found talking it myself, but what I do know—



The DEPUTY-CHAIRMAN (Captain Bourne)

Unless the right hon. and learned Gentleman gives way, the hon. Member for Batley and Morley (Sir B. Turner) cannot be on his feet at the same time.


I want to raise a point of Order. Does the right hon. and learned Gentleman in his observations include—


That is not a point of Order.


I have nearly finished, and I am sorry to detain the Committee, but it does appear to me, having given this matter the best thought I can, to be wholly impracticable for opinion to decline to face this change because it ought to be accompanied by other things. It seems to me to be as necessary, as essential, a step to be taken in an emergency as the step that was taken by the Government the other day, and whatever may be the suggestions to be made as to what other things are to go with it—these very elaborate plane that we have heard all this afternoon, the creation of a great body to discuss the maldistribution of gold, the establishment of a new social order, the revision of reparation payments, and, if I understood the right hon. Gentleman rightly, a reform of the central banks, so that the mass of the people of this country, by incorporation or some other way, should be associated more directly with their enterprises—it does not appear to me that the world is going to wait for that. For these reasons, I am bound to say that in my judgment, I believe that we are forced in the circumstances to abandon in this emergency the system of free imports.


It is not the first time in my experience that I have found myself crossing swords with the right hon. and learned Member for Spen Valley (Sir J. Simon), though not in a political but in a legal sense. If the right hon. and learned Gentleman will carry his mind back to the middle nineties, when one of his early legal briefs in company with the present Lord Chancellor was in opposition to myself and colleagues on the dock regulations for prevention of accidents, and when the case was brilliantly handled by him for the Shipping Federation, the practical knowledge of the docker was successful. I am not going into that just now, but it is with great diffidence, with very great diffidence indeed, and very great regret that I rise at all to intervene in this Debate. My regret is at the severance or the worse than severance of an association of nearly half a century, when I find myself in direct opposition to the political gods whom I once worshipped. It is with a sore heart that I find myself in this position, particularly in view of the fact that I personally—and they say that confession is good for the soul—was in favour of the formation of a National Government. I recognised, as my right hon. Friends recognised, that the time had come when that sentence in our National Anthem: Confound their politics, frustrate their knavish tricks. might be applied with benefit to the country. As a matter of fact, in this House we are confronted with a Tower of Babel and a confusion of tongues politically but the "knavish tricks" still remain, and it appears to me that the same result will accrue from this and that the National Government with their programme have feebly attempted, like their historic prototypes, to make bricks without straw.

My mind goes back for nearly half a century, when there was a mere handful of us, before the right hon. Gentlemen opposite were officially associated with the Socialist movement, with dear old Keir Hardie, who, were he alive to-day, would shudder at the evolution of the right hon. Gentlemen and who, if the truth were known, must have turned in his grave. They were not in at the birth of the early movement of the late eighties but came in at the christening, and we most heartily welcomed them and worshipped at their feet only to find now, alas, that they are feet of clay. I may, I think, with pardonable egotism claim in some small degree, in my own rude way perhaps, to have had some part in the conversion of the Chancellor of the Exchequer, and so strong was my faith in his loyalty to the movement that when the news filtered through I felt assured that when they discovered the fickleness of the political jades they were coquetting with they would eventually return unscathed to their old love. Alas, however, recent events have convinced me that. we are compelled to sigh for "the touch of a vanished hand" and the sound of the fearless voices now still.

I was in favour of the formation of a national government, but I was not in favour of the method by which that Government was brought about. What are the principles embodied in the National Government? Even when the bombshell fell I was a bit staggered, but my faith in the record of my one-time colleagues was so great that I said to myself, "I will wait. I will express no opinion. Surely there must be some explanation of these extraordinary happenings." I waited. I heard the Prime Minister's broadcast speech. The once eloquent, resonant, fearless voice with which I was associated for nearly half a century spoke in a foreign language. He spoke about the pound sterling and the value of it—to whom? To the man whom he was condemning to 15s. a week. He spoke about equality of sacrifice. I wonder whether he considers that the man who has lost his job, who is denied the opportunity of earning his bread by the sweat of his brow has not made sufficient sacrifice. He spoke of the cost of living to the housewife of the man on the dole, and said she would be. 1½ per cent. better off. I thought to myself, "Surely that is not the same man I knew and at whose feet I had worshipped." He knows, and his colleagues know, that what I say is true, that these very people to whom he spoke about the cost of living and about the 11 per cent. Have to purchase their food in pennyworths from the "Tommy shops" in the slums, about which he and they, like myself, know hardly anything.

I heard also of the cuts in various directions from the Chancellor of the Exchequer—civil servants, the Army and Navy, the teachers, and, the unkindest cut of all, Members of Parliament, particularly those on this side of the House. I am not speaking of myself because, thanks to the generosity of the orgonisa- tion to which I belong, I can get along even though I have no margin left. Colleagues on this side of the House who have been reduced £40 a year have two houses to keep or hotel expenses to pay, and a wife and family to support in the northern part of the land. That is the most contemptible cut of the whole lot. As to the teachers, the excellent case made out by the representative of the teachers' organisation is not sufficient. He mentions at the tail end of it a class of teacher who has not yet been mentioned: that is, the poor unfortunate supplementary teacher in the non-provided school who by this reduction of 15 per cent. Will be cut down to 32s. A week. They are the legislative Ishmaels of our educational system. The National Union of Teachers will not take them in, and they are even denied the privilege of a pension after 30 years faithful service. They are to be thrown upon the scrap-heap. Often they are sons or daughters of poor people and have to support a widowed mother and rear a family, as well as earn their living. They are to be thrown upon the scrap heap or go to a poor house and end their days there as some of them have done. In the words of Thomas Noel: Rattle his bones over the stones, He's only a pauper whom nobody owns. Surely some consideration ought to be given to these poor unfortunate creatures, and I hope that at the eleventh hour the right hon. Gentleman will take them into consideration. [Interruption.] I am sorry that the right hon. Gentleman the Chancellor of the Exchequer is going. I want to say before be goes that it is with a very sore heart that. I have to say what I am saying. Something has been said in the Debate of the responsibility and the sharing of that responsibility for the quarrel of a domestic character in the Cabinet. I am not concerned about that. All I am concerned about are the facts before us. They can quarrel in the Cabinet as much as they like. I can understand that, and sympathise with the men who have left and are defending themselves. The personality of the Prime Minister goes a long way, and those of us who have sat at his feet upstairs at party meetings have had some experience of that. Many is the time that I and my colleagues have sat there with uneasy consciences accepting his advice out of sheer loyalty to him and his colleagues who have now left us in the lurch. But he cannot indulge in the phrase of Macbeth: Thou canst not say I did it: never shake Thy gory locks at me. We gloried in the Prime Minister's personality and the personality of the Chancellor of the Exchequer, and although they only came in at the christening period of the movement in the early days, we rejoiced at their coming. Nobody rejoiced more than I did when the right hon. Gentleman the Prime Minister was called to command the ship of State on two occasions. We were prepared, as I was prepared, although we laid the keel of the original ship, although we rigged her and weathered the storms for years before they came along, to accept and to rejoice in their coming. We were prepared to serve under their command before the mast and to live on meagre fare, in maritime phraseology known as dog's body, cracker hash and dandy funk in the hope of the good time coming that he held before us and the land of promise when we might indulge in the luxury of a bit of plum duff. We never got it.

The Prime Minister and his colleagues think to-day that they are the captains of the ship of State, but they are living in a fool's paradise. The real captain of the ship of State to-day is not the Prime Minister, but the right hon. Gentleman the Lord President of the Council and his pier-head jumpers, who at the eleventh hour slipped on board with contraband concealed up their sleeves. Sooner or later that contraband will be shown. There is only one chart and that secretly marked by the Lord President for the position of the Prime Minister. It reminds me of an old sea shanty that we used to sing in the days of the old coffin ships: Her sails were old, her sides were rotten; His chart her skipper had forgotten. He sailed away to London city; But he never got there—more's the pity. That is the position of the Prime Minister. He may he on the weather side of the poop, but he is not in command. He is in a very low down grade, and sooner or later, although the Lord President of the Council has hauled the ship up in the wind and shaken the weather leeches of Free Trade, the time will come when he will square his yards, and lay his own course. Then the Prime Minister and his colleagues will either have to honour the house flag or walk the plank. That is what is coming in my opinion, and more's the pity, the gruesome, horrible pity of it all, to those of us who have served a lifetime in building up this movement. If any evidence were required of the impression that I have received, I will quote a report of a speech of one of the right hon. Gentleman's colleagues. In one sentence he praises him, lauding him to the skies, and then indulges in a prophecy: The right hon. Gentleman the ex-Minister for Labour, speaking in Glasgow on Saturday made this statement: "The, Opposition are now posing as champion of the poor— a fine pose if it were a genuine one, lint to he frank, it is rank imposture.' The sting is in the tail— This is the last Free Trade Budget that the country will see. By this time next year we shall have a tariff reform Budget, and the country as a whole will have taken its first great step in regaining its old prosperity. 7.0 p.m.

I leave the House to judge of the rank imposture. If I may indulge again in a mari-time phrase. The right hon. Gentleman the Home Secretary is only a lamp trimmer. He is not even on the quarter-deck, but part of his occupation is gone by the fact that the right hon. Member for Bewdley (Mr. S. Baldwin) has doused the binnacle lamp to disguise the course, leaving the Free Trade helmsman merely the milky way to steer by. The pity of it all! We have again the precocious stowaway the right hon. Member for Epping (Mr. Churchill) hovering round the magazine with a box of matches in his pocket, and if they do not follow hi, injunctions, up goes the whole thing! That is the occupation and that is the association of my right hon. Friend, a steadfast cast-iron Free Trader who has always stood to his guns.

I am not going to argue about Protection or Free Trade, but, if the right hon. Gentleman assumes that his Budget will clear away all our trouble, I would tell him that he is only putting a sticking plaster on a cancer. His estimate next Year will condemn him and his Budget. What is happening to-day? I attended a meeting on Saturday in a big industrial centre. Some of my friends there are motor manufacturers, and they told me that previous to this Budget they could not deliver the goods because they were crowded out with orders for new cars of the 1931 model. The day after the Budget all those orders were cancelled because the consumer has gone economy mad. He is following the right hon. Gentleman's example and cutting down expenses. In the town I have the honour to represent the word has gone round there as elsewhere for reduction of staffs. Not only are there to be reductions of wages, which will come in spite of it, but also reductions of staffs. Orders have gone out from the principal manufacturers for hundreds of men to be dismissed. That is to what the right hon. Gentleman and his anticipations' and his Estimates have brought us. As I speak, my only consolation is a memory of the past, a very sad memory, but such as it is, the association will travel down my memory until it finds some safer harbour in which to protect itself from the intellectual storms by which it is now buffeted.


The hon. Gentleman who has just addressed the House has spoken with a very natural and justifiable emotion of the events which have severed him from old and trusted leaders. These strange and difficult times have brought -their separations and their reunions. For nearly 40 years the right hon. and learned Member for Spen Valley (Sir J. Simon) and I have been close and intimate friends, sundered only by the difference of our points of view on that subject on which this afternoon he has made a speech, with whose substance I profoundly agreed, and whose cogency, admirable marshalling and irresistible shepherding of facts I profoundly admired and envied. My right hon. and learned Friend began by paying a tribute to the spirit of resolution in which the Chancellor of the Exchequer has faced a tremendous and difficult task. That spirit was one which we all on this side of the House honoured when we rose at the end of his speech—the spirit, though not indeed the method, of the proposals which he put before us. This spirit, which has already had its effect on the outside world, has, I believe, saved the immediate situation, and it is because it is essential to save the immediate situation that I and most of us upon these benches are determined to support the Government in carrying through their Measures and wish to avoid doing or saying anything that would weaken their determination to put those Measures into effect. First things must come first, and, though there are far greater issues behind and though there is much I will permit myself to say in a few minutes in criticism of this Budget, I yield to no Member of this House as to the necessity of supporting the Government in getting through their Measures in all respects.

When I have paid my tribute to the spirit which underlay the Chancellor's policy and to the necessity of supporting the conclusions at which the Government have arrived, I think I have said all I can say in favour of the Budget. From the point of view of the actual needs of the economic situation before as, I must own that this Budget appears to me as unhelpful, if not indeed injurious, as a budget well could be. The financial situation in this country to-day is, after all, at bottom an industrial situation. It makes no difference what economies we carry out if the burden still left over is absolutely beyond the capacity of a foundering industry to support. What good is it to us to balance the Budget at 1O per cent. reduction in unemployment benefit if within a few months a. 20 per cent. Increase in the total volume of unemployment cancels out the reduction? From that point of view, with every desire to support the Government, I am bound to say that this Budget does nothing to help the industrial situation, but does much to affect it otherwise. The Home Secretary has already said—and other speakers have echoed it—that the immediate effect of our economies, necessary though limy may be, and of the general reduction in loan expenditure, must be to create some measure of unemployment, a very certain offset against the advantages which no doubt will result from those measures.

Let me take the other aspects. There is not a single proposal in the Budget which will create more employment. It is true that there are to be allowances for depreciation in industry which will be of some help, but, for the moment at any rate, they are fully cancelled by the actual increase in the rate of Income Tax. The most the Chancellor of the Ex- chequer himself claimed is that he has offset the injury which he would otherwise inflict. Again, in one provision, which he has classed as an economy, but which really belongs to the taxation section of the Budget, namely, the extra contributions to be levied from employers and employed in connection with unemployment insurance, there is undoubtedly, to the extent of some £5,000,000, an additional tax upon industry, imposed not in relation to profits earned or losses incurred, but imposed directly upon the employment of men and obviously operating with greatest unfairness upon those great basic industries which employ the largest number of men in proportion to the value of their output and which are suffering proportionately more than any others in this country.

This Budget inevitably adds a very large amount to the total of our taxes. It adds £80,000,000 avowedly and another £5,000,000 or more in connection with unemployment insurance, while indirectly it is going to throw certain burdens upon the local authorities which will add some millions to the rates which, in their turn, are a form of taxation upon industry. At least £90,000,000 will be added to a total burden of rates and taxes which, when the first Budget of this year was introduced, amounted to over £1,000,000,000 a year. To give the figure which was given in this House a few days ago, we are raising something like 33 per cent. of the national income in taxes of some kind. Those rates and taxes, diffused as they are by the natural tendency of every person to pass on taxation as fast as he can, constitute a tremendous burden upon industry. The really significant fact about that burden, now increased by nearly 10 per cent., is that the whole of it is imposed upon British industry, while none of it is imposed upon competing foreign industries. That burden constitutes through all its various channels the equivalent of an excise. It is a veiled excise on British products, and, contrary to all the recognised canons of Free Trade, that excise is not balanced by any Customs duty. That situation, where you impose an excise amounting at present to something like 25 per cent. of the cost of production, balanced by no countervailing Customs duty, is not Free Trade. It is Protection, a strangely in- verted topsy-turvy Protection in favour of the foreigner.

This Budget aggravates that situation. It increases the protection given to the foreigner and the handicap against our own producers at home and abroad. If that is so, how can this Budget help making the situation more difficult during the next few months? If this were the Budget of next April, if we were facing a further year of the continuance of these conditions, then I believe every one of the figures in this Budget would have to be revised, new taxes would have to be put on, and yet further cuts made in every national service.

From that aspect of the matter I would turn to another pressing problem, the problem dealt with by my right hon. and learned Friend the Member for Spen Valley (Sir J. Simon), the problem of the balance of trade. We are face to face, as he pointed out, with a disastrous deficit. Cogently as he stated his figures, he omitted one consideration, that alongside our dwindling balance—now converted into a deficit—the investing habit of this country has led us to go on investing overseas. For the last five years we have still had, according to the Board of Trade figures, a balance—reduced, I admit, to £39,000,000 last year—on our general account. But if we take into consideration the sums we have invested overseas we have had a deficit of something like £40,000,000 for several years past. In view of the fact that not far short of £50,000,000 has been invested overseas in the first six months of this year, the deficit is likely to be nearer £150,000,000 than £100,000,000 before the year is out. In these circumstances, surely it is vital that measures should be taken, and without delay. Every week that passes leaving us defenceless is bound to widen the breach in the dam, to increase the flooded area and to make the task of reclamation infinitely more difficult. There are many industries in this country to-day which are still capable of recovery but which will have gone under for good and all if we go on for six months as we are doing to-day. Every week during which this situation continues brings a fesh exchange panic inevitably nearer, and every week while it continues, by the almost inevitable dribbling away of our resources, we are squandering the loans which we have with such difficulty secured to tide us over this situation.

Against none of these difficulties does the Budget make any provision, and though we shall vote for it, and vote for it with a clear conscience, as a supplementary Budget to carry us through the next few weeks or months, is there anybody in his senses who can imagine that this will be the kind of Budget. to be introduced next April? I am here to support this Budget, but I say without hesitation, and I believe I speak for most Members on this side of the House, that nothing would induce us to support such a Budget next April. If that is the case, if we must completely recast our economic system before next April, if every week's delay is a danger to the situation, why, in Heaven's name, do we not go forward and take the necessary measures to deal with the situation as promptly as we can? Time does not allow of the re-arrangement of this Budget or a recasting of the rough-and-ready scheme of economies which the Government are carrying through, but if we put them through quickly there is plenty of time still to put forward a comprehensive emergency tariff dealing with the whole economic situation before the end of the year.


Does the right hon. Gentleman suggest that. after the economies have been effected you should then go on to lower the standard of life by the imposition of tariffs?


No, Sir, but to increase the volume of employment, diminish the area of those who are suffering from the reduced standards and, by the general improvement of our trade, raise the standards of our people. That is the object. for which some of us have worked for over 30 years, and we are not going to change that object now. When we have got that tariff, then, in the light of the new economic situation, in the light of the indications we shall very soon have of the effects of that tariff and the revenue which it will bring, we shall be in a position to reconsider, and if necessary recast, much of the economy and taxation proposals embodied in the present scheme. I believe that scheme has been made as fair as it could be made in the emergency, but nobody on the Government Bench would claim that it is an ideal scheme. Many of us have misgiv- ings about one, feature or another. I have come to no definite decision, but I confess that I have the gravest misgivings about the special cut in the pay of teachers. I hope that as soon as conditions allow it will be one of the first things to be carefully reconsidered. I have had great misgivings about some of the economies which have been carried out in research—in agricultural research, in fishery research; in the immensely valuable work done by the Empire Marketing Board; and the cutting down of that very important piece of research to which we were committed in connection with R.100. I hope it may not be long before those points will be reconsidered. Nor do I, at any rate, suggest that the emergency scheme for dealing with unemployment benefit is the ideal scheme. Surely in a more satisfactory financial and industrial condition there may be possibilities of seeing how we can recast our unemployment insurance scheme when we are looking for a rapidly diminishing volume of unemployment instead of facing the prospect, of an average of 3,000,000 unemployed during the coming winter.

I believe that in all these respects time is so urgent that action should be taken as quickly as possible. But by action I do not mean anything in the nature of half measures. The time has long gone by when anything in the nature of a revenue tariff would help the situation. The essence of a revenue tariff is that it should be so low that it allows goods to enter as before, though it takes a small toll of them in passing. What we want to-day is not the toll but the checking of the import of those goods, both to encourage domestic production and to affect the figures of the balance of trade.


How much on food?


I am coming to that in a moment. I am not going to bunks that point. I agree with what the right hon. and learned Member for Spen Valley said in pointing out the futility as well as the injustice of suggesting the prohibition of a small class of articles, which at best can cover one-fifth or one-sixth or one-eighth of the gap. Coming to the point the hon. Member raised just now, it will be equally futile to suggest that our tariff measures should be taken merely to deal with imported manufactures. In view of the balance of trade there is no item more important to reduce than the unnecessary importation of foreign foodstuffs. When you have checked the imports of manufactures you have still to import the raw materials which we use in manufacture here, and the total diminution of your imports is not as great as it seems at first glance. When you stop the importation of foodstuffs which you can grow in this country or produce in the Empire—with which your economic relations are so different that they do not affect the balance of trade to at all the same extent—there you do get a very definite net reduction. [An HON. MEMBER: "How much on wheat?"] I am not concerned with details.

We have reached the point where a great change of national policy has to be carried through in fairness to every section of the community, and we cannot leave agriculture on one side without taking full measures—whether they be tariffs or whatever else—to assist the farmers and the farm labourers. More than that, if we take these measures we also put ourselves into a position to take advantage of the great opportunities that lie before us, the opportunities that are presented by the development of the markets of the Empire. The right hon. Gentleman who opened to-day's discussion spoke about the repercussions of fiscal policy. He drew a lurid picture of reprisals to which our trade might be subjected from foreign nations from whom we buy at present. He omitted to state that more than three-quarters of the unnecessary manufactures that come in from abroad come from four or five countries which between them do not take 10 per cent. Of our exports. When we talk of repercussions, let us remember the repercussions in the Empire. Once we change our policy we put ourselves in a position to deal with our fellow citizens across the seas who have wonderful markets to give us if we will give our markets to them, and whose need for co-operation, like ours, has never been so great. Those are the repercussions that are worth while considering.

But when I ask for immediate action I am bound to put the question: "Is it possible to take action in this Parliament or with this Government?" Last week I expressed the view that only another Government and only a new Parliament could deal with these issues. On a purely political consideration of the factors concerned, of the deep commitment of parties in the past, of the powerful and dominant personalities who seem irretrievably wedded to certain points of view, it would be difficult to come to any other conclusion. And yet I cannot help just wondering if it is beyond the bounds of possibility that this House should forget its origin, should forget the deep differences which at this moment divide it, and for a short time become a National Assembly supporting a real National Government. I know that politics have rarely been more bitter than they have been during the last week, and that bitterness has not been pleasant. I am a good party man, and yet it is not with much exhilaration that I have heard jeers and taunts exchanged across the Floor of the House between old colleagues, or seen the rank and file of a great party sneering at the men who made that party. But I also could not help thinking, when listening to the Debate, that underlying that bitterness created by the new alignments there is a greater measure of unity in this House on essentials than I have ever known.

There is a remarkable agreement throughout this House that somehow or other those great tidal movements in international monetary arrangements or in trade should be brought within the control of this country. That point of view was expressed by the right hon. Gentleman the Member who opened this Debate and by my right hon. Friend the Member for Epping (Mr. Churchill). I have heard it expressed in the last few days by the Prime Minister and by the hon. Member for Bridgeton (Mr. Maxton). It is after all the very essence of the philosophy by which we stand on these benches. We believe that international trade and finance ought to be regulated and controlled in the interests of our own people. We may differ as to the exact methods by which control should be carried out. I am not sure that often our difference is not even more one of language. There is a Socialist jargon and a capitalist jargon, and we may use phrases which tend to obscure our real meaning, but it is remarkable how often we mean the same thing. It is a tragedy that some of us who have argued for the last 30 years in this country in favour of what we believe is essential for the prosperity and the maintenance of the standard of living of the worker, have up to the present moment never succeeded in getting our friends opposite to realise how much our aims and theirs really coincided.

On this fiscal issue, it is a remarkable and pleasing surprise to me to find how many of those with whom I have been in conflict for so many years are in agreement with me to-day. They come to my confessional in crowds. They go to baptism in platoons. On that issue I have fought many a hard battle, and I have never despaired, although I have often been disheartened by the changes and chances of political conflicts and the hesitations of party leaders. I was rarely so disheartened as I was the other day when I heard that a coalition Government had been formed on a basis which clearly for the moment made impossible the introduction of what I considered essential measures. But one never knows one's blessings. I believe that these kaleidoscopic changes in the last few weeks are the certain precursor of even more far-reaching things. Under the emotion of these great events we have heard a certain amount of breaking into poetry, and T feel tempted to quote: For while the tired waves slowly breaking Seem here no painful inch to gain, Far back, through creeks and inlets making. Comes silent flooding in the main. If we can agree upon a tariff policy— and it must be a wholehearted policy if agreement is to be possible—surely we shall create automatically a condition under which some adjustment may take place of the difference—it is only a 20 per cent. difference—between the two Front Benches, and that is something which it may he well worth while adjusting. I admit that all this may be a vain delusion, and it may be much better to get as quickly as may he to a straight fight and a clear-cut issue. If so, then so be it. Only, in politics, as in war, straight fights often have their after- math of confusion and difficulty, and it is well before entering the battle to be quite clear that there is no possibility of settling the issues by agreement and by co-operation. If there is no such possibility, we shall take up the challenge with a clear conscience, and I have no fear of the result.


Whatever else can be said about the right hon. Gentleman the Member for Sparkbrook (Mr. Amery) this much can be said, that for very many years he has strenuously pursued the doctrine of tariffs. The right hon. Gentleman has always been loyal to that subject, and he has never bucked the issue even when it conies to the taxation of food. The Debates upon this remarkable Budget have been extraordinary in several ways. We find the right hon. and learned Gentleman the Member for Spen Valley (Sir J. Simon) openly joining the tariff reformers. I think the words of the right hon. and learned Gentleman the Member for Spen Valley sum up the present situation as far as the Tory benches are concerned much better than I could do it myself. The Light hon. and learned Gentleman said some time ago: no wonder the protectionist plotters want a free hand and an urgent election, because they want to secure in a fortnight power to do what they like for five years. Now the right lion. Gentleman has joined those same tariff ploiters in order to carry out that policy. The Budget which we are now considering is one which will have a remarkable effect upon the younger generation. Between 1914 and 1919 some or the best young men of this country were called upon to go through sufferings which until then were unthinkable, and while those young men were sacrificing their lives and filling graves a great many other people at the top of the social scale in this country were tilling their pockets. Many Flanders graves were filled with the bodies of these young men in a war, the slogan of which was to snake the world safe for democracy. What do we now find? We find that it was a war not to make the world safe for democracy but safe for the banker.

Perhaps I may be forgiven if I briefly trace some of the causes which have brought about this Budget. We find that the threatened financial collapse of Germany and Austria was a fear which spread to this country, and at the same time several right hon. Gentlemen sitting on the Conservative benches were spending their week-ends telling the world how near bankruptcy we were in this country. The papers which supported those right hon. Gentlemen were day after day telling the world how down and out this country was, a more deliberate lie could not be conceived, because the people who made those statements knew perfectly well that there was no truth in what they were saying, and they made them for party purposes. Now the same people are defending the National Government on the ground of patriotism, and they claim that those who are opposing the National Government are lacking in patriotism and are putting party before the nation. I love my country just as much as any hon. Gentleman opposite. That is a natural instinct, and no party has the right to claim a monopoly of patriotism. I hope hon. Members opposite will make a note of that statement when the General Election comes along.

As far as I can see, this Budget is going to place an undue burden upon the poorer section of the community. The test I would apply is: Who should pay, the rich or the poor? I believe if that test is put to the country, the people will agree with the policy put forward from these benches, that the rich are the people who should foot the bill at the present time. Those people should pay who filled their pockets during war time while thousands of our young men were sacrificing their lives.

When we talk about equality of sacrifice and burdening the poor by taking 10 per cent. Off the unemployment pay, it should be remembered that rents are not coming down. If the present level of rents is considered, it will be seen that far more than 10 per cent. Is going to be taken from the poor people. If hon. Members opposite have their way, and tariffs are introduced, that policy will be a further tax on the poor as far as their cost of living is concerned. This is being proposed at a time when we need a Bill like the Consumers Council Bill to stop profiteering. We are to have the high prices, but not the Bill to stop profiteering. I agree with the right hon. Gentleman the Member for Central Edinburgh (Mr. W. Graham) who said that relief given to industries like breweries and other industries was tantamount to a dole, and yet the people who are receiving doles in that way are supporting a proposal to deduct 10 per cent. From the dole which is being given to poor people.

I am strongly opposed to the policy of tariffs because a tariff is nothing more than a tax. It is a tax on the consumer, and anybody who stands up for the consumer should oppose a tax of this character. A tariff will not only prove to be a tax on the consumer, but by increasing the number of barriers between nations it may prove one of the chief obstacles to international peace which we so much desire to foster at tile present time. For these reasons, I feel that I shall be able to vote against this Budget with a clear conscience.


There is one subject which has not yet been touched upon, and which I should like to put to the Committee for a few minutes. During the last 10 days, two very striking factors have arisen. The Government of Great Britain have increased taxation by some £70,000,000, and at the same time are proposing to effect economies in future to a very large amount. What effect will that have on the purchasing power of the country? I suggest that, as taxation has been increased by some £70,000,000, the public will have less to spend, their purchasing power will be restricted, and the ultimate result will be that prices will fall. In the same way, through the economies to be effected by the Government, those individuals will have less to spend, and, therefore, there will be a restricted demand and prices will fall. The point that I want to put to the Government is as to the effect that that will have on our external trade. It may well be that the imports into this country will be very much restricted in future, through the reduced purchasing power of the public. We have had a very striking illustration of that in Australia during the last 12 months. Owing to the restricted purchasing power of the public in Australia, the imports of Australia have been reduced by practically 50 per cent. If that happened here, our balance of trade would right itself gradually in time, and I suggest that that point might well be considered by the Cabinet Committee which is examining this question. During the last 10 days we have set in operation economic forces which may cause our external balance of trade to right itself.

We have listened this afternoon to a very powerful speech from the right hon. and learned Member for Spen Valley (Sir J. Simon). I agree with him that it is vital for Great Britain in the future that her trade balance should be righted. He has suggested one way. There is, however, another way. Our export prices are high to-day, and our customers abroad are unable to pay the prices demanded by British manufacturers because they are too high. There is the way, which the right hon and learned Member suggested, of setting up a block to stop imports from coming here. The other way is to enable us to lower our export prices, so that our export trade may he developed in the future, when the balance of trade will right itself automatically. To secure that result, however, we must face the fact that our internal prices are too high. I know that the suggestion I put forward may not find favour with hon. Members on the other side, but high prices at home mean high unemployment in this country, and, if we could gradually, during the intervening months, tend to lower our internal prices, and tend to lower the prices of our export goods in the markets of the world, we should gradually reassert ourselves as world traders. It depends upon whether this country is prepared to face the realities of the situation. I welcome the decisions of the Government during the last 10 days, for they have faced the realities, unpleasant as they are to all classes of the community. If the Government, during the next week or two, will give some guidance to the public outside—if they will show them, by their speeches or otherwise, that the main cause of our bad balance of trade is due to our export prices for goods being too high, and if they will make an appeal to all classes in the community so to adjust their costs and so to adjust their prices that they will compete successfully against foreign manufacturers—by that means they will balance our trade and avoid the other methods which have been suggested.


The reply that I received to a question to-day has confirmed me in my previous decision to offer the most resolute opposition to the proposals of the Government. I was informed to-day that the Government intend that all men in receipt of transitional benefit, and all men who will have exhausted 26 weeks' benefit, are in future to be subjected to the indignity of having to go through the Poor Law procedure and be subject to the ordinary Poor Law test of destitution as a condition of continuing to receive unemployment insurance benefit.


I think I ought to point out that although, as is customary in a Debate on the Budget, very great latitude is being allowed, the details of what would happen under the National Economy Bill should be discussed on that Bill, and not in this Debate.


I accept your Ruling, but I should have thought, in view of the latitude that has been allowed to other hon. and right hon. Gentlemen, that that observation might have been considered to have been in order during this Debate. We had a speech to-day from the right hon. Gentleman the Member for Epping (Mr. Churchill), in the earlier part of which he said with great vigour that the late Labour Government had brought this country to the verge of beggary and bankruptcy. He then devoted the major portion of his speech to 'proving that the real cause of the difficulties with which this country is faced, and the necessity for this emergency Budget, was due almost entirely to the breakdown of the working of the gold standard and to the creation of economic conditions in the world which had led to the development of the present situation—not:as result of the Labour Government's policy, but as a direct result of the unfavourable economic conditions created in overseas markets, as a r2sult of monetary policy, leading to a prolonged crisis and a destruction of purchasing power in overseas markets. Then the right hon. Gentleman the Member for Spen Valley (Sir J. Simon) treated us to a very learned and precise exposition of the theory of the balance of trade, and laid great stress upon the fact that we were now living on the income from our foreign investments in order to bridge the gap. As an exposition of the exploitation that is carried on under a system of capitalist organisation, his speech was most instructive, but I would like to put this to him: Why is it that this country has suffered such an enormous diminution in its export trades and in the earnings of its invisible exports—services such as shipping, banking, insurance and so on? Why has there been this extraordinary drop in our national revenue derived from these sources? Surely, it is entirely due to the paralysing of the purchasing power of our customers in our great Dominions and elsewhere, and, in my judgment, one of the things from which we are suffering to-day, in relation to our overseas trade, is the fact that our great Dominions are being bankrupted by being placed in a position where it is impossible for them to meet their commitments, largely because of the collapse in prices owing to the fact that so large a proportion of their exports to this and other countries are earmarked for the service of debt and go to the service of the rentier class.

If these enormous payments from our Dominions which come into this country in the form of exports were to be free for the purpose of creating purchasing power to buy exports from us, instead of being earmarked for the service of the rentier classes and for the payment of debt, our Dominions would be able to buy a great deal more of our stuff; and it would seem to me to be a distinct advantage if those burdens which are now preventing the Dominions from buying their normal quantity of stuff could be eased and suspended for a period of years, even if we had to go to the length of giving in exchange British Government bonds to the present holders of securities representing the ownership of capital in our great Dominions. That is one of the great reasons why it is impossible for the Dominions at the present time to buy their normal quantities of goods, and, until that side of the problem is dealt with, we shall get no recovery in trade. So far as this Budget is concerned, it will have the effect of widening the area of unemployment through stopping the building of new schools, stopping works devised for the relief of unemployment, stopping the unemployment grants, and reducing the purchasing power of salaried workers like teachers in a particularly savage degree. This diminution of their income will catch them three times—firstly, on the 15 per cent. Cut, secondly, on the new Income Tax pro- posals, and, thirdly, on the general taxation that falls upon them as citizens. How on earth we can expect any increase in the demands of the home market in Britain for further importations of produce from our Dominions and Colonies when the purchasing power of the consuming part of the population is reduced, and when, as a direct result of that reduction of purchasing power, the real value of the claims of the rentiers is increased, passes my comprehension.


I want to take this opportunity to make it perfectly clear that, so far as the rank-and-file Members of the Parliamentary Labour party are concerned, it is absolutely untrue to talk about Trades Union Congress dictation, and say that they have in any sense failed to foresee the development of the present situation. Both the present Prime Minister and the Chancellor of the Exchequer must bear a heavy responsibility, with the Members of the Liberal and Conservative parties, for shirking a national duty in the framing of the Budget last April. The very people who cheered the Chancellor of the Exchequer in this House the other day, when we were informed of the imposition of the new taxes, would have torn him limb from limb last April if he had ventured to put into his Budget any additional taxation on the rentier classes. As long ago as 25th February last a very large proportion of Members present at a meeting of the Parliamentary Labour Party expressed the most profound anxiety as to where the Chancellor of the Exchequer was leading the party, and indeed leading the nation. We made it perfectly clear to him in a memorandum subsequently drawn up, arising from the discussion at the meeting, that under no circumstances whatever would the rank and file Members of the party support the Government in a policy which involves cuts at the expense of the social services, at the expense of the unemployed or at the expense of salaried workers like teachers and civil servants. Therefore, whatever may be the negotiations inside the Cabinet and whatever may have been individual opinions, it is clear that this party could never have been made the instrument for a policy reducing the standard of life, a policy of attacking policemen, soldiers, sailors and airmen, and a policy which is a direct encourage- ment to employers to attack the wage standard all round.

This problem of a Budget deficit has arisen because of world economic conditions. Revenue has diminished, our export trades have diminished and our earnings or invisible exports have diminished, all due to the fact that there is world paralysis which has made it impossible for the normal volume of trade to be carried on. This has, of course, reduced the profits of business, diminished the revenue and created conditions which no Labour Government could control, because they are in the main external to this country, and it seems to us that the policy of financial interests in the City, headed by the Bank of England, is in the main responsible for the situation in which this nation now finds itself. We have attempted to bring back, in the interests of the rentier classes of the City of London, a pound worth 7s. in 1920, measured by its pre-War purchasing power, to a parity with gold without any attempt to adjust the claims of the creditors who now claim a fixed interest, whether it be interest on war bonds and local government securities or whether it be on debentures or mortgages, and consequently it is quite impossible, with the diminished price level and a lowered supply of money, for those claims to be fulfilled without seriously reducing the standard of life of the workers.

The right hon. Gentleman the Member for Bewdley (Mr. S. Baldwin) made the settlement with America in 1922 and entered into an obligation to repay the debt in terms of gold values, which have doubled in relation to goods and commodities, and that was the first fatal mistake so far as the interests of the country were concerned. Secondly, we had the return to the gold standard in 1925 at a time when our currency had not been restored to parity with the dollar and was 10 or 12 per cent. below it in purchasing power, with the result that great industrial disputes were made inevitable. Those manufacturers who were engaged in export industries were starved of capital. They had to face a great handicap through the artificial raising of the value of British money, and. I see an hon. Member opposite who in 1929 was the chairman of a very important conference of British manufacturers who subsequently submitted a memorandum to the Labour Government in which they blamed the return to the gold standard as being the greatest cause of the difficulties of our great stable industries.

Therefore, it seems to me that the Chancellor of the Exchequer and the Prime Minister of all people have surrendered to a financial policy which has created chaos all over the world, which has destroyed the purchasing power of our oversea markets, which has led to great accumulations of gold and which has created a situation from which there can be escape only in one of two ways. So far as capitalist society is concerned, normal trade cannot be restored unless one of two things happen. Either the price of manufactured goods has to be brought down to the price now being received for agricultural products and raw materials or, alternatively, there must be some method devised of raising the price level for agricultural products and raw materials.

Great communities throughout the earth, Australia, Canada, South America, the East and West Indies and so on, are dependent upon wheat, upon tea, upon oil, sugar, and all these things have been paralysed through the catastrophic fall in prices and now, instead of banking policy being devoted to repairing that mistake, they are deliberately persisting in their policy, which means a lowering of the standard of living in the industrial nations and which is bound to fail because it takes no account of the influence of great international debts, of the great claims built up through huge internal debts, and indeed through the tremendous appreciation of all the fixed charges which fall upon the industry of this and other countries and, instead of producing stability, it is going to produce a further era of strife and to land us into great industrial and political conflicts.

I am simply amazed that my right hon. Friends should ever have surrendered to the pistol that was held at their heads. They might very well, before calling upon the unemployed workers, teachers and others, in the interests of equity and justice, and certainly in the interest of the nation, put a tax upon all fixed interest-bearing securities and upon that section of the community who have actually benefited enormously in spite of the depres- sion and the paralysis of trade. As long ago as last February we ask the Chancellor of the Exchequer to consider this method of dealing with the possibility of a Budget deficit. We urged upon him that he should consider, in view of the financial position, the suspension of the Sinking Fund. At the time we were told that this was all against the canons of sound finance and now, when the situation has developed, he has been driven, at any rate partially, to suspend the Sinking Fund.

I have heard to-day a suggestion from a right hon. Gentleman opposite that the Government should take the initiative in calling an international round table conference of Governments and bankers to face up to the present position. I sincerely hope that may be done as quickly as possible, but it is by no means a new suggestion. It was put up to the Chancellor of the Exchequer long before the Hoover moratorium, and he was urged by the rank and file members of his party to take the lead in calling an international round table conference for this purpose and considering a moratorium for international debts aid reparations. Therefore, to charge Members of this party with yielding to dictation from the Trade Union Congress, to charge them with dishonesty and lack of patriotism, is simply bigoted political propaganda and has no relation to the truth.

I believe the great mass of the people of the country desire to achieve some reasonable solution of the difficulties with which we are faced in relation to constantly fluctuating opinion as to the possibility of changes in our fiscal system. The organisation of industry can only proceed along the most efficient lines if we have some sort of settled national policy which does not vary with Parliamentary majorities, and in these days it is the duty of all of us to reverence facts more than visions and to open the windows of our minds to the national situation with which we have to deal. If I could make any contribution to getting an atmosphere in which the organisers of productive processes would have the certainty that our fiscal organisation would not move up and down with the chance results of Parliamentary elections, I believe I should have contributed something of great value towards the successful economic organisa- tion of the country. It is impossible under a system of capitalist organization to avoid these constant attacks upon the standard of the workers when these dislocations occur in the processes of production, because the very essence of capitalist activity is that enterprise is not to be carried on unless private individuals can get a profit through the organisation of production and the disposal of their products. This crisis that we are endeavouring to face up to should indicate to every thinking man and woman, to whatever party they belong, that a community like ours cannot afford any longer to allow a handful of private individuals with no public responsibility to control the financial mechanism of the country.


The hon. Member has suggested that in the very serious difficulty which now faces this country it is desirable that we should reverence facts more than visions. It is precisely in that spirit that I desire to make a few remarks. We have heard in the course of this Debate many well-informed and well-considered speeches from those whom I might describe as Front Bench speakers. Throughout the course of the remarks of these speakers there has run a tinge of political bias, but, in addressing myself to this subject, I desire rather to present the standpoint of the producer than the standpoint of any particular party. I shall follow the previous speakers in addressing myself to the wide considerations which brought about this crisis; why the crisis has arisen; what steps we are taking to deal with the situation; will the present proposal be effective, and, if not, what ought we to do?

In considering why the crisis arose, it is desirable to discriminate between the immediate cause and the underlying cause. The underlying cause which resulted in the transference of the Labour party from this side to the other side of the House had to do with broad, general considerations of national expenditure, and the immediate cause was the withdrawal of foreign deposits from the City of London. Circumstances arose in which depositors desired the return of their money. In the past it had always been possible for the City of London to set off its short-term liabilities by its short-term assets, but, unfortunately, at that time—as at the present time—the City of London had more short-term liabilities than realisable short-term assets. Therefore the depositors were entitled to be paid out in gold. That caused a run on the available gold reserve, and we were in danger of seeing all our currency depleted beyond the safety margin, and in a few hours, so we are told, we should have been off the gold standard.

The crisis was a reaction of lack of confidence in a position of vulnerability, and I desire to say a word or two on the situation of vulnerability. In the first place, it should be appreciated that at that time London lent £80,000,000 to Germany on short-term, and here I would like to quote the words of the International Bankers' Committee in respect of the money which London had lent to Germany. They say: There can be no doubt that the short term credits to German banks have to a very large extent been used in the internal economy as working capital, and therefore cannot be readily withdrawn without grave damage to the financial structure. The position was that the money which British banks properly considered, in the Light of all financial rectitude, could not be lent to British industries was lent to German bankers and therefore to German industries and, having been lent to German industries, the position of liquidity no longer existed. The money was fast.

The second consideration to which I would draw the attention of the Committee in respect to the position of vulnerability can be found largely in an examination of the report of the Macmillan Committee. In pages 149 and 150 of that report will be found many pregnant passages relating to the abnormal situation in the City of London, and I will quote one or two of the statements: Before the War, London's short-term position with the rest of the world was probably well balanced. To-day her gross liabilities for foreign short-term bills and deposits are largely in excess of her claims in respect of her acceptances. This was evidence given nearly two years ago, and the situation was well understood. I will quote a further passage: Before the War, our liquid international assets mainly consisted of the Bank of England's gold and our sterling acceptances on foreign account. These were believed to be, as a rule, at least equal to and sometimes substantially in excess of our short-term international liabilities. To-day we have greatly increased the latter as a result of the development of our functions as a de- pository of international short-term funds, whilst the former have not been increased correspondingly, with the result that our liabilities may be as much as double our liquid assets, reckoning these as made up of our acceptances and our surplus gold hitherto available for export. Regarded in this way our total position is much less liquid than formerly. These facts were pointed out, and must have been in the knowledge and possession of the Government at least 12 months ago. They were well known in the City of London. In another place they say: The ease with which we can for a time meet claims on us by attracting precarious short-term deposits, while it is certainly a great convenience may also be a danger unless we avail ourselves of it only with the greatest moderation and prudence. These are all the points I have to put on the question of vulnerability except this. The crisis could have not have been produced without that situation of vulnerability being side by side with the situation of lack of confidence, and in respect of that position of vulnerability, the City of London cannot entirely absolve itself from responsibility. The underlying cause, of course, was loss of confidence. The right hon. and learned Member for Spen Valley (Sir J. Simon) explained to us very carefully and with much detail that it was the real adverse balance of trade, taking all visible and invisible items into consideration, which constituted the danger which confronted this country. Before the War sterling used to look after itself. We always had more coming in than was going out, and if you have a circumstance like that naturally this country is sound. Now, for the first time, it has become apparent that we are in danger of having more going out than coming in.

Even until recent years it has been proved, as the right hon. and earned Member for Spen Valley has said, that the adverse visible balance of trade has been rectified, and more than rectified, by our invisible exports. The point I want to make is that in the present world circumstances we cannot expect—and it would be a great mistake to expect—that we are going to be able to rectify our adverse trade balance by depending upon our invisible exports. The right hon. and learned Member pointed out that in reference to a person whose income has been assessed at £800 from earned income, there might have been £200 from unearned income. Quite clearly you cannot rely on the £200 to ease the difficulties which may arise in respect of the £800. It is the visible balance of trade to which we must look. I think that the right hon. and learned Member put it very clearly in the point he made, in which he narrowed down the cause of our difficulties to the failure of our export trade. The situation, in a nutshell, is that our export trades are non-competitive. There are many factors which have caused our export trade to fall, but the most important factor—and I want to lay as much emphasis upon this as I can as a practical person engaged in our largest export industry—with which we have to deal in respect of the non-competitive position of British industry is in the main deflation. It has not only directly added to the burden of debt and increased overhead costs in this country, but it has prevented us having the available capital to reconstruct and re-equip industry. The sequence of causes which I trace in this matter is the adverse trade balance caused by a non-competitive export trade, and that, in the main, caused by over-deflation.

This crisis is a crisis of deflation. What steps are we taking to deal with it? It is true that we are balancing the Budget. In the long run, we should have had to balance the Budget whether there had been a crisis or not. We are balancing it by increased taxation and cuts in expenditure. There is no one in any part of the House who will contend that there is anything in the Budget that will help the trade situation. Our internal position—it must be quite clear that the Budget has to do with our internal position and not with our external position—is being temporarily adjusted by what I believe to be drafts on capital, just as much as our external position may be supported by drafts on external capital. If the Government had done what has been suggested, if they mobilised our foreign securities effectively, we could have dealt with the foreign difficulty, but there is no Member in this part of the House who would argue that by so doing we should really be dealing with the problem. We are not dealing with the problem by drafts on our capital resources, by abnormal taxation and by cuts in expenditure. The situation is being rectified temporarily by an expedient, and it is an expedient which cannot be repeated.

I ask myself whether our present efforts will be successful and effective. They will deal with the emergency. They will have a psychological effect. They will restore in other countries a feeling of confidence, which was so much needed. They will say of us: "These people are imposing upon themselves tremendous sacrifices. They are people to be trusted." What really caused the trouble. The real causes of the trouble, which in my view are over-deflation, cannot be cured by a Budget which itself is deflation. The trade situation will be left unchanged, indeed it may be worsened, and without other measures, which this particular Government is either incompetent or incapable or has no mandate to pass, the situation may be very much worse. I come to the precise point of what we ought to do. The right hon. Member for Epping (Mr. Churchill) suggested a conference. It would take a great deal of time before a conference could be effective. My suggestion is, that we should de-value the pound sterling. If we did that, we should wipe out a great proportion of the burden of our debt.

It is very much better to de-value the pound sterling on a considered and proper plan than to be forced, as I think circumstances might force us, to reconsider the whole situation in an atmosphere of confusion, hysteria and perhaps of panic. We ought to make a plan to reduce the value of the pound on a new, carefully-prepared lower level. I will give one or two reasons for my contention. When we returned to the gold standard in 1925—I am referring to the return to the gold standard at pre-War parity—we did so under circumstances which were to a great extent Artificial. I remember the right hon. Member for Epping, in his Budget speech, said the reason which actuated him in returning to the gold standard at that particular date, would be found in a White Paper. The argument of the White Paper was something on these lines: "You must stabilise the pound: In view of the fact that the value of the pound has recently come to within 10 per cent. of its pre-War figure, let us take the bull by the horns, and stabilise it at the pre-War valuation."

There were false assumptions in that argument. The value of the pound had not returned to within 10 per cent. of its pre-War value by any natural means. In December of that year the whole situation of the export of gold had to be reconsidered, and it was semiofficially stated and very well known to the international centres of the world that by December of that year the pound was going to be worth 20s. If you have an article which may be worth, intrinsically, about 15s., and someone tells you that in December it is going to be worth 20s., it is not very strange that in May it is worth 18s. An artificially created demand for sterling was set up. The situation of the return to the gold standard on the basis of the 10 per cent. difference between the pre-War value and the then value was purely artificial, because we had said that we were going to make it worth 20s. at a later date.

A second reason why I contend that the pound is to-day over-valued is that, in the valuation of our pre-War and our post-War assets, there was a great deal of difference. The only assessment that has been available to me as to our pre-War assets per head gave a figure of £400. During the War we incurred liabilities which worked out in the neighbourhood of £150 per head, but for those liabilities we had no assets. Therefore, the wealth per head of this country was, in fact, less. Although I do not attach the greatest importance to that argument, yet as we incurred in the course of that War an internal and external indebtedness of £8,000,000,000 it is absurd to suggest that that indebtedness made no difference to the value of the pound. My contention, and I think it is a contention of most producers, quite apart from the considerations of political parties,. is that in 1925 the pound was not worth its pre-War parity nor is it now. It might have been and it probably would have been if, instead of directing all our national energies to looking to the return of the City of London as the financial centre, we had looked to the efficiency and the productive capacity of our main basic industries. Since 1925 the energies of this country have been directed and fully utilised in bolstering up an over-valued pound, and we have been hamstrung by the fetishes of a dear pound and free imports.

The right hon. Member for St. Ives (Mr. Runciman), in a well-reasoned and weighty speech, produced two arguments which might be used against any consideration of the de-valuing of the pound. He used the comparison between what might happen to the pound and the mark. I listened on the wireless to the Chancellor of the Exchequer. He quoted from a speech made by the right hon. Member for St. Ives in which he described incidents which took place in Germany when he was there in 1923. In that speech the right hon. Member for St. Ives said that the value of the mark went down by leaps and bounds until it reached the catastrophic figure of 180,000,000,000,000—in fact, for the purposes of exchange the mark became absolutely useless. After quoting this passage the Chancellor added that this is what will happen if there is a flight from the pound.

A more grotesque travesty of the real situation in this country could not be imagined. The situation is entirely different. Germany had very large external liabilities and no external assets. In 1925 Germany was invaded by an enemy nation, and one of her richest districts, the Ruhr, was in the hands of the French. There is no comparison between the position of Germany and the position of this country. We are the largest, creditor nation in the world. There is £4,000,000,000 of British money invested abroad, and I believe we shall find it extremely difficult to collect the interest on this unless we do something in the way of devaluation. I admit that momentarily you will lose by devaluing the pound in respect of British money invested abroad, but we should not permanently lose because we should make it easier for our debtors to pay us, which would tend to the greatest revival of trade.

The right hon. Member for St. Ives made another suggestion, that devaluation would put the export trade out of business. That is entirely the reverse of the fact. The selling price of any finished article, on the average, is something like three times the cost of the raw material. I do not want to do the right hon. Gentleman any injustice. He was pointing out that it would affect the export trade, which has to buy its raw materials abroad—I will deal precisely with that point. Let me take an example from the cotton trade. I assume for the purposes of simplification that an American merchant desires to export raw cotton to Lancashire and to import finished cotton cloth. Let, us say that this merchant is willing to sell 10,000 lbs. of raw cotton for 100 dollars and that he is willing to buy 20,000 yards of finished cloth for 275 dollars. We have to consider the situation as it will exist to-day when the pound is worth five dollars and at some future time, to-morrow, when the pound will be worth four dollars in order to see the effect on that transaction.

I put myself in the position of a Lancashire manufacturer to-day endeavouring to do business with the merchant in America. He wants 100 dollars fur his raw cotton. I pay £20 for the material and my overhead costs are £20, and wages £20, a total of £60, which converted into dollars is 300 dollars. As in my assumption the American merchant was willing to pay 275 dollars for the cloth, I cannot do business with him and I close my mill. But to-morrow, he wants to sell for 100 dollars, that is £25 on the altered figure of exchange. My overhead charges are £20 and wages £20, a total of £65. At the altered rate of exchange my £65 comes out at 260 dollars and, therefore, I do business with him and I make a profit of 15 dollars. The situation quite clearly is that by any measure of inflation you must help the export trade. There is no single economist who will suggest. that deflation is not a definite burden on the export trade, while inflation is a help.

I hope that anything I have said will not be considered by the Committee as a suggestion that we should go in for any unregulated decline in the value of the pound, far from it. Nobody would be more hit by that than the working men of this country. It is a danger which should be prevented at all costs, and this Government has been formed to prevent it, and has prevented it. I agree entirely with the Prime Minister when he said that the fact that it had been decided to see that the pound was in fact saved, should not be taken as pre-judging the question as to whether it was not desirable to devalue the pound. I do not feel as a Conservative Member that it is the duty of Conservative Members to stand united by this present Government and present to the world some kind of suggestion that we believe in the omniscience of the financial advisers who have given us such bad advice. Events have shown, and indeed the Macmillan Report has shown, that the view as to the wisdom of the City of London is a misplaced view. The delusion of the City of London has been the belief that in looking after itself it has been looking after the country. We have to support the Government because it is in a hole. We propose to support the Government, but quite candidly I hope that its life will be short and that a general election will come soon. When we have that general election I hope the country will realise the difficulties and that it will result in the return of a new party, a party pledged to consider the producers of this country, a party pledged to put the producers first and not last in our national affairs. It is only by putting the producers first that the pound will be safe.


The hon. Member for Stockport (Mr. Hammersley) who has just sat down has been listened to with great acceptance by nearly every hon. Member on these benches. We agree almost to the last word he uttered with his diagnosis of the situation, and some of us are beginning to believe that devaluation by one means or another, sooner or later, is an operation which will have to be carried through. For my part, I say quite frankly that I shall be very sorry to try it until we have tried the method which the Macmillan Committee proposed, of raising prices by international co-operative action. I do not agree with what I take to be his view, that that process would take so long. In any case I would only welcome devaluation when that attempt had been made and had failed, and I would only welcome it if it were carried through in co-operation with the debtor nations who, we may be sure, would be glad to act with us in the matter.

The hon. Member will forgive me if I do not follow him further in what he said. I want to speak of the fundamental objections which we on these benches have to the Budget. We are agreed that we are discussing the financial situation, as the late President of the Board of Trade said, in times of emergency. We are agreed that sacrifices must be made. We all believe that the sacrifices which are proposed by the Budget. will fall with great injustice upon the different classes in our land. But we have far more fundamental objections to them than the financial policy which the Chancellor of the Exchequer has pursued. We believe that the crisis about our budgetary position, which developed on 24th August, was artificial and unnecessary. We do not believe that before let August, when the May Report was published, we were living beyond our means. We do not believe that this Budget is founded on principles which a Chancellor of the Exchequer at the present time ought to have accepted. We believe it is founded on a view of the financial and economic position of the country which is wholly false and wrong. It is in very great part because we take this view that we regard with such misgiving the attack which the Budget makes on our social services. It is in great part for that reason that we protest against that attack, against the whole constitution of this Budget and against the policy which the Chancellor of the Exchequer since 1st August has pursued.

I say "since August 1st," because, as I have said, it was on that day that the May report was published. It was on that day that the financial councils of the nation were thrown into confusion, and as the right hon. Member for Epping (Mr. Churchill) said, panic led us into folly. It was on that day that the Chancellor of the Exchequer surrendered Iris control of our finance. As a result he has given us this May Committee Budget, which is founded on the false assumption, the false reasoning, the false conception which that report contained. I do not dispute the good faith and the patriotism of the May Committee. I am sure that they, like the leaders of all parties, acted as they believed in the interests of the nation as a whole. But that does not make it less true that the May Committee, like Disraeli's Rigby, were distinguished for ignorance, because they had but one idea, and that was wrong. Their idea was that economy consists in not spending. To that idea they gave a multitude of false applications. The conception is wrong at all times, but it is above all wrong at a crisis like the present.

The May Committee assumed, and it was the origin of their efforts, that we are now in normal times, that the present conditions are indefinitely to continue, and that we must adjust our financial system to those conditions as though they were to continue for an indefinite future. Imagine that we, should accept the present situation as normal—a terrible emergency, with Governments crashing all round the world, revolutions, tens of millions of unemployed men and women starving—a situation which obviously cannot long continue. The right hon. Member for Epping said it was leading us to savagery. It is assumed that we must adapt our financial methods to that situation. At a moment like this it is a task for the Chancellor of the Exchequer not to try to apply the canons of finance that he would apply in times of plenty, but to seek for measures which will conduce most effectively to end the crisis.

Having started from that initial error the May Committee were led into further errors of a very serious kind. Again the right hon. Member for Epping said a great deal about them. He told us how they found a prospective deficit for a future year of £30,000,000 upon the normal charges, and made it appear to the casual observer as if it was a certain deficit of £120,000,000. Indeed even the "Economist" said that the Committee seriously overpainted the gloom of the picture. Not only so, but they presented their case in such a way that casual observers in foreign lands believed that we should have this deficit. actually realised in the present year. The right hon. Gentleman described also how they proposed to deal with that situation, and the late President of the Board of Trade spoke about it. Eighty-five per cent. of the economies on The social services and on public works, on the health, strength and education and the physical and mental equipment of our industrial workers, which is the greatest industrial asset that we have.

In so doing the May Committee challenged the principles of social polity which every Government since the end of the War has adopted. They challenged the principles of helping to reduce unemployment by means of public works. They challenged the principles of financial control which successive Chancellors of the Exchequer have followed. And in every application, as their main idea, they threw everything into the most brutal possible form. They intended, of course, to shock our national opinion, but what they did was to give a shock far more brutal, far more unexpected, to foreign opinion in other lands. When foreigners saw this extraordinary statement of our national position given without explanation to the world, when they saw the Prime Minister and the Chancellor of the Exchequer accept every word, when they saw that these Ministers never disputed the new principles upon which it was based, when they saw that they never made the slightest effort to dissipate the gloom which it had created, when they saw the leaders of the other parties demand the immediate adoption of the proposals which were made, when they saw the Press universally acclaim it as the new doctrine of national salvation—why, of course, they inevitably concluded that the picture of our condition was true, that our finances were in peril, that the nation was no longer solvent; and they assumed that our social services were in the main to blame for the disaster.

Having said that much I think I may resume the charges that have been made against the Chancellor of the Exchequer from many quarters of the Committee, including largely the benches behind me, as a fourfold indictment: In the first place that he accepted from the May Committee a wholly false view of our actual position; secondly, by allowing the publication of the report without explanation, without putting it in its true perspective, without announcing the policy which he proposed to follow about it, he himself very largely broke the confidence of those foreigners with whom we have dealings. Thirdly, by allowing that crisis to develop, he has allowed himself to be forced into a position in which he has to present a Budget like this. It is a Budget which he ought never to have put before us, containing proposals for taxation and economy which, however necessary they may have been on 24th August—and I say nothing about that at the moment—can only make the situation worse than it was before. Lastly, and I think this fourth indictment is made in many quarters, the Chancellor allowed the panic which was created on 24th August wholly to divert his mind from those policies which can help us to cure our ills.

I propose to deal with these four points. In the first place, is it true that we are "down and out," that our financial policy has been all wrong, that the picture which foreigners are now accepting is right and just? If we look at what the highest authorities were saying a few months ago I think we shall reach a different conclusion. Take any point you like—our Budget position, our borrowing for public works, our borrowing for unemployment insurance, our position as a creditor nation, our balance of trade—and it will be seen that three months ago no one was putting forward the views that are now held, except perhaps the "Times" newspaper and a few other people of that kind.

I remember very well a speech by the Chancellor of the Exchequer in February when the May Committee was appointed in which he said that we had only one danger and one vulnerable point, namely, that we were the world's great financial centre and, therefore, that an international financial crisis might put us into difficulties. After discussing the danger of foreigners being afraid about the soundness of our budgetary position, and dismissing those fears he went on to say: We must maintain our financial position. That we can do. Our position is fundamentally sound, sounder than that of any other country in the world, and all that is required is an effort to get over the present temporary crisis and that can be done without any very great efforts."— [OFFICIAL, REPORT, 11th February, 1931; col. 449, Vol. 248.] Shortly afterwards the right hon. Gentleman produced a Budget without any new taxation although as we now know he had great resources upon which he might have called for new taxation. In other words, there is no doubt that in his view, and I believe in the view of most Members of the House of Commons, our budgetary position was sound.


May I remind the hon. Member that the Chancellor himself when he introduced his Budget said that it was a makeshift Budget and that he was awaiting the issue of the May Committee's report.


You accepted it with a sigh of relief.


If I remember aright the right hon. Gentleman said he was waiting for better times. That is the point I am trying to make—that in following the principle which he did follow, in a time of emergency, he was right, and he had behind him the opinions of every economist of note. What were those principles? They have been challenged by the May Committee and by a few people in this Debate though by very few. First, as to trying to reduce unemployment by means of public works—every economist is agreed that that is sound policy.



9.0 p.m.


I can quote rows of opinions. I can quote Professor Macgregor of Oxford who said only a short time ago that there were two opposites to economy, namely, waste and parsimony. Discussing public works he said, that on a large scale they were good national economies. We know very well that Members of the present Government, the Home Secretary for example, complained of the late Government not so long ago because they were not pursuing that policy on 10 times the existing scale. We know that that policy was right. It was equally right to borrow for the unemployment insurance fund. We know that the Chancellor thought so and we know that the right hon. Gentleman the Member for Epping (Mr. Churchill) thought so. He scouted the idea that the Unemployment Insurance Fund was bankrupt and said that if that were true then the nation was bankrupt seven or eight times over. We know that economists have supported that policy and that by all the principles laid down in manuals of public finance, borrowing in a crisis like this for unemployment insurance is justified. The emergency exists. It is not normal recurrent expenditure. It helps to keep the level of taxation steady; it does not check the flow of capital into industry because capital is lying idle by the hundred million. It tends to expand credits and thereby to increase purchasing power.

Take our creditor position. I think it has already been mentioned that the Macmillan Report said in the roundest terms that our creditor position was immensely strong. The same is true, broadly speaking, of our balance of trade on its visible export side. Of course our exporting industries are doing badly. They must do badly when foreign nations cannot buy. But what is happening to destroy our favourable balance of trade is not on the side of the visible exports but on the side of the invisible exports. In the first six months of this year the adverse balance of trade on visible exports was smaller than it was for the first six months of 1930, but on the invisible side it was greater.

The right hon. and learned Gentleman the Member for Spen Valley (Sir J. Simon) gave us some figures and if I understood him rightly, he showed that in the present year, we are going to have falls in shipping, banking commissions and interest on investments of something like £160,000,000. That means that it is not the internal weakness of this country which causes us anxiety with regard to the balance of trade, however much our industries may need reorganisation, nearly so much as the invisible exports which are hit by the international crisis and which nothing can help but a revival of world trade. I venture to say that anybody in the Liberal party and most people in our party would have said three months ago, as the Chancellor said in his speech of February, that we were in the strongest position economically and financially of any country in the world and that we were going through the world crisis better than other nations.

I pass on to the second point in the indictment—that by accepting the statement in the May Report, by allowing it to be published without explanation or protest, the Chancellor helped to break confidence in our budgetary position. I have taken some trouble to verify my history and to check my memory by the daily Press. I may have made mistakes,—I hope I have not—but in any case I am trying to give an honest account to the Committee. Everyone remembers that the sterling crisis began on 13th July when the drain of gold began owing to the German crisis. That continued until the beginning of August because the London Conference of 19th July did not restore confidence in the German situation. To stop that drain we made a credit with France and the United States by an agreement concluded on 3rd August, of £50,000,000. Up to that time, no one, as far as I am aware, in any responsible quarter here or abroad had suggested that our crisis, the drain of gold was in any degree due to the budgetary position.

On the contrary, the "Economist" newspaper on the 8th August, analysing the causes of that drain of gold, mentioned many connected with the international situation, but never mentioned our budgetary situation at all, although in another place it dealt largely with the May Report. On the 1st August, the day the loan was concluded, the Leader of the Conservative party made a speech at Bewdley, in which he said that our anxiety was due to Germany, and although he discussed economy and the coming May Report, which he had not then seen, he said nothing about that being a cause of the gold drain; and that credit of £50,000,000 was negotiated without anybody who had anything to do with it mentioning the Budget situation. Indeed, I have here a Reuter message from New York, in which several leading bankers are reported as saying, on 1st August, that London could get almost any credit it might ask.

It was only in the next week that the Paris "Temps" published an article speaking of the chaos in our British finance and the financial disorder of our country, and on the next day "The Times" reported it, and for some mysterious reason there was a break in the sterling exchange and a flight of gold from London. I submit that that history can be verified in detail and that it proves that it was the May Report, and the way in which it was received by the Chancellor of the Exchequer and the Prime Minister, which very largely created the crisis of 24th August and put us in the lamentable position of having to adopt unsound financial measures, accept sacrifices and a Budget like the present, which otherwise might not have been needed at all.

I pass over the third point, because I am speaking too long, but I want to say one word on the fourth point, namely, that the Chancellor of the Exchequer allowed the May Report and the panic which it created to divert his mind from the only true solution, which was to find some means of dealing with the world trade situation. We have heard a number of eloquent speeches on the other side about the gold standard situation. I agree with almost everything that has been said. I am certain that we shall be forced into that grand inquest on mankind of which the right hon. Member for Epping spoke, but I am quite certain of one other thing, and that is that the conclusion which members of the Conservative party have reached, that tariffs can act as a remedy, is one that cannot be sustained. I find it very difficult to know how people who look at the situation in Germany, France and the United States can put forward tariffs as a solution for our difficulties in this country, when they know that unemployment is incomparably worse there than it is even here. If they base it on the ground of our balance of trade, I would earnestly beg them to look at that unanimous conclusion of the Colwyn Report, which said that even extreme measures of Protection, which no one would in fact practise, and which would do us great damage, could only reduce the value of our imports by about 5 per cent., because even if we manufacture more things here, we have still to get in and to pay for the raw materials with which those things will be manufactured. If that is true, surely a tariff cannot help our balance of trade situation.

I would again call the attention of the right hon. and learned Member for the Spen Valley to the fact that since it is, as he said, the invisibles that are the trouble, and since a tariff must by everybody's admission damage our invisibles still more, inasmuch as by keeping out foreign goods it must more and more make that situation worse, a tariff cannot help. All authorities who have considered this matter, from the Genoa Conference right down to the Macmillan Committee, including a, host of international commissions, in which we have taken an honourable part, have all come to a different conclusion, although they were perfectly impartial experts giving their opinion as to what would work for the welfare of mankind as a whole. They have all told us, with striking unanimity, that we can solve this crisis, if we want to, by re-starting the movement of capital from creditor to debtor countries, that if we will only undertake this great action, which the Macmillan Committee proposed, of raising prices by a definite international effort to make capital move as it has not been moving, we can reduce unemployment and better world trade.

My complaint against the Chancellor of the Exchequer is that in recent months he has been losing opportunity after opportunity of acting on that policy which has been laid before him. At the European Committee at Geneva in May last, when the French Government put forward a great credit proposal, at the London Conference, when they put forward another, at the European Committee in Geneva a fortnight ago, at the Assembly which is now sitting, what have they done to try to secure this co-operative action? I ask the Financial Secretary to the Treasury, Is it still too late for us to do something on this line? The Macmillan Committee told us that this ought to be the guiding aim of the monetary policy of our country, that it ought to be a prime object of international statesmanship, that there Is no reason to doubt the feasibility of attaining this objective, that there is nothing intrinsically out of reach in any of these objectives.

Cannot our Government take their eyes off this Budget, which may be necessary, but which at best could only gain us time, and a very little? Can they not now reject the narrow view of the May Committee, reassert our determination to lead the world, recapture, not only by this Budget, but very much more by a bold international proposal for international co-operation, the confidence which we have lost, stop saying that we are living beyond our means, that we are in more mortal danger than other nations, which is not true? Let them seek to mobilise the common interests of mankind for a common action for the common good.

What is it that this Macmillan Committee really proposes? What does the policy amount to? It is precisely what would happen if all the nations of the world were to be engulfed in another war. If that should happen they would throw their armies of young men into the field of battle and their industrial armies into the factories. They would make laws, national and international, to put those men to work, they would produce millions of guns, create international committees to ration war materials, organise production and all the rest, and unemployment would vanish overnight. If we could do that for a war, can we not do it for peace, can we not mobilise the great armies of our unemployed, can we not put them to work, to make, not shells and guns, but things which multitudes of weary women and hungry children desperately need? Cannot we take these unhappy men and give them a new hope in life, both for themselves and far the weaker ones whom they nourish and defend If we cannot, then I say that our Government and our system stand self-condemned.


The hon. Member who has just sat down has said that the Chancellor of the Exchequer might have dealt with the situation earlier in the year. That is quite possible, but the way the hon. Member has suggested would not have dealt with the situation in which we find ourselves at the moment. Academic discussions as to what might have happened or what courses are open to us are very important and interesting. I listened with great interest to the speech of the right hon. Member for Central Edinburgh (Mr. W. Graham); with the greater of it I fully agree; but the one thing which I should like to know from him is what he would do with the situation which is immediately confronting the country. No reason is given by him why he should have left the Government and no proposal to meet the situation as it stands at the present day. I do not believe that any Member on this side likes the economy proposals. I thoroughly dislike the economy proposal dealing with education, and what I regard as the harsh treatment of the cut in teachers' salaries. [An HON. MEMBER: "Why do you not vote against it?"] I prefer to vote for a cut of 15 per cent. in the salary of teachers than to have a possible defeat of the Government with the prospect that their salaries might be cut by 50 per cent.

The first issue obviously confronting the Chancellor of the Exchequer, whoever he may be—and it is immaterial whether the present Chancellor remains in office or whether the right hon. Member for Central Edinburgh were Chancellor—was to save the pound, and he would have had to impose the economies that we are inflicting on all classes and he would ultimately have to demand payment from the poorer classes of the community. That is bound to be the result. The question with which we are confronted is how to make the pound safe to-day, and the Chancellor has taken the first step by balancing the Budget. There remains the other subject that has been fully discussed to-day. When you have balanced the Budget for this year and for 1932, you have still to deal with the industrial and commercial situation in which Britain finds herself. You have to readjust the balance of trade. How are you going to do that? On that issue largely depends what our hopes for the future of Britain are. If it be true, as some people suggest, that Britain can no longer hope to regain her pre-eminence in the world markets, clearly a time has come—I do not say that I accept it at all—when you have to make a readjustment of your agricultural and manufacturing industries.

The quickest and surest way of doing that is some scheme of tariffs. Let it be understood that when you accept that position you are lowering the standards of life in this country. You will attack the standard of life, which will be an agricultural standard, not an industrial standard of life. Anyone who wants to measure the difference between those standards has only to compare the money that is spent in Unemployment Benefit and the money spent in agricultural wages. Take a case in my own Division of a farm labourer with a wife and three children. If he has left the farm to work upon the roads, he can draw in Unemployment Benefit 33s. a week in cash. If he works a full week as an agricultural labourer, he is entitled under the Agricultural Wages Board to 31s. a week, 15s. of which may be paid in kind. [An HON. MEMBER: "Under Free Trade!"] I am quoting that case to show the difference between agricultural and industrial standards, for you are likely under tariff reform to go back to agricultural standards.

Let me examine the world trade figures to see where we stand. They are an astonishing set of figures. If we compare 1929 with 1913, what do we find? The world production of raw material has increased by 48 per cent. The world production of food alone has increased by 17 per cent., while the population of the world has increased by merely 10 per cent. The volume of world trade has increased by 25 per cent., and we have this astonishing difference, that while the world trade has increased by only 25 per cent. over 1913, the production of raw materials has increased by 48 per cent. What does that. mean? It means that trade is lagging behind the production of raw materials by 23 per cent., with the result that the world is unable to consume the raw material it is producing. We have reached a situation in the world economy where we are producing far more food, rubber, tin, and all the raw materials than we can consume in manufactured goods. No one outside Bedlam would suggest that that is a satisfactory world economy. If somebody looked from another planet upon a world that got into that state, he would say that it was a lunatic asylum. [An HON. MEMBER: "That is capitalism!"] An hon. Gentleman says that that is capitalism. If you examine it, apart from mere terminology and labels, you find that the actual position has not been brought about by anything except Government action very largely in different countries.

In Europe we have nationalism run not, with each country putting up its own tariff walls, carrying on economic war, and decreasing the volume of world trade. We have America taking the course of saying that Europe must look after itself and carry on its own concerns. It might be said that that is a legitimate position, but the one thing in pursuance of that doctrine that America had to do was to sterilise the gold that was paid to her by way of reparations, and she has 10,000,000 people unemployed. The result, so far as we are concerned, is that we are burdened with 3,000,000 unemployed, and there is another 10,000,000 in Europe. That is the result which has been produced by definite policies, any one of which would have been justified in itself.

Take the case of reparations, which were condemned by the right hon. Gentleman the Member for Central Edinburgh and by the right hon. Gentle- man the Member for Epping (Mr. Churchill). No doubt you could justify on pure grounds of justice the Allies demanding from Germany payment by way of reparations for the damage she did. But the one thing which the attempt has illustrated is that nations cannot attempt to administer justice to one another from the point of view of world economy. The only thing that they can administer is mercy. At a time when the production of raw materials has outrun manufactures you are asking for restriction of manufactures in asking for a tariff. I am not discussing whether you may not be compelled to take some such step in this country to readjust our position relative to other countries. That is a different story, but from the point of view of the world itself, it is like taking the hair of the dog that bit you in order to effect a cure. The thing is an impossibility.

If you apply tariffs from the point of view of this country, what is the position going to be? The prices of raw materials and food have fallen heavily. The price of wheat in the last three years has dropped to one-half; so has the price of tin; the price of rubber has dropped to about an eighth; the prices of other commodities have also fallen. Those commodities come, not from the creditor nations that are lending us money, but from our debtor nations, some of whom have been forced off the gold standard. Last year we bought our wheat in this country at £60,000,00 below what we paid for it in 1929, which means that the number of unemployed in this country has been increased correspondingly, because the countries which sold us wheat at £60,000,000 less than the previous year are unable to purchase our goods to that extent. Food is the great bulk of our imports, and I want to know if you are going to put a tariff against that.

I am trying to apply my mind as best I can to this problem, because the duty of every Member of Parliament and of everyone else in this crisis is to apply his mind as best he can to the matter. I am not going to pretend that wisdom begins and ends with me. Are you going to keep out these imports and further depress your markets abroad? If you are not going to do that, are you going to exclude your farmer? If you are not going to exclude him, you depress the countries from which you get your raw material. One way to meet the difference between exports and imports would be to devise a tariff, if possible, to keep out those manufactured goods which are sent into this country from those nations which are our creditors and not our debtors. I do not know if that would be possible. It might be that you could have a tariff which would be discriminatory between one nation and another. There would he some sense in keeping out the goods of nations which are our creditors.

There is only one thing as far as Great Britain is concerned. One reads all the economists and all they say about the causes, and one finds that they disagree in their analyses of the causes and in the remedies that they would apply. They agree in one thing and in one thing only—their differences. Those differences are themselves illuminating. The situation has been brought about, not by any particular malignity of human nature, but by different national, social and sectional judgments. The situation is a crisis of the human mind itself, and there is no solution to it unless we change our attitude towards life in general. There is one way in which this country can possibly do something to adjust matters within its own borders. Can there be any reason at all why our basic industries should languish for want of capital? I am not blaming investors, because there is nothing on which they can make a profit, but cannot we do something in the matter internally by giving advice to investors? If money is wanted for cinemas or motor car factories, the money is ready to-morrow morning, and money thus flows into channels which are not productive as far as the nation is concerned, and I am not sure that it is not flowing into channels which are lowering to the life of the nation. Russia may be a far poorer country than this country, but Russia has only one thing to teach western civilisation. The Russian ideal is not an ideal which appeals to me, but it appeals to its people.

In this country every class in the community—and I do not except any class, but include the working class as well—is not taking life seriously. That is why we shall fall back into the position of a secondary Power. The moment Britain once more asserts her faith in herself, the peroration of the Chancellor will be true and we shall be able to adjust the balance of trade in the world. But we must be able to make sacrifices, not one class but every class of the community, in order to readjust our trade. By that example we shall be able to go to those conferences to which the right hon. Member for Epping has referred, and really take a new attitude of life towards those problems. Unless we get a new attitude of life in Europe and America, we can balance this Budget, and we can balance the trade position for a year or two, but then we shall find ourselves once again in the same position. You cannot solve this problem unless Europe and the world undergo a change of heart in regard to it. That is the only hope for Europe and the world in order to prevent their ultimately dying of starvation.


I welcome this opportunity, not so much to speak as to show an example to other Members. I wanted to impose a 10-minute limit upon each Member, and I am going to impose a five-minute limit upon myself now. I have sat in this House every day since we came back and have watched what has taken place. There are some Members who have spoken more than once. It may be out of order for me to mention it, but I am going to speak for only five minutes in order to show the Committee how time can be organised so as to give every Member the right to express himself here. The one thing that struck me to-day was the speech of the right hon. Member for Spen Valley (Sir J. Simon). I do not know anything more futile and less convincing that that speech. It was just when he was speaking that we got the message here that something had happened in the Navy because of the cuts. It would have sunk the Navy if they had heard that speech.

The whole question before the House to-day has been in some ways managed so to be a discussion on tariffs. I want to keep it to that. I want to come to the direct question affected. The Prime Minister stood at that Box and said the one thing required was a tightening of the belt. There are two ways of tightening your belt. If you have plenty of cash and get inside a good restaurant you can tighten it up from within; but the tightening of the belt he meant, for other people—not himself—was the pull from the outside. There is going to be nothing but trouble until this Parliament, and the Government inside this Parliament, realise that, play as they may with what they call the outside forces, we have to have some guarantee with regard to the inside forces. The Chancellor of the Exchequer knows perfectly well when he talks about what has been done to balance the Budget that there is not a single guarantee that the Budget is now balanced. He knows it. He knows that the very tax he is putting on is going to be, according to all theories in the House, another tax upon trade and industry, and that as a result there will be less left to tax.

I should have liked to develop this point much further, especially on the industrial side, but I intend to keep to my five minutes, and I will conclude in this way. The only thing that is fixed is what belongs to the class that never produce anything—the rentier. That is the only thing that is not touched. We are dealing with wages, profits and unemployment insurance. Those are the three main things being dealt with in what is called the crisis. If we took all the speeches made here to-day and tried to analyse them we would find running through the speeches from the opposite side an attempt to talk about something to keep their own minds from the realities of the situation. We have never had from that side any plea for the man who is really going to be affected—the working man out of work. We have had references to the people who, even with the cuts that are coming, will still have what they require to live upon, but we have heard nothing about those who will be below the standard of living. [HON. MEMBERS: "Time!"] I have one minute to go, and in that minute I want to say this. I suppose everyone gets surprises in his life. I am now looking at the greatest surprise I ever had in my life. I can remember the year 1894, when I met the Chancellor of the Exchequer at the Central Station, Glasgow. He had on his head a two-flap deer-stalker, of brown and white check. He came to introduce himself to the Socialist section of the Scottish Labour movement. That is a long time ago. As he knows, I have admired him in a good many ways. Now he sits there as one of the men who seek to undo all that be asked us to believe he was sincere about. The unemployed man with his wife and his child left with 15s. 3d.! I could use language to describe my feelings that you would feel ashamed of!


I will endeavour to be commendably brief, and, indeed, I have undertaken to sit down in time to leave the ex-Minister on the Opposition Bench time to begin his speech at the hour he wishes. At the outset I wish to challenge two statements by the hon. Member for Coventry (Mr. Noel Baker). They were those on which he based his attack upon the Budget and on the Chancellor of the Exchequer, and they were both of them wrong in fact. The first was that the great cause of the recent flight from the pound was the publication of the May Report, and the circumstances of its publication, that before then our position was so inherently strong that there was really little danger to the pound. If the hon. Member, whose academic attainments I acknowledge, would consult any of those who have real, practical knowledge in the City of London he would find that fears about the stability of the pound were current in foreign countries and those fears were known to people in the city for 18 months and more before the present date.




I am afraid I cannot give way. They were a matter of common knowledge. I seldom wish to quote to the House anything that I myself have written, but knowing those facts I did write these words more than a year ago: If matters are allowed to drift, and confidence is not restored, a flight from the pound is just as possible as was the flight from the mark or the franc.




It could not have been propaganda at that date. What I wrote then was echoed by many people who had intimate practical knowledge of what was going on. The second point on which the hon. Member based his attack brings me to the speech of the right hon. and learned Member for Spen Valley (Sir J. Simon), whose con- version to the belief in the necessity of the tariff some of us welcome most unfeignedly, being exceedingly glad to have in support of it so powerful an advocate and controversialist. I only wish we could have the Chancellor of the Exchequer. [HON. MEMBERS "You will get him."] The Chancellor of the Exchequer has announced conversion and redemption of the Debt, but a conversion and redemption of the Chancellor of the Exchequer to a tariff would be an even more valuable asset. The hon. Member laid stress upon the fact that there had been no weakness in our visible exports. It is precisely the weakness in our visible exports which has been growing during the last eight years which is what has caused the inherent danger to-day, and will cause danger when the world slump lifts.

At the end of July last I wanted certain figures. I did not put my request in the form of a parliamentary question because I was afraid that the publication of the figures might cause general unrest. I put the information in the form of a letter in which I explained that I wanted to make a comparison between this and other countries. The President of the Board of Trade supplied me with a comparison between this country and Germany and those figures showed that the decline in German exports of manufactures in the first half of this year, as compared with the last half-year before the slump, was 13i per cent., while in the case of this country it was 40 per cent. That decrease of export trade, in competition with other countries, clear as it was before the slump, is continuing at an accelerated rate while the slump is going on, and, unless we remedy the position it will lead to a greater deadlock before the slump is over.

It is vital that at this moment the re-equipment of British factories should be taken in hand, and everything possible-should be done to enable them to put in the very newest plant that human wit, has yet devised or can produce. I am convinced that we cannot recover our position unless that suggestion is taken in hand quickly. I ask the Committee to mark the double advantage which is gained in that way. In the first place, we give employment which helps to meet the present emergency and the help is given in precisely those trades—the heavy trades—in which unemployment at the present moment is the worst, and in which help of that kind is most required. In the next place, what I have suggested will enable this country to meet with greater success the extraordinary competition that is going to face us in international trade in the modern world when the slump lifts, as lift it will.

I may be asked what part should the Government play in regard to the re-equipment of factories. I say at once that I hope that the Government will not intervene actively in any way. The Government should only help by some form of guarantee similar to the Trade Facilities Act, but I hope that even that may be avoided. The Government can help in another way. The Government can use its influence with the great bankers. I hear complaints that there is a bankers' trust. The fact is that with regard to industry more harm has been done by too much competition between banks than by too much co-operation. The banks have recognised that, but co-operation of the big banks, rather than undue competition, is absolutely essential, and I believe that under the lead of the Government it might be possible that the banks might join together instead of simply competing, and they might see that facilities are given to British industry to re-equip our industry in a way that is very different from the way in which mere advances have been given by the deposit banks in past years. That is one of the main points which I wish to urge.

It may be asked why I am urging expenditure on re-equipment when the Government wish to economise. In reply to that, I may ask how far are private individuals ready to follow the example of the Government. I know that at the present moment there is some confusion on this score. I know that people are anxious to do their best, but they want a, lead, and I am sure that the Government could give that lead. Much depends on the view which people take of the cause of the trouble. A good deal of perplexity arises from the fact that we have two separate troubles, one peculiar to ourselves, and the other peculiar to the world at large. The one which is peculiar to ourselves is our present weak industrial position, and the great excess of our imports over exports. There is also the fact to be considered that our export trade is declining, and that in itself is a menace to the standard of living in this country. From that point of view, I think we ought to limit all expenditure on various imported goods. Such expenditure should be limited to the utmost of our ability. I suggest to the Government that while legislative measures may be slow or, from various points of view, may not be desirable, it is quite possible for the Government to support a very powerful propaganda to get voluntary action to limit expenditure on imports from overseas, which, in the aggregate, may have a very considerable effect.

The other cause is the world slump which affects other countries as well as ourselves. It is quite clear that expenditure on reproductive objects is of the highest possible value. Such expenditure would help unemployment, and would enable this country to face the difficulties of the future. Expenditure on works of ordinary permanent utility is a good thing. H anybody were to ask whether he should build a cottage or put it in order to-day I would say put it in order to-day because that is a work of permanent utility. The great thing is to leave behind no obligation of expenditure. When it comes to ordinary matters of personal comfort we should economise on those things, particularly if they cause any importation from abroad, because, by economising in that way, we should be able to devote more expenditure to objects which are more needed. It is in that way that I believe we can help most to attain the object which the Government have in mind.


Mr. Dalton.


On a point of Order. Are we to understand that these Debates are almost entirely limited to front benchers and Members of the Privy Council? The hon. Member for Spring-burn (Mr. G. Hardie) has already drawn attention to the fact that back benchers are practically excluded from these Debates, and that they are confined to the individuals who have been responsible during the past 10 years for reducing the country to the state in which it is now.


There is no rule confining debate to Members on the Front Bench or Privy Councillors, but I would point out that, if the hon. Members who are called by the Chair occupy a very long time in their speeches, it makes it extremely difficult to call other Members whom the Chair would desire to call.


I regret that the new party, whose appearances in this House are so infrequent., have had no opportunity of putting forward their doubtless highly original conceptions of the solutions to be applied to the problems which confront us. They have now disappeared from the Chamber. Let us deal, then, with the things that matter.

I understand that the Chancellor of the Exchequer will wind up to-night's Debate, and it will be interesting to us to listen to his replies to the invitations which have been addressed to him by a number of those who are now his political followers, and to the appeals which have been made to him to announce his conversion to a belief in tariffs as a means of correcting the adverse trade balance of this country. We shall listen with interest to the response which he makes to those appeals. Very few of those who have spoken from the other side of the Committee has expressed l00 per cent. support of the Budget for which they are going to vote. There has been criticism mote or less grave from a number of right hon. Gentlemen who are not Members of the present Government, including the right hon. Gentleman the Member for Epping (Mr. Churchill), the right hon. Gentleman the Member for Spark-brook (Mr. Amery) and others. But, at any rate, after the rather tedious stream of reminiscence and counter-reminiscence, to which we have lately had to listen as to what happened within the late Cabinet before it finally died of disunion, it is a relief to be able to say, in the light of the speeches from, this side of the Committee, that I am able to speak to-night on behalf of a live and united party, which is only too willing, whenever the trumpets shall blow for the General Election, to go to the constituencies and restate there the case that we have been developing on the Floor of this House against this Budget which the Chancellor has put before us.

10.0 p.m.

In a sentence, our criticism of these Budget Resolutions is that the weight of taxation is so distributed as to nullify all the past teaching of the right hon. Gentleman himself. We have been brought up in the past upon his dicta; we have learned from his lips that, when speaking of equality of sacrifice, you should think, nor simply of what is taken by the Chancellor of the Exchequer, but of what is left behind in the hands of the taxpayer. In the light of the principles which he himself has laid down, and which he has enunciated to his followers in the past, we say that this Budget violates those principles, and lays a grossly disproportionate burden upon the poorer and a grossly light burden upon the richer among the taxpayers. I will come back to that point in a moment. We have heard much of balancing the Budget, and it is, of course, an elementary maxim that States should balance their Budgets. But, for reasons to which I will refer later, the balancing of Budgets has become a very rare achievement among modern States. The United States of America, the richest country in the world, which has lent money to this country recently, expect a deficit of between £250,000,000 and £300,000,,000 in the current financial year. The French, who have also lent money to us, have a deficit, I read, of approximately £50,000,000. The Chancellor of the Exchequer himself has told us, in a speech made in this House on 30th July, that nearly all our *Dominions have deficits this year, including Canada and New Zealand among others. Balancing a Budget is, as I have said, a very rare achievement in modern finance. None the less, we should endeavour to balance ours. That is not denied. What is in dispute is the way in which it should be balanced, and upon whom the burden of balancing it should chiefly fall. I think I am not wrong when I say that even in this country in the past the Budget has not always been balanced. I seem to remember that, while the right hon. Gentleman the Member for Epping was in charge of our finances, we had an unbalanced Budget or two. I think that at least two of his five Budgets would have been judged by the standards of the present Chancellor of the Exchequer to have been unbalanced. But on none of those occasions were we told that there was a flight from the pound, nor in either of those foreign countries which I have mentioned, neither in the United States nor in France, are we told that there is a flight from the dollar or a flight from the franc. [An HON. MEMBER: "There is not!"] That is my point. There is not a flight from the dollar; there is not a flight from the franc; and yet the Budgets of these two countries show far larger deficits proportionately to the totals than the Budget of this country shows.

Therefore, the cause of the recent flight from the pound is not primarily or chiefly the fact that our Budget was unbalanced. It is due to other causes, and I will endeavour briefly to indicate what in my view some of those causes are. It is due in the first place to reckless over-lending abroad by the City of London and the financial houses therein. Tonight we have heard much about the adverse trade balance. The right hon. Gentleman the Member for Spen Valley (Sir J. Simon) has come down in favour, not of a tariff, but of some sort of block against imports. He was careful to choose his language with legal discretion. The argument was that this was the most satisfactory immediate means of redressing the adverse trade balance. The trade balance would be likely to be less adverse had it not been that during the first six months of this year the City of London had organised the lending of 844,000,000 to foreigners. That is one way in which an adverse trade balance is created—by overlending to foreigners and ignoring the possibilities of developing your own country; and I say without fear of contradiction—and this view is held by many high authorities in the City who will disagree with much else that I am going to say—that there is general agreement that overlending to foreigners by the City and its financial houses in the early part of this year is one very grave cause of the adverse trade balance.

In the second place, undoubtedly, the weakness of sterling was due to the German crisis. It followed upon the weakness of the mark, and that again was due to the fact that a large number of our financial institutions—many of them semi-foreign in character and foreign in origin, many of them manned by people whose names are not common British names—had rashly lent enormous sums to Germany, on the principle, apparently, of sympathy first and safety last. That is the reason why, as the German crisis developed, the weakness of the mark communicated itself also to sterling.

Finally, and most important of all among these causes, I place the poisonous and unpatriotic propaganda which has been conducted for some time past by British newspapers hostile to the Labour party, which have told foreigners, who have no easy means of checking their statements, that we were marching towards bankruptcy—[HON. MEMBERS: "We are!"]—perhaps hon. Members opposite took their part in the propaganda to which I have referred. That propaganda, whoever took part in it, was grossly misleading and untrue, and was marked by a class prejudice which it is quite astonishing, to analyse. Let me analyse it for a moment. We have been told that many foreigners believed that the dole was the main cause of British financial decay and of the danger of the bankruptcy of British finance. I expect some hon. Members opposite believe that that is so, that the large sums spent upon the dole were responsible for the weakness of sterling, the flight from the pound and the bankruptcy of British finance. They do not seem to rise to that.


You set up a Royal Commission to analyse it, anyway.


This opinion was advertised by the May Report. The May Committee, as was usual with committees set up by the late Government, contained a majority of opponents of the Labour party. It contained two nominees of the Tory party and two of the Liberal party, and a chairman who is associated with a well-known charitable institution for the benefit of the workers of this country, and it succeeded in producing a report which advertised all these false statements regarding the basis of British finance. I have no doubt at all that the May Report, with its distorted and sensational picture of the facts, following upon the persistent propaganda of our political opponents, did in the end produce the panic—[Interruption.]


We cannot hear what my hon. Friend is saying for the voice of the hon. Member opposite.


I think on the whole the Debate has been hitherto conducted with very good spirit, and I hope that will continue.


May I be allowed to point out that I sat quite quiet until an invitation came from those benches?


The hon. Member will not receive any invitation from me except an invitation to proceed at the appropriate moment to Leith and to take the judgment of his electors. If I am continually interrupted, the result will be to diminish the time allowed for the Chancellor of the Exchequer. I have undertaken to sit down at twenty-five minutes past ten, but, if I am interrupted, I shall go on until I have said what I have to say. In my view, which submit to the consideration of the Committee, it was the May Report, with its sensational and distorted picture of the facts, which, following upon the sustained propaganda of our political opponents, provoked that flight from the pound which sent the Chancellor of the Exchequer seeking credits under humiliating conditions from foreign bankers. The bankers succeeded, it appears, I will not say in making conditions—I am very anxious to use polite language and I will therefore use the language of the Minister of Health in last night's Debate. His account of the situation was this. When he was called into consultation, being given a preference over members of the Parliamentary Labour party, he was told on 13th August that a loan was unobtainable, and he was told by the Chancellor of the Exchequer and the Prime Minister that it would remain unobtainable unless foreign confidence in the stability of British credit was restored. There was a widespread impression in foreign countries, he said, not confined to any one country in particular, that the root of the financial trouble in this country was not the condition of the Budget but the condition of the Unemployment Insurance Fund, and they were convinced that, unless the Government of this country did intend to make the necessary reforms, which involved a redaction of the standard rate of benefit among other things, in that fund by put- ting it on a proper insurance basis, it was quite probable that confidence would not be restored.

I do not want to dramatise the thing at all, therefore I will deliberately use language less strong than would be appropriate to express my real meaning. I say it is quite clear from this account that the Leaders of the Tory and Liberal parties were told that confidence would not be restored in the credit of this country and that, consequently, foreign bankers would not feel that it was safe to make a loan to the Bank of England unless certain reforms were made—reforms is a euphemistic term—in the organisation of unemployment insurance. These reforms were accordingly proposed by the Chancellor of the Exchequer and the Prime Minister. They broke up the Cabinet and they gave birth to the Government of all the talents which now sits on that bench. The humiliating conditions were accepted and it is now being sought to railroad them through this House with every possible abbreviation of debate. I do not desire to say anything against the bankers. I desire rather to say that I consider it a humiliation for this country that foreign bankers should have been permitted to dictate the terms on which the Budget of this country should be framed. Quotation has already been made from a notable book by the Prime Minister written in 1921, and republished without substantial amendment in 1924. I do not know whether this is part of a quotation which has been made but I will give it to the Committee. He is now the leader of the majority in this House and his followers are likely, therefore, to pay heed to his words: This country will have to watch not only Lombard Street but Wall Street. If international finance is to combine, the slavery of labour is inevitable and the politics of the world will become the will of finance. Finance can control the sluices in every stream that runs to turn the wheels of industry and can put fetters upon the feet of every Government in existence. Those were prophetic words. The Prime Minister concluded—and with this I heartily agree- No community can be free until it controls its financial organisation. I leave the problem there, as stated by the Prime Minister. We shall put forward, when the Prime Minister orders a General Election, our view as to how to carry out the policy which he has indicated as necessary. Meanwhile I leave the problem before the Committee. I was referring just now to the way in which the payments of unemployment benefit have been magnified by foreign observers far beyond their proper proportions in the national Budget. It is worth while to observe that the payments for unemployment benefit, even in this year's Budget before the figures were modified, are only approximately equal to the payments which are to be made for armaments—I am not aware that foreign financiers expressed concern about that—and less than one-third of the total payments in respect of National Debt charges.

That brings me to a further consideration of a more general kind touching the Chancellor's financial proposals. The Members of the Labour party on the May Committee put in a minority report which received no great attention. In the course of that minority report—in page 238 for closer reference—they deal with the burden of the Internal Debt. It is far greater than the other dole, if that word is to be thrown about. It is far greater in point of amount than the payments made in respect of Unemployment Insurance, and they point out that owing to the fall in price levels, which has been touched upon from many points of view to-day by other speakers, although the payment of interest on Internal Debt fell from £309,000,000 in 1920 to £273,000,000 in 1931, a reduction of £36,000,000, its real cost to the nation in terms of goods and services rose by £94,000,000. The cost of living index figure during those 11 years fell from 250 to 145, a reduction of 42 per cent. Consequently, if I may apply an argument used in the case of unemployment benefit by the Prime Minister and others, since the cost of living for the bondholders fell by 42 per cent., it would follow that if the rate of interest on the Debt were to be reduced by a third, the bondholders would still be 9 per cent. better off.

I shall have a word to say about the question of contracts and the attitude of the Government towards them, but I will now say a word about conversion. The Chancellor of the Exchequer has made provision in his Finance Bill, we understand, for certain conversion operations. I hope that those conversion operations will succeed, but, many Members on this side of the Committee, who have given some thought to the question, wonder why, when it was necessary, in the view of the Government to ask for such heavy sacrifices from many sections of the poorest in the country, it was not thought worth while to make an appeal to bondholders in general to come forward and make a voluntary renunciation of War Loan interest as an assistance towards the immediate problem of balancing the Budget. His Majesty the King has made a handsome renunciation which we all appreciate. Is it impossible to suppose that rich men living upon inherited fortunes might also be willing to come forward and follow His Majesty's example? We have heard a great deal about old age pensioners who sent back their books. Can we not suppose that if the Chancellor had made an appeal, he might have got, even at an earlier stage of this business, such a response from patriotically minded holders of War Loan as considerably to have eased his Budget problem by now, so that it might. have been possible for him to propose less drastic cuts in pay and in unemployment benefit.

There was a rumour some weeks ago that there was to he a compulsory conversion of the War Loan to a lower rate of interest. It was only a rumour. It was disposed of by a statement that was made on high authority, and commented upon in the financial press of the 2nd September. It is denied on high authority that there is to be any compulsory conversion of The 5 per cent. War Loan. I read in the city columns of the "Star," which, being a Liberal newspaper, is now, I suppose a Government organ, that This reassurance is particularly welcome, as investors had been considerably disturbed by fears of a lower income. I suppose that in regard to all the other people whose incomes are being lowered by this Government their disturbances of mind are not worth consideration. We are- told that there could not have been a compulsory reduction of the rate of interest on the War Loan, because that would be a breach of contract. That, I think, is the argument. That is the reason why we cannot do what Australia has done with her dissentient minority. Having first made a voluntary appeal for conversion and having got a very fine response to the appeal, Australia has said that the minority who would not patriotically respond shall have their interest reduced to the same level as the others. A very fine example! We have not made the first appeal and, therefore, we are not in a position to follow it up, as the Australians have done to the next stage. In any case, we are told that compulsory reduction of the War Loan interest would be a breach of contract with the bondholders. This brings me to a very fundamental point of criticism of the Government's proposals. A contract is sometimes sacred and, as Mr. Yaffle who writes in the "New Leader" says, it is sometimes profane. The Economy Bill provides for the modification or termination of statutory or contractual rights. We ask, "whose statutory or contractual rights," and we find that they are those of the teachers, of the police, of the men of the fighting services, and of many others who work for the State. When we come to the contractual rights of those who own wealth charged upon the revenues of the State, we are told that we cannot proceed upon that revolutionary road and that we can proceed only by a voluntary conversion scheme. There we put our finger upon one of the distinguishing marks of the finance of the Government in this crisis. We find that they discriminate and pick and choose between their contracts. They take their contracts a la carte. They violate those that they have a mind to and leave standing those which they regard as of particular sanctity. We are not disposed to accept the basis of their discrimination. If it is to become the practice to revise the contracts of those who work for the State, that will be a precedent for revising also on similar lines the contracts of those who receive unearned income from the State by way of interest.

Let me pass to the incidence of these new taxes upon various sections of the people. May I take the cases of three unemployed men, an unemployed man with £5,000 a year, an unemployed man with £500 a year, and an unemployed man with rather less than £50 a year—that is to say a man receiving unemployment benefit. I find from a few simple calculations—and the Chancellor of the Exchequer has promised to give us a White Paper to enable us to check our amateur calculations—that the man with £5,000 a year is going to pay in additional taxation, in respect of Income Tax and Surtax, £170 a year, equal to 3½ per cent., or 8d. in the pound, on his income; that the man with £500 a year will pay an additional £27, equal to 5 per cent., or 1s. in the pound; and that the unemployed man with less than £50 a year, who is now going to get 15s. 3d. instead of 17s. per week, is to have a 10.3 per cent. cut, or rather more than 2s. in the pound. I ask, is that the Chancellor or the Exchequer's arithmetical conception of equality of sacrifice? In these calculations I have taken no account of the additional taxes on beer, tobacco and entertainments. If I had time I could show the Chancellor of the Exchequer the way in which the size of cigarettes has already been reduced as a result of his proposals. My hon. Friend the Member for Abertillery (Mr. Daggar) has handed me two cigarettes, one of which is distinctly shorter than the other and was apparently offered for sale the day after the Chancellor of the Exchequer's new provisions came into effect.

I recall to the attention of hon. Members the very clear statement made by my right hon. Friend the Member for Central Edinburgh (Mr. W. Graham) in which he set out our alternative proposals. After that speech it cannot be said that we are not putting forward alternative proposals. We believe that the best source from which to get our alternative proposals is to go back to "Labour and the Nation," where they are set out very clearly. Our view is that many of these taxes upon the comforts of the poor and on the lower incomes could well be dispensed with and that the money could be raised by increasing the Surtax, by increasing the differentiation against large unearned incomes, by increasing the Death Duties, upon which the Chancellor of the Exchequer at one time was very keen, and, furthermore, by reconsidering the basis of de-rating, which we so vigorously criticised when it was brought in by the Tory Government. In other words, it is our belief that revenue could be raised far more in accordance with ability to pay and far more in accordance with the principles which many of us learned in days gone by from the Chancellor of the Exchequer himself, than by the scheme he has put before us for consideration in this Budget.

My last point is this, that whatever you may do with regard to balancing the Budget, whether you balance it justly or unjustly, you have still to face, in the background, the anarchy of the international situation and the failure of the central banks and the Governments of the world to control the monetary system in such a way as to enable capitalism even to carry on as a makeshift system. It is the continually falling price level, monetary unbalanced Budgets all over the world which has intensified trade depression and multiplied unemployment everywhere, which has made the burden of debts unendurable, which has caused a flight from one currency after another, and will, before long, unless something more imaginative and more comprehensive is proposed than the policy in this Budget, drive this country also off the gold standard. It is always the best solution of any problem of this kind to secure an international agreement to do the right thing, but if an international agreement to do the right thing—by which I mean to pursue the policy indicated in the Macmillan Report and elsewhere—is not adopted, then I say on behalf of the party here that we must reserve our national liberty to do what is best for this country, in face of the failure of these efforts at international cooperation. Whenever the Chancellor of the Exchequer is willing to sound the trumpet for an election we will go to the country confident that the alternative proposals that we shall put up will be preferred by the electors to the proposals put. before us in these Budget Resolutions and in the Economy Bill.


The Debate this afternoon has surely been one of the most extraordinary Budget Debates that has ever taken place in this House. The discussions have gone on for seven hours, and with the exception of references made by the hon. Member who has just sat down, the speeches have been concerned with everything and anything except the proposals of the Budget. I do not in the least complain that the important matters which have been discussed this afternoon have occupied so much time. They are, indeed, in their place, of the greatest possible importance, and I think it is well that the House of Commons at times should turn to consideration of these important and fundamental questions. Most of the speeches that have been delivered have dealt with the balance of trade and with the gold standard. We have had a most elaborate analysis of the position in relation to these matters. The right hon. and learned Gentleman the Member for Spen Valley (Sir J. Simon) began by commenting on the fact that the speeches up to that time had had very little relation to the Budget. I was expecting that the right hon. Gentleman, after that observation, would have devoted his remarks to that question, but he at once entered upon what I have just described as a very elaborate analysis of the trade position.

About most that has been said upon that topic there can be little controversy. But I am impelled to say that. I have never heard a discussion so barren in practical suggestions as the discussion upon that matter and upon the gold position to-day. The right hon. Gentleman the Member for Spen Valley analysed the position with great accuracy, but all the causes of the present situation he rejected as being incapable of immediate treatment—all of them with the exception of one. He rejected the possibility of increasing the return on foreign investments, of increasing the return for our services and restoring the export trade and restricting imports. Then he fell back upon an emergency tariff. The hon. Member who has just sat down said that he and his party were waiting with impatience and with very great interest to hear of my conversion to the proposal for a tariff. If I were able to announce that conversion this evening, should have been anticipated by the party opposite, but I regret to say that in that matter at least, I have departed from no professions and no principles.

Now the right hon. Gentleman fell back as I have said upon an emergency tariff, but he did not tell us what he meant by an emergency tariff, and he did not explain how he proposed that it should operate. If the purpose of a tariff, either emergency or permanent, is to stop imports and therefore do something to redress the balance of trade, then it will have to be of a prohibitive character. No tariff of 25 or 30 or 40 per cent. can possibly keep out all imports, and there- fore it would have to be a tariff of such dimensions as to do, through a tariff, what might possibly be done by direct prohibition of imports. There is not and cannot be such a thing as an emergency tariff. The McKenna Duties were imposed for exactly that purpose, the purpose of restricting imports during the War, as an emergency measure, but still, 20 years after, they remain part of the fiscal system of this country. But the right hon. Gentleman must be aware that if he could succeed in restricting imports, he would strike a still further blow at the income that we are deriving in small measure, and have in the past derived in very large measure from the shipping trade.

The right hon. Gentleman the Member for Central Edinburgh (Mr. W. Graham) in his opening speech dealt with the question of the restriction of imports and he came down against it, but he never made one concrete or practical suggestion for dealing with that point. The right. hon. Gentleman the Member for Epping (Mr. Churchill) has appeared this afternoon in the role of a full-blooded Protectionist. At one time he said that he believed in Free Trade as he believed in the multiplication table. The multiplication table has not changed, though the right hon. Gentleman, with his adaptability as a quick change artist, has changed those principles of which he at one time was a most powerful and eloquent advocate.

I must now say a word or two on another matter to which a good deal of attention has been given in the course of this Debate, and that is the gold question. The right hon. Member for Epping spoke at length upon this matter, although he confessed to the Committee, after having spoken on the subject for 20 minutes, that he knew nothing at all about it. He said that the right hon. Member for Central Edinburgh always gave the impression that he anew everything and could speak at any length. Well, the- right hon. Member for Epping can certainly speak at any length whether he knows anything about his subject or not. But with regard to the gold question, I think we are apt to exaggerate it as an influence on world trade relations. Reference has been made in the course of the Debate to the opinion of the Macmillan Report. Which of the 12 Macmillan Reports was referred to was not stated by those who made the references, but one of those 12 reports does say that the difficulty has arisen in the main from the policies which have been pursued by 'other countries and is not due to the banking policy of this country.

The right hon. Member for Epping suggested that the Government might call a conference. It was suggested at the Genoa Conference that the central banks should call a conference to deal with this question, and a conference was held, I believe, about three years ago. The right hon. Gentleman was in office for five years, and he took no steps to deal with the gold problem. That was perhaps because, as he told us to-day, he did not know anything at all about it. It is well known that this matter has been and is still under consideration by a Committee of the League of Nations. If the United States and France think that it is to their advantage to hoard gold, we cannot make them disgorge it, and if there is any prospect —I think I may speak on behalf of the Government—of getting an international conference to deal with this question, this Government will be very happy indeed to participate in it.

The right hon. Member for Central Edinburgh spoke for an hour; and he devoted exactly six sentences to the Budget. He gave us a very full history of the German crisis, and the inference to be drawn from his remarks was that all the troubles from which this country is suffering and from which the world is suffering are to be attributed to the payment of German reparations. Well, I think the Committee and hon. Members opposite will at least de me this justice, that I do not minimise the importance of the reparation problem. I have made 50 times more speeches on this question in the last 10 years than all the Members on the other side of the House put together. But this problem, important as it may be from the international trade point of view, has very little to do, in spite of what the right hon. Gentleman said this afternoon, with the budgetary position in this country.

This situation did not arise with the beginning of the German crisis in July, and may I just interpolate this point, in reply to what has been said in the course of several speeches in the later part of this discussion, which have attributed the panic which has taken place to the publication of the May Report? There is no truth in that. I told the House about it in February, and as a matter of fact, the Bank of England credits had been arranged, owing to the necessity for such credits, before the May report was made. Our budgetary position is in the main due to the excessive cost of unemployment. [HON. MEMBERS: "Nonsense!"] I am simply stating the fact. If there had been no changes, we would have been borrowing at the rate of £60,000,000 a year. Transitional benefit was costing £35,000,000 and unemployment altogether was costing the National Exchequer over £100,000,000 a year. As I stated when hon. Members opposite were supporting me, no Budget in the world could stand a drain of such an extensive character. It is that which has made it necessary for us to balance the Budget.

The hon. Gentleman who has just sat down, like all the speakers, made some reference to the Budget. My time is limited, and therefore I would select one or two matters which he raised, and one or two on which the right hon. Gentleman the Member for Central Edinburgh lightly touched in the six sentences to which I have already referred. The argument of the hon. Member was that the Budget was not distributing the burden fairly. I am not going to enter into the contentions which have occupied so much time as to the extent the late Government were committed to a large measure of economy. At any rate, they admit to having provisionally agreed on economies to the extent of over £56,000,000. What are we doing by this Budget? The indirect taxes which I am proposing will not affect any of the necessaries of life. The right hon. Gentleman the Member for Epping suggested that I should have reimposed the Tea Duty or increased the Sugar Duty, and by these two additional taxes it was estimated that I could have got £26,000,000 a year. I have not done that. Why did I not do that? Because I was not prepared to place an additional burden upon the poorest classes in the community. Far and away the larger proportion of the new taxation which I am imposing is direct taxation. What are my proposals? in regard to indirect taxation, I am touching beer, tobacco, Petrol Duty and Entertainments Duty; I am also making certain changes in the incidence of Income Tax. The right hon. Member for Central Edinburgh contributed an article to the semi-official organ of the Labour party on 3rd September. It is headed "My way to balance the Budget." As a matter of fact, I do not suppose the right hon. Gentleman is responsible for that heading, but he was responsible for the substance of the article. What does he suggest? Listen to him: Nine out of ten in the Labour movement would recommend, to meet the deficit, regrading the Income Tax to reach the lower grades of incomes and no increases of indirect taxation upon the necessaries of life. I regraded the Income Tax to avoid increased indirect taxation on the necessaries of life. His next point was 6d. on the Income Tax. I proved an apt pupil. The pride of the right lion. Gentleman will be slightly lessened when I say that every one of the proposals he put forward here I had submitted to the Cabinet before he left.


And the Conservative party have to vote them.


The right hon. Member for Central Edinburgh also advocated the differentiation of unearned income to reach the rentier class as the only method by which that class can ever be reached. Exactly what I did. Then comes "another twopence on petrol," then comes—arid remember this in connection with his condemnation of taxes on alcohol this afternoon—" increased taxation of intoxicating liquor and tobacco," on which he added that this country spends £420,000,000 annually. Lastly, he said that beer and tobacco are not necessaries of life and that their taxation is preferable to cuts in the rates of unemployment benefit. I shall look with very much interest on the action of the party opposite on these proposals of the right hon. Gentleman opposite. Of course, I know the right hon. Gentleman will say that he put forward these proposals provisionally, in order that he might be able either to approve them or reject them after he had seen the cat jump.

The right hon. Gentleman suggested the suspension of the Sinking Fund this afternoon, but he was not so drastic in his suggestion as some of his colleagues. He would not touch contractual obligations. He is not yet quite such a Bolshevik as the hon. Member who is sitting beside him, who advocates the emulation of the Russian Bolsheviks in the repudiation of their debts. [Interruption.] The right hon. Gentleman said that we might have done something to lessen the need for increased taxation by dealing with the De-rating Act. He told us that the De-rating Act is costing the Exchequer over £30,000,000 a year, and then he advocated that the privilege should be withdrawn from breweries, tobacco factories and newspaper offices. Does the right hon. Gentleman know what the withdrawal of de-rating from the industries he mentions would mean in relief to the Exchequer? It would not relieve the Exchequer, at the very outside, of more than £750,000 a year. The right hon. Gentleman puts that forward as a method of balancing the Budget!

The hon. Member who has just sat down dealt at some length with the question of equality of sacrifice in the taxes I am proposing to impose. I have not time to deal with his argument, but I can assure the hon. Member that I shall not leave the question untouched. I am quite prepared to deal with that matter at the next opportunity provided by the proceedings of the House. The hon. Member concluded his speech with a challenge. He wants a General Election. He does not want it more earnestly than I do. [HON. MEMBERS: "You are not fighting!"] I have noticed this during the last two or three days that I have been sitting here, being able, for the first time in this House, to see the faces of my old associates. I have admired the way in which they have cheered to keep their spirits up, and I have admired those who have done that knowing—knowing—that only a few weeks, possibly, remain before the place that knows them now will know them no more.



The PARLIAMENTARY SECRETARY to the TREASURY (Commander Sir Bolton Eyres Monsell)

rose in his place, and claimed to move, "That the Question be now put."

Question put, "That the Question he now put."

The Committee proceeded to a Division

Sir Victor Warrender and Mr. (Glassey were appointed Tellers for the Ayes; but there being no Member willing to act as Teller for the Noes, the CHAIRMAN declared that the Ayes had it.

Question, That—

  1. (a) the standard rate of Income Tax for the year 1931–32 shall be increased to five shillings in the pound; and
  2. (b) in connection with the said increase, amendments shall be made in Section two hundred and eleven of the Income Tax Act, 1918, as amended by Section twelve of the Finance Act, 1930, and special provision made in relation to income chargeable under Schedule C, under Rule 6 or Rule 7 of the Miscellaneous Rules applicable to Schedule D, or under Rule 21 of the General Rules; and
  3. (c) such other amendments shall be made in the Income Tax Acts as are consequential on the said increase."

put accordingly, and agreed to.

Resolution to be reported To-morrow; Committee to sit again To-morrow.

The remaining Government Orders were read, and postponed.

Whereupon Mr. SPEAKER, pursuant to the Order of the House of the 9th September, proposed the Question,"That this House do now adjourn."