AMENDMENT OF LAW.

HC Deb 22 April 1936 vol 311 cc157-280

Question again proposed, That it is expedient to amend the law relating to the National Debt, Customs and Inland Revenue (including Excise) and to make further provision in connection with finance."—[Mr. Chamberlain.]

3.28 p.m.

Mr. PETHICK-LAWRENCE

When the Chancellor of the Exchequer rose yesterday to open his Budget, he was greeted with the customary applause from hon. Members sitting behind him. As he proceeded to unfold his proposals and to explain his scheme for preventing evasions of taxes, the cheers came solely from hon. Members sitting on these benches, and when he had completed his statement of the various alterations he was going to make for the present year, the cheers which might have been expected to greet his statement were conspicuous by their absence in every section of the House. The biting north-east wind which is blowing outside seemed to have entered the Chamber and created a deadly chill. Even the customary bouquets which usually greet the Chancellor of the Exchequer on the first day of his Budget announcement were frostbitten and snow-withered yesterday. The cause for this is not far to seek. I have listened to the introduction of a large number of Budgets, and I do not ever remember one of them so utterly depressing as the statement which the right hon. Gentleman delivered yesterday. I will go further and say that I doubt whether in peace time any Budget statement so staggering in its future outlook has ever been presented at that Box.

Let us examine the facts. The five years during which the Coalition Government have been in office have been years of rapidly-increasing taxation. Additional burdens of all kinds have been thrown on the taxpayers, most of them having taken the form of indirect taxation. There have been increased revenue duties, the Ottawa Duties, duties under the Import Duties Act, and scarcely a day has passed when their number has not been increased. These taxes last year brought in revenue over £60,000,000 in excess of that which they brought in before the Coalition Government came into existence in 1931; and that takes no account of the various subsidies and other forms of impost on the consumer which do not find their way into the Exchequer itself. In addition to those various kinds of taxation, there has been the unjust special taxation which the right hon. Gentleman imposed on the co-operative societies. [An HON. MEMBER: "Why unjust?"] That is a matter for discussion into which I will not go now. It is unjust tax. The taxpayer has bent his back to the burden of this taxation, and, encouraged always by the ever-elusive prospect of a better time to come, has yielded to the Chancellor of the Exchequer the enormous figure of tax revenue, unprecedented in normal times, of over £715,000,000. That takes no account of the £26,000,000 paid in motor licences which have gone into a special fund. The year 1935–6 alone provided an increase over the preceding year of no less than £30,000,000. That represents a very great burden borne, to the benefit of the revenues of the country, with great fortitude.

Now what, at the end of all this time, is the taxpayers' reward? Is he told that the long uphill battle is now over? Is he told that the peak of taxation has been reached, that his burdens will at any rate not be increased and that they will be lightened in the future? Is he told that the various burdens upon the food of the people will be taken off? He is told none of those things. Alternatively, is there any prospect that the resources of the nation are to be utilised for the development of the country as a. whole? Is it proposed that there should be a. really bold programme of road extension to cater for the rapidly-growing transport by motor on all our highways? Is there to be a big scheme to electrify the railways and modernise that vital part of transport Is there to be a substantial contribution to the depressed areas? Are we to see an enlightened change in the treatment of the unemployed and the abandonment of the cruel and indefensible means test?

No, we are to see none of those things, if I may except the very small benefit which the Chancellor of the Exchequer is proposing to confer on the distressed areas, on which I shall have a word to say a little later. On the contrary, additional taxes are to be imposed this year, and that in spite of the fact that over and above the increase of £30,000,000 in the revenue from taxation over that of a year ago which has already taken place, the Chancellor anticipates an additional £20,000,000 in the year that is to come. There is to be additional taxation this year. But bad as this is, I venture to think that it is the least disquieting part of the picture which the Chancellor of the Exchequer painted yesterday, for he told us quite frankly that not only was there to be this additional taxation for the coming year, but that we were at the beginning of a new era of steadily rising taxation.

The CHANCELLOR of the EXCHEQUER (Mr. Chamberlain)

I did not say that.

Mr. PETHICK-LAWRENCE

The right hon. Gentleman says that he did not say anything of the kind, but he told us frankly that expenditure was going up and that there would be all sorts of things to be faced in the years to come; and in his broadcast speech yesterday evening he said definitely and specifically that the defence programme would cost much more in 1937 and 1938 than it would cost next year.

Mr. CHAMBERLAIN

rose—

Mr. PETHICK-LAWRENCE

I heard what the right hon. Gentleman said, and when I have finished my remarks on this particular point, if I have not satisfied him I will give way. The right hon. Gentleman told us that, in addition to the burden for the purpose of defence already in the Estimates, he was going to allow no less than £10,000,000 for a further increase in the Air Service and a further £10,000,000 to cover expenditure on the Army and Navy. In fact, if I understood him correctly, he went a little further than that and said that it might be somewhat in excess of that figure, but that he thought savings under other heads would make it sufficient for him to allow for £10,000,000. Therefore, the total additional expenditure on defence during the coming year will be £54,000,000. As I have already pointed out, the right hon. Gentleman in his broadcast speech said that it would cost much more in 1937 and 1938, and in his speech in the House he said:

"It is clear that in each year we must find out of revenue this rising cost of maintenance."—[OFFICIAL REPORT, 21st April, 1936; col. 54, Vol. 311.]

I quite agree that possibly I may have misrepresented the right hon. Gentleman when I said that there would have to be additional taxation. What I meant to say was that provision would have to be made for additional expenditure; but I will remind the Committee that the right hon. Gentleman made a very definite statement that he would have to consider next year how far the resources of revenue alone would meet the necessary requirements for defence. His indication to the House was that the revenue would not be capable of meeting such a demand and that he would probably have to find the additional Burn necessary by means of borrowing. What is the position? Not merely have we an increase in taxation for the current year, but we have to face such large additions of expenditure in the years to come that there may be still further increases of taxation next year and even so, it will very likely be necessary also to borrow in order to meet the bill. I could not help thinking yesterday when I heard the right hon. Gentleman announce the three-penny increase in the Income Tax that it would give considerable trouble to computors and represented an amount such as has not been adopted for a considerable number of years. It seems to be a kind of invitation by the right hon. Gentleman to himself, in advance, to round it off next year by raising the tax to 5s. in the £. That, of course, is only intelligent—or perhaps the right hon. Gentleman would say unintelligent—anticipation on my part, but I confess I shall be surprised if my prophecy does not prove correct.

The indications which the right hon. Gentleman gave us were of a very serious character indeed. He first told us that he would have to consider the possibility of placing only part of the burden of defence upon revenue and of borrowing in order to provide the means to meet the rest of it. That is a hypothetical proposition, and therefore I am not going to waste any considerable time in dealing with it to-day. I would only warn the right hon. Gentleman that it is a very grave new departure from principles of finance to which we have been accustomed in this House, and it is one which certainly will not pass unchallenged, if and when the time should arise for doing so.

Even when we have faced all those future dangers we have no assurance of finality. The Chancellor, it is true, talked hopefully of reaching a "peak" after which expenditure would begin to decline but I believe the idea underlying that notion of a "peak" to be fallacious. It is a sort of reconstruction and upkeep idea, borrowed from dealings in property and commerce in ordinary life. Let me examine it for a moment in relation to the Air Force and the Navy. I am aware the right hon. Gentlemen opposite and in particular the Prime Minister at the General Election endeavoured to give the impression, as I venture to think a very dangerous impression, that our ships are for the most part out-of-date and obsolete. I do not pretend to be an expert in such matters but my right hon. Friend the Member for Hillsborough (Mr. A. V. Alexander) who was First Lord of the Admiralty in the late Labour Government denies explicitly the accuracy of that view. I do not believe that the British Navy is obsolete, that its ships are out of condition and that therefore there is one specific definite thing which ought to be done to bring them up to date. I believe that the programme which has been set out is not strictly one of reconditioning and of being content when that reconditioning is complete, but is one of continuous expansion. If that be the case then I do not see where we are to find the "peak" of which the right hon. Gentleman speaks.

What is true of the Navy is true in a somewhat similar sense of the Air Force. The life of an aeroplane is not very long, and it may be well that the Government have decided to increase considerably the number of aeroplanes in the British Air Force. I believe in a few years time when we may be looking for this so-called "peak," it will be open to the Government of that day to claim that a further large, number of aeroplanes is required, either because the existing machines are not modern types or because it is necessary to increase the strength of the force. In fact, if the Tory party's policy expressed at the General Election and explained by the right hon. Gentleman in his speech be accepted, I have no faith whatever in our ever reaching the "peak" to which he refers. If the question be asked, "Does the road wind uphill all the way?" the answer must be "Yes, to the very end"— and the end, as my right hon. Friend the Leader of the Opposition said yesterday, will not be stability but the abyss. We on these benches recognise that the policy put form and by the right hon. Gentleman is in accord with the traditional policy of the Tory party. It squanders national prosperity by increasing the armaments of the country. No doubt we shall be asked and legitimately asked by hon. Gentlemen opposite, "Do we on these benches not believe that the defence of the country is necessary?" I shall be only too happy to answer that question. In fact that answer will contain the basis of my indictment of the Government.

I turn aside for a moment to deal with a rather unsavoury aspect of the subject under discussion, and to ask what is going to be made by certain individuals out of this drive for armaments? The Government have definitely refused to take the armaments industry out of private hands and bring it under public control and ownership. True, there has been talk about preventing undue profits, but there are no suggestions of any adequate steps to implement those promises, and it is clear that neither the City not the armament firms have any belief that this limitation of profits is going to take place. Let me give the Committee a few figures which seem to me of the highest significance. The Committee will remember that a little while ago we had a White Paper. Before the White Paper came out there had been a great deal of discussion and, no doubt, a great deal of intelligent anticipation of what it would contain. Three weeks before the Debate in this House, the shares of 13 firms associated with arms production had jumped from the low level of just over £11,000,000 in 1935 to no less than £34,000,000—that is, an increase of £23,000,000 in the value of those armament shares. Similarly, the shares of 20 aircraft companies had risen from the low level of just over £23,000,000 in 1935 to £38,000,000 at that date. That is an increase of no less than £15,000,000. Those two figures together snake the gigantic total of £38,000,000, and they do not include the large profits on the promotion of a great number of other companies.

It is not too much to say that, taking all those into account together, a sum of no less than £50,000,000 capital appreciation is represented by the extent of anticipation of aircraft and other armament manufacturing companies. And this takes no account of such a thing, for instance, as the increase in the shares of Imperial Airways, which cannot fail to have some connection with the subsidy which was recently passed in this House, and which amounted to no less than 12s. a share, or something like £400,000 altogether. Further than all that, on the very day that the White Paper Debate in Parliament was taking place, Vickers, who are, as anyone knows, the leading British armament combine, announced a share bonus which in effect provided the shareholders with a free gift of no less than £28,000,000; and in the same way the Fairey Aviation Company had an increase in capital which provided the shareholders with no less than £700,000.

It will be said by hon. and right hon. Gentlemen opposite that these are not profits made out of orders given by the Government, that the Government do not control the Stock Exchange, and that these are really speculative rises in the value of shares; and, of course, that is true, but those gentlemen who are behind these rises are not fools, and they have a very shrewd idea of what is taking place. They rather remind me of the reverend gentleman who used to go out to dinner and, when he saw a humble arrangement of cutlery and glasses on the table, said the very rapid and simple grace: "For what we are about to receive, the Lord make us truly thankful." But if, when he took his place at the table, he saw a number of wine glasses and a large supply of cutlery which suggested a very ample banquet, he started a much more elaborate grace with the phrase, "Bountiful Jehovah." I think these armament manufacturers have looked at the Government's promises of increased expenditure on defence, they have estimated the kind of limitations which the Government are likely to impose—they know their Tory Government just as we do on this side of the House, though from rather a different point of view—and they have come to the conclusion that very considerable profits are going to be the result of the whole of this policy which is adumbrated at the present time. I do not think they will be disappointed.

With that digression, I will now return to the question which I am sure is at the back of the minds of hon. Members opposite, and I will endeavour to answer it. The Chancellor spoke as though he was confronted by circumstances over which he and the Government of which he is an ornament had no control, rather as we speak in insurance policies of an "act of God," and it is here that we on these benches entirely disagree with him. We, quite as strongly as those who sit opposite to us, believe in the defence of this country, but we believe it to be irrefutable that defence depends on foreign policy, and it is largely because the foreign policy which the Government have pursued throughout the whole of their career has, in our view, been most ineffective the we are confronted with this situation at the present time. This is not a Debate on foreign affairs, and I should be straining your indulgence if I followed up this point at greater length, but some short digression on this point seems to be essential to my argument, and I shall relate it directly to the subject in hand.

We, on these benches, criticise the Government's policies which have led up to the demand for this great increase in expenditure under three main heads. There is, first, the failure to show that aggression does not pay. It was the failure to prove this to Japan which led to the action of Mussolini, who himself has directly and definitely quoted the Japanese example and said, "Why, if nothing was done in the case of Japan, is anything being done to Italy?" I will go farther and allege, without serious fear of contradiction, that it has been the failure to stop or to bring to an immediate end the war between Italy and Abyssinia that has been in part at any rate responsible for the action of Hitler in tearing up the Treaty of Locarno. I think there is no doubt that if we could make it clear, once and for all, that aggression does not pay—that might mean a certain amount of difficulty, and we on these benches do not disguise that —[HON. MEMBERS: "War!"] Well, I do not think it is necessary to take stronger words to meet the case. It might represent a considerable amount of difficulty. [Laughter.] Certainly, it might represent a certain amount of difficulty, it might represent a certain amount of expenditure, and it might represent a number of serious consequences, but that would be far better than the shilly-shallying policy adopted by the Government.

I entirely agree with what the right hon. Gentleman the Member for Epping (Mr. Churchill) said a few days ago, that in their attitude the Government have taken the middle course, which, instead of being the safest and the best, is possessed of the disadvantages of both. They have put pin-pricks on to Italy, which have not stopped the war, which have not proved the paramountcy of the collective principle of the League of Nations, but which have angered the Italian Government and made them hostile to this country. That seems to me, as it did to the right hon. Gentleman, the worst of three alternatives, and we are saying that the right course for the Government is, at whatever expense, to prove, once and for all, that aggression does not pay.

The second point is that the Government have attempted to create economic self-sufficiency throughout the Empire. That is a provocative policy to the world as a whole. I do not know that foreign nations can complain of the tariffs that we have erected round these islands. After all, they have had for many years tariffs round their countries, and they have no right to complain—whether or not we think it a good policy ourselves is another matter—of tariffs being put round these islands. But it is quite another matter if we are going to put a ring fence round the Empire, because we have an Empire of world dimensions, an Empire which in some ways is greater than ever the world has known before, and it does present a very serious problem for the world if there is to be exclusion of participation by other countries in those large areas. Therefore, I suggest to the right hon. Gentleman that even if he thinks—I do not agree with him—that that policy has brought us some small economic advantage, it is a grave disadvantage if it has brought us at the same time international ill-will, which is partly responsible for the heavy burden which he is asking the country to bear on behalf of defence. This much larger adverse item must be set against what he believes to be that small advantage.

The third criticism we make is the failure of the Government to make the League of Nations the pivot of their policy. I recall the situation in 1932. That was a time when the Disarmament Conference was in being. Had the Government whole-heartedly pursued a policy of disarmament in February, 1932, when the German nation was represented by a very different type of man from Herr Hitler, we might have reached agreement over that matter and we might have prevented the coming into power of Herr Hitler 13 months later than that date. Instead of that, we had a very half-hearted policy adopted by the Government at that time; and I need not make reference in any detail to what has been so often quoted—the boast of the Secretary of State for Air, Lord Londonderry of his action at that time regarding air bombing. We have always maintained from these benches that the policy of the defence of this country must be related to the collective action of the League of Nations as a whole. It is quite true that to-day the Government pay lip service to that creed, but they are quite recent converts even in lip service, for only about a year ago they were saying something totally different. But they do now pay lip service to it. We await the day when they will seriously put forward that policy and correlate it to their action.

I pass from that to the question of what the Chancellor of the Exchequer said near the end of his speech yesterday. He said that what had enabled a measure of prosperity to come about in this country was the two items, cheap money and tariffs. I have already dealt partially with the question of tariffs and I will only add this: I would remind the Committee that two changes of British monetary action took place at the same time. One was going off the Gold Standard and the other was the return to tariffs. In the last speech that I made in the Parliament of 1931 I foresaw that the effect of going off gold and thereby getting rid of the very grave and unfair differentiation against this country would he to bring a considerable measure of prosperity to our shores. I foresaw that the Government intended to introduce a tariff system, and I knew perfectly well that they would attribute such measure of prosperity as arose to the second and not to the first. I still adhere to my view that it is not the tariff system, but the release from the gold bondage, which has brought prosperity. I do not expect the Chancellor to agree with me in thinking that, though I have more hopes of the right hon. Member for Epping who, I think, saw how he had been misled by his officials with regard to going back to gold.

But, though the Chancellor may disagree with me on that point, I think he can hardly fail to agree with me on the other point, which is that if he maintains that the policy of cheap money is one due deliberately to his action and the action of the Treasury, that that would not be possible unless this country had been released from the Gold Standard. If it had been necessary for the Governor of the Bank of England to defend his gold reserves through his rate of discount, then the cheap money policy of the Chancellor of the Exchequer would never have come back. In connection with that I would ask the right hon. Gentleman, does he feel satisfied that he is able to continue his cheap money policy? If he feels that, I take it he thinks that he has a de facto control over the banking system of this country, a control which, when put forward by Members on these benches, has been derided as rank Socialism, but which, if it is de facto if not de jure carried out by the Government, has achieved in large measure the purpose for which we wished to see it carried into effect. But if he is not prepared to assure us that we can continue this policy of cheap money, then I would warn him and the Committee that the situation may be very much more dangerous in the years to come even than has been foreshadowed, because the Chancellor's balance depends very largely on cheap money, and if that should be impossible any longer of attainment we might be faced with very much worse difficulties.

Before I conclude I want to consider one or two details of the Budget state- ment and to ask two or three questions. In the first place, let me say a few words with regard to the checking of Income Tax evasions. I have already said that we here welcome the proposals of the Chancellor, and I am now able to assure him, beyond that, that we shall give him our help in carrying them through the House. I confess that I was rather shocked at the silence with which the proposals were received by those sitting behind the right hon. Gentleman. My mind went back to the time when I was sitting on the Treasury Bench in the place of the hon. Gentleman the Financial Secretary and endeavouring to get through other proposals for preventing evasion, I think it was in 1930. I remember the determined onslaught made upon us by the right hon. Member for Epping, and how on one occasion we sat through the night up to 12.30 on the following day. We did succeed in carrying through the proposals practically unchanged. I know from the experience I had in preparing some of those proposals how many are the openings for evasion that exist.

Though I welcome the Chancellor's proposals, I hope he will not weary in well-doing, but will continue to look into these matters, because I am assured by many people that there are a great number of other evasions which continue to take place. I have said that I was shocked at the silence of hon. Members opposite when the right hon. Gentleman mentioned his proposals. I have always supposed that it was not only we here but hon. Members opposite who wanted to see the law obeyed not merely in the letter, but in the spirit. For every person who evades taxation by some artifice, however nominally legal, other people who are honestly endeavouring to obey the law are mulcted in additional sums. I should have thought that the Chancellor could have counted on all sections of the Committee to assist him in his task. But I can promise him the support of Members on this side.

In addition to welcoming those proposals, we welcome also very much the increased Income Tax allowances which the Chancellor has given. Those proposals will probably be carried with the unanimous support of the Committee. I need not say very much with regard to the 3d. increase in Income Tax, which seems to me to point to a 6d. increase next year. The right hon. Gentleman will not expect to escape criticism from us on the Tea Duty. We regard that as an imposition on the poorest section of the people. Though I, as a non-tea drinker, escape more lightly than most hon. Members, I shall join in that attack.

With regard to the Road Fund, the vital thing is not the form but the result. Unless I am mistaken, during the General Election the Chancellor made a great parade of road development, and the country was given to understand that lie was going to extend widely the expenditure on the roads over and above what had been spent in previous years. I do not say that the right hon. Gentleman said that; he is much too careful of his words. But I am sure that had the Chancellor put his promise into something like these terms: "I am going to raid the Road Fund in various ways; I am going to change its whole character so that it all comes to the Revenue; but I will promise you that however much I raid it I shall not take away so much that there is not £20,000,000 a year for the development of the roads," I think his statement would have received less approbation than it did. But, of course, the Chancellor took care to express himself differently.

A few words with regard to the £1,000,000 which he is providing to finance companies and firms in distressed areas. I should be very sorry not to welcome any offering, however small, from the Chancellor to the distressed areas. But if the right hon. Gentleman really thinks that he is going to do a great deal with this sum—I imagine he hardly expects that himself—he will be mistaken. Heavy rates in the distressed areas stand in the way of business being started or developed there. Now I want to ask two or three questions. The first is with regard to the item of miscellaneous receipts. It is common form, I know. It covers a great many things, but we should like to know a little more about the details. In particular I would like to know whether this figure includes the Government receipts on account of oil, and, if so, how much they amount to, and how much is due to the sales to Italy for the purpose of taking aeroplanes over Abyssinia and bombing the people there and our own Red Cross?

Then I would ask a question with regard to two of the Resolutions which came before us last night. The first is Resolution No. 13, which is an Amendment as to Surtax on the undistributed income of certain companies. I do not think that he made any reference to that, and I shall be glad to have some information about it. The other Resolution about which I should like some information is No. 18, which appears to refer to stock and securities issued by the Governments of India and Burma.

There is one other point on which I should like some assurance. The question was asked a little time back in the House with regard to loans to Germany, and I was glad to hear the Chancellor give an emphatic denial to any such rumours. I am bound to say, however, from reading various statements in the Press, that I still feel a certain amount of misgiving with regard to the situation. These statements do not emanate from Labour or Socialist papers. I have them from a respectable and strong Conservative paper published in my constituency, the "Scotsman," which does not speak of a loan, but says, referring to Germany, that the favourable trade balance is being precariously maintained by stringent control of imports. Even so, it depends largely on the continued financial support of the City of London. In one of the financial papers two or three days ago I read an account of the strong belief that still prevails in financial quarters that somehow or other help is being given to enable Germany to float a loan. I will not go further than to call the attention of the Chancellor to these rumours, and to ask him to assure us, not merely specifically that there will be no loan, but that the Government will frown upon any action in the City of London or elsewhere in this country which is supporting German rearmament in any shape or form.

I hope that the Chancellor will be able to allay our anxiety on these points. I fear that he will not be able to allay so easily the grave disquiet aroused in the public mind by his statement yesterday. This, as I have explained, is not due to the increase of 3d. in the Income Tax and the increase of 2d. in the tea tax, which, though serious, are not of a very large dimension, but is caused by the serious financial outlook for the future which he has sketched out to us, and still more by the indication of the menacing race in armaments to which this country is apparently committed.

4.18 p.m.

Sir ARCHIBALD SINCLAIR

For my own part, I share to the full the gloomy apprehensions which have been expressed by the hon. Member for East Edinburgh (Mr. Pethick-Lawrence) in his interesting speech. The Chancellor of the Exchequer in his Budget statement yesterday and in his broadcast address to the nation last night made an almost disarming reference to the disappointment that he himself felt at this culmination of the series of five Budgets which he has opened. He started in 1932 by reducing expenditure. He went on to make amends to the taxpayers and wage earners upon whom the sacrifices had been imposed in the financial crisis of 1931. Further than that, he made some remission of taxation, and now he finds himself like a man lost in some financial Sahara, wandering round in a circle and returning, in expenditure and taxation, to the point from which he started. It would not be generous or even fair to criticise his financial policy without recognising that he is to a considerable extent the victim of circumstances over many of which as Chancellor he has little control, even if they are not out of the control of the Government of which he is one of the most powerful Members, and of some circumstances which are outside the control even of the Government. In listening to the extraordinarily interesting speech of the hon. Member for East Edinburgh I could not help thinking that he made rather less than adequate allowances for these circumstances, but I do not flatter myself that before I sit down the Chancellor of the Exchequer will not have the same opinion of the speech I am about to deliver.

So I was almost disarmed by the Chancellor's plea that it was the world situation which was responsible for his difficulties and disappointments—almost, but not quite, disarmed, for I then reflected that a like plea did not save Lord Snowden and the Labour Government from the Chancellor's bitter criticism. As the political turmoil abroad is ruining the financial plans of this Chan- cellor, so the world slump wrecked Lord Snowden's plan, but that did not save him from, or even temper, Tory criticism. Indeed, the forces which produced the economic catastrophe of 1929–32 were far less susceptible to the influences of British policy than those which have produced the grave international situation to-day. I am far from wishing to defend the policy of the Government which was presided over by the Lord President of the Council—to whom we all wish a happy and complete recovery and a speedy return to our debates—but at least it could not he said of that Government as it can be said of this Government that by their economic policy they have done much to provoke, and, by their feeble and vacillating foreign policy, to aggravate the international situation upon which they now seek to throw the blame for swollen expenditure and increased taxation.

Let us see, then, how far the Chancellor has strayed from the path of economy since 1932–33. In his statement opening the Budget in April, 1933, the Chancellor used these words: In view of certain criticisms which have been made on the subject of expenditure, I am going to ask the Committee to contrast that figure with the position which existed two years ago. At that time when the Estimates were presented in April, 1931, our ordinary expenditure, leaving out interest on the American debt for purposes of comparison, were set down at £724,000,000. We were then borrowing for unemployment at the rate of £1,000,000 a week, and we were making provision to borrow £9,000,000 for the roads. So that our total ordinary expenditure then was at the rate of £785,000,000. This year the estimate is £697,000,000—a reduction of £88,000,000. He went on to say that that was not all, and showed that he had also provided for certain automatic increases in expenditure on the social services and in certain other directions. Then he added: So that the position is that not only have we actually saved in expenditure £88,000,000, but we have also absorbed another £25,000,000 which otherwise would have meant an increase in our expenditure. In other words the real saving to-day as compared with the estimated position of two years ago amounts to £113,000,000."— [OFFICIAL REPORT, 25th April, 1933; col. 41, Vol. 277.] To-day, nearly three years later, the Chancellor's economy policy lies in ruins. To paraphrase the Chancellor's statement so as to bring it accurately up to date, whereas our total ordinary expenditure in April, 1931, including all sums borrowed in respect of roads and unemployment, was £785,000,000, our estimate for the current year is £798,000,000, which compares with £697,000,000 in 1933, an increase of £100,000,000, in three years, which wipes out the result of the policy of 1931 and restores our expenditure to the crisis level of that year. This level of expenditure is not only a crushing burden for the taxpayers of this country in time of peace, but it also, as I shall presently argue, a precarious basis for the Government defence plan. Time was, only five years ago, when the Chancellor protested in the most vehement language against such a level of expenditure under the Government of which the Lord President was the head. There had been some public comment at that time upon the poor attendance of Conservative Members at a Debate on a private Member's Motion on public economy, and the present Chancellor wrote a letter to the "Times," in which he roundly declared: I, for one, would not enter a Government that was not pledged to reduce national expenditure, nor would I remain a member of one which did not carry out such a pledge during its first year of office. He may claim to have observed the letter of that pledge, but the fact that he has remained not merely a member of a Government but the Chancellor of the Exchequer in a Government, is responsible for the finances of the country, which within five years restores the expenditure of the country to the level against which he inveighed in that letter, seems difficult to reconcile with its spirit. The Chancellor may retort that whereas the revenue was contracting in 1931, it is now expanding. But what are the causes of that expansion? In introducing his Budget last year, the Chancellor, after a glowing description of the progress of economic recovery, declared: It is not without significance that this forward movement has followed upon a succession of balanced budgets."—[OFFICIAL REPORT, 15th April, 1935; col. 1618, Vol. 300.] It is not without its grim significance for the future of this country and for the prospects of further revenue expansion that the Chancellor now invites the Committee to contemplate a succession of unbalanced budgets. Another vital factor in that expansion of the revenue is, of course, cheap money. How long can the level of interest be prevented from rising when national expenditure is mounting and when no provision is made for the sinking fund? I referred to the question of the sinking fund yesterday, and since I spoke I have looked up the Chancellor's Budget statement in 1934, when I found he used these words: The question I had to ask myself was, has the time now arrived when we ought to begin the scaling up of the fixed debt charge to a normal figure? It is a nice point. But on the whole, bearing in mind that there must be a lag before the improvement in the conditions of the country translates itself fully into an increase in the revenue, I came to the conclusion that it would not be unreasonable to proceed on the old lines for one more year.… I hope that the Committee will note my warning that assuredly a larger provision would have to be made in future financial periods."—[OFFICIAL REPORT, 17th April, 1934; col. 910, Vol. 288.] Last year the right hon. Gentleman repeated that warning, and now, far from providing a Sinking Fund, he proposes large new borrowings. The provision for reduction of debt, far from being increased, is being reduced, and the financial outlook, far from improving as he suggested it might in 1934, is now darker.

The third factor in the expansion of the revenue is, of course, the trade cycle, which is now on its upward grade. The Unemployment Insurance Statutory Committee, which reported two months ago, after consultation with the Economic Advisory Committee, estimated that the favourable tendency in trade would probably continue for another two years, but they pointed out that their estimate depended upon variable hypotheses, and particularly upon the economic policy pursued by the Government of this and other countries. The effect of this Budget, and still more of future Budgets, in which fresh borrowing will be substituted for a Sinking Fund, must tend to bring nearer, rather than to postpone, the next downward turn in the trade cycle.

There remains a fourth factor in the economic and financial situation, and one in regard to the importance of which there will be no disagreement between the Chancellor and myself: the economic policy of the Government, the policy of tariffs, quotas and subsidies to favoured interests and to industries and to areas which have been devastated by Protection, subsidies which are unsound in principle, unfair in their capriciousness and burdensome to the revenue which the taxpayer has to supply. The Government embarked on this economic policy, and in particular on the policy of protection, with four mutually inconsistent objects in view. The first was to obtain revenue. The Chancellor has to confess that not even yet, with improving trade, have the duties levied under the Import Duties Act reached the level which he estimated they would reach in 1932. Together, the Import Duties Act duties and the Ottawa Duties yield just over £30,000,000, about the equivalent of the yield of 6d. on the Income Tax. If, instead of committing themselves at Ottawa to a policy of economic Imperialism, and torpedoing the World Economic Conference, the Government had devoted their energies to co-operating with other countries in restoring overseas trade, even to the level of 1929, which is no great criterion of prosperity, the yield of normal taxation on that trade would have far exceeded the yield of these protective duties. In short, protective duties destroy more revenue than they create. The second object was to protect home industries, a policy which has brought prosperity to Birmingham at the expense of Liverpool, Glasgow, the depressed areas and our great export and maritime industries.

The third professed object of the tariff was to obtain a weapon with which to beat down foreign tariffs. A sufficient illustration of the futility of the tariff as a bargaining weapon is provided by the figures of our exports to the 16 countries with which we have concluded trade agreements as compared with those countries with which we have no agreements. In 1931 our exports to the 16 countries with which we have agreements totaled £109,000,000, and in 1935 they totaled £110,000,000, an increase of £1,000,000. In 1931 our exports to foreign countries with which we have no agreements totalled £110,000,000, and in 1935 £111,000,000. So there has been a total increase of £2,000,000 in the exports to foreign countries, £1,000,000 of which has gone to countries with which we have agreements and £1,000,000 to the countries with which we have no agreements. So much for the value of this Governments trading agreements and for the tariff as a bargaining weapon.

The fourth object of the Government's policy was to divers trade from foreign countries to Empire countries, and in that object it has, of course, been successful. Nobody doubted, certainly no Free Trader, that you can divert trade by tariffs. But there is the economic cost, seen in exports reduced by a half, or nearly a half, as compared with 1929, the failure of the World Economic Conference, the continuance of unemployment and impoverishment. There is the political cost of the declaration of this country that it was abandoning the policy of keeping an open door in its Colonial Empire for the merchants and traders of all nations. In the words of Mr. Bennett, who was the chairman of the Ottawa Conference, and ought to know what the Ottawa Agreements meant: In future nobody will be able to trade with the British Empire, except on payment of tribute. The cost of Ottawa, therefore, we are now paying in swollen Estimates for the Defence Services and in increased risk of war. Looking, therefore, at all those factors to which the Government attribute the expansion of the revenue—their economic policy, cheap money, the trade cycle, and balanced Budgets—we must be appalled at the precariousness of the foundations upon which they pile burdens of progressively swelling expenditure, increased taxation, and substantial additions to the debt.

Let me now come to a few of the main features of the Chancellor's statement. There is the increased Tea Duty, about which I said something yesterday and on which we shall have further debate on the specific Resolution, so I will say no more about it now. Then there is the Road Fund. I join with the hon. Member for East Edinburgh in his congratulations to the Chancellor of the Exchequer upon the careful wording of his Election statement about the five-year road programme, but what we shall be more concerned about in the near future is the proposal which he makes for depriving the Road Fund of its financial independence. I watched the right hon. Gentleman the Member for Epping (Mr. Churchill) when this announcement was made yesterday. He had to put up with many gibes at his heterodoxy when he raided the Road Fund, and I thought I detected a glint of envy in his eye when he saw the pundit of financial orthodoxy not content with an occasional egg, but running off with the whole goose. We shall have a great deal more to say about that when the definite proposals come before us.

Next I should like to say something about a matter which was not in the Budget statement and that is the Unemployment Assistance Regulations. We have been promised those Regulations in the spring. There is a great deal of impatience, not only among hon. Members on this side of the House but in all parts of the House, to see those Regulations. That impatience was expressed by the right hon. Member for Epping in a recent speech. There is not only impatience to see them as a matter of curiosity, but there is a general feeling that the household means test ought not to be allowed to continue in its present form. If it is not to continue in its present form will not that throw an additional burden on the Budget, and has any provision been made to meet that demand? I ask the Financial Secretary to be good enough to answer that point when he comes to reply.

I am glad to have the opportunity of welcoming the proposals which the Chancellor has made for special credit facilities for small businesses. While it is true, as the hon. Member for East Edinburgh said, that it is not a very big matter, after all it is an advance, an advance which, in the opinion of men who have studied the question, is likely to be helpful to small industries and to small people, people with energy and individual enterprise, the ones whom we want to encourage. I think it is a healthy proposal and one to which I wish well. But the Chancellor spoke as if it were confined to the Special Areas. Certainly the Special Areas ought to be given a preference, but why should this scheme be confined to them? At any rate, let the other gravely depressed areas share in the benefits of the scheme. I refer to areas like Lancashire, Middlesbrough, and the Northern and Eastern districts of Scotland, which are all in the depths of depression. I am reminded by an hon. Member that there is also West Yorkshire. I referred to the North and the East of Scotland, and he will no doubt speak for West Yorkshire. Perhaps the Committee will pardon me if I say a few words on the subject of Northern and Eastern Scotland, which I know best, because the Government's Special Commissioner for Scotland, when he acted as their official investigator and furnished a report on unemployment in Scotland, expressed grave doubts as to whether the Northern and Eastern districts of Scotland ought not then to be included in the Special Areas. Since then the situation has grown worse in those districts. In considering whether or not this scheme should be extended to these other districts I would ask the Chancellor to consider the precedent of the arrangement made for giving priority in contracts for public works to certain depressed areas outside the Special Areas. I hope the Financial Secretary will find it possible to reply on this point and say whether the Government will not at least follow that precedent and give to those areas, as well as to the Special Areas, the benefits of the new scheme.

Yesterday I welcomed the Chancellor's scheme for giving relief to certain classes of the small Income Tax payers. Let me ask the Chancellor to remember that he is still in their debt. He has restored the allowance for a child to £60, the level at which it stood before the special sacrifices were imposed in 1931.

Mr. CHAMBERLAIN

It is now £60 for each child.

Sir A. SINCLAIR

Yes. Before 1931 it was £60 for the first child. Therefore, there is a benefit to the small Income Tax payers there; but the general statutory allowance for married persons is raised to only £180, as compared with £225 before the crisis of 1931. In his broadcast speech last night the Chancellor stated that out of 1,400,000 married Income Tax payers no fewer than 1,100,000 would benefit more by his reliefs than they would lose by the increase in the standard rate of the tax. I could not help wondering whether he had taken account of the fact that a great many of these married Income Tax payers own their own houses and are paying property tax on them, and that they will now have to pay at the rate of 4s. 9d. in the £. I therefore ask the Financial Secretary to be good enough to tell us whether the Chancellor's estimate took account of that circumstance, and if not whether he can give us a revised estimate which would take account of it. Another important feature of the Budget statement to which I will not refer at length to-day is the rise in the standard rate of Income Tax. I will only say that it is now raised to 4s. 9d., a level to which it has never risen except in time of war or immediately after the War or during the financial crisis.

In conclusion, I come to what is the chief feature of the Chancellor's statement, the provision for rearmament. Let me say at once that I welcome the fact, and will certainly support his policy in this respect, that this additional expenditure is, for the coming year at any rate, to be met by additional taxation. Whether the whole of this expenditure, whatever it may amount to, for we are still in ignorance of that, is necessary on political grounds, and whether we shall get full value for our money, are matters of opinion which I leave for future debate. But what is not a matter of opinion is that this expenditure will all be unremunerative, and therefore should be paid for out of the ordinary revenue and not by loan. I cannot, however, agree with the Chancellor that, with the exception of the period of the financial crisis, this generation has been neglectful of its responsibilities for defence. We have spent £1,000,000 on defence in the last 10 years. To call that unilateral disarmament is an abuse of the English language. In that time there have been no great battleships built, and I cannot help thinking that we have not received value for our defence expenditure, and that there is a very strong case for a searching inquiry into the expenditure of the defence departments.

The Chancellor, in his speeches on this point in this House and in the country, does not seem to emphasise sufficiently the importance of the financial factor in our scheme of national defence. We are spending now about one quarter of our income in rates and taxes. Before 1914, we were spending only one-ninth. I have seen it estimated, although I cannot claim to have checked the calculation, that even after the Napoleonic wars, let alone before them, we were raising by taxation only one-sixth of our national income. Before 1914 the revenue was buoyant, there was no external debt and the total internal debt was less than the sum which the Chancellor of the Exchequer is proposing to raise now in one year. Three years ago, the Chancellor said that taxation was, in some directions, reaching the point at which the law of diminishing returns would come into operation. Is that a condition in which we can support a great armament? Truth is many-sided, and the truth about defence—I think I heard the Chancellor mention something about the country. We on this side are just as keen on the defence of the country—

Mr. CHAMBERLAIN

The right hon. Gentleman is mistaken. That was not what I said.

Sir A. SINCLAIR

That was not what he was saying? He said something not unlike it in his broadcast speech last night. He said that those who were called upon to pay increased taxation should reflect that they are making sacrifices for their country. On this side of the House we are just as keen to make adequate provision for the defence of our country as are the Chancellor of the Exchequer and his Friends, but we realise that truth is many-sided. The truth about defence is many-sided; it has its naval side, and its military, air, industrial and man-power sides, and it has also a financial side. It is not enough to leave it to the Opposition to point that out. It is the Chancellor of the Exchequer who should, in this House and in the country, be emphasising the importance of the financial side, and of maintaining the elasticity of the Revenue in view of the dangers by which this country is threatened. We are accustomed to a confusion of voices in the Cabinet on a great many issues, but it would be only proper for the Chancellor of the Exchequer to give expression to the importance of the financial aspect of defence problems. In no country in the world is that financial aspect of defence more important than to ourselves, because no country is so little self-supporting.

I often hear it said that finance never stopped a war, but it very nearly stopped the Great War in 1917. No longer now have we those vast reserves of foreign investments, accumulated under Free Trade, which enabled us not only to finance our own great war effort but the efforts of our protectionist Allies, and even then we could hardly have survived that financial crisis in 1917 but for the help of the United States of America.

Sir WILLIAM DAVISON

A protectionist country.

Sir A. SI NCLA I R

Yes, but it was out of the War, and therefore had reserves available. We had been through three years of war. The United States had reserves available and had been making money out of the other countries. We got her help then. Shall we get it again? The Chancellor of the Exchequer made no reference in his speech to the United States Debt. I think it was almost the first time that, in a Budget speech, he made no reference to that subject, and yet surely every hon. Member has had the same experience as I have had when talking about co-operation between the United States and Great Britain to Americans, that they always come back to the debt problem and say, "That is the thing which is making it difficult for us to work together." I see in the newspapers that negotiations, or preparatory conversations at any rate, are going on between the American Government and our own Government about a trading agreement. I would ask for information as to whether there is any prospect of coming to a settlement about that debt. It is useless to bankrupt ourselves by piling up a great defence equipment which we have not the financial strength and vigour to energise in a great emergency. We shall be like some of those heavily armoured knights lumbering in the morass in the battle of Crècy.

I wish to put two questions to the Financial Secretary on the cost of the Government's plan for rearmament. When the White Paper was discussed the defence plan was understood to be in an elastic, if not indeed in a fluid, condition, and that it was to be expanded or contracted according to the changes in the international situation. It was therefore impossible to give any estimate for it. Yesterday the Chancellor told us that defence expenditure will rise swiftly to a peak. The Chancellor now knows that there is a peak which is not remote, which is in his sight and which will be swiftly approached. It is time he told us the height of the peak. I am not asking him to abandon the principle of flexibility or to undertake that in no circumstances will he spend more than a certain sum; still less am I asking him to undertake that in no circumstances will he forego his present intention of asking us to scale that peak. I am asking him only to assume that the peak which he has in mind has to be scaled, and to let us and the country know the cost of the defence programme of which he is now preparing the plans. We have the right at this stage to ask for a full disclosure.

Should the Chancellor of the Exchequer still refuse to make that disclosure I would prefer a more modest request to the Financial Secretary. I would ask him to let us know the cost of completing the present programme—the naval, military and air programme—for which expenditure is being found in this Budget. If you are to order two battleships, and if provision is to be made for beginning the construction of those battleships at the beginning of 1937, you know the cost of carrying them to completion. So with your aeroplane programme and your tank and army mechanisation programmes. There is no reason why the Government should not tell this Committee the whole cost of completing the programme upon which the Government are embarking this year. That is the information which I ask the Financial Secretary to give us. Those programmes might have to be supplemented. For my part I devoutly hope that it will never be necessary to complete them. The Chancellor must know how much it will cost to complete them and I strongly urge that the Committee are entitled to that information, on a matter which is not one of policy or opinion but of arithmetical calculation.

The Chancellor said "Butter makes you fat but guns make you strong —"[Interruption]—Oh, no. General Goering said that a few weeks ago, but the Chancellor of the Exchequer said last night "Our safety is more to us than our comfort" and the sentiment is the same. The difference is in the mode of expression. I have never met General Goering, but to judge from hearsay I hope I do not do him an injustice in supposing that his temperament is less scholarly and restrained than that of the Chancellor of the Exchequer, but he means the same thing, which is that our safety is more important to us than our comfort.

Sir W. DAVISON

So it is.

Sir A. SINCLAIR

Of course it is, but it is equally true that there is no safety for the world if the statesmen in Germany, France and Britain are all saying the same thing and are piling up great armaments that give no safety but increase danger. The Chancellor of the Exchequer said that he felt the heat of the flames in his face and that he had to set his fire-fighting appliances in readiness. On what fuel are those flames burning? Tanks, guns, battleships and aeroplanes. What are the Chancellor's fire-fighting appliances Tanks, guns, battleships and aeroplanes? He is preparing to fight the flames with the fuel.

We do not deny the necessity of adequate provision for defence against foreign aggression, but we say that defence problems must be considered as a whole, including the important financial aspect. We believe that the fires of war will not be extinguished by armaments but by disarmament, which must be economic as well as military. We urge the Chancellor and the Government to work for peace and economic co-operation between all countries with as much will and energy as they are throwing into their policy of rearmament. Let them make it clear that His Majesty's Government recognise that the restoration of overseas trade should be their chief economic aim, that they will abolish preferential tariffs and quotas and go as far as other countries in abolishing shipping and export subsidies and reducing protective tariffs and that they will restore the open door in our Colonial territories for the traders of all nations. The Government's present path leads to the edge of financial disaster. To curb extravagance, to find useful means for employing our people on works of national development, to restore overseas trade and faithfully to pursue peace and disarmament are the only ways of salvation.

4.59 p.m.

Mr. STUART RUSSELL

I should like to ask the Committee to extend to me that indulgence which is always shown by hon. and right hon. Members to a Member who rises to address the House for the first time. Yesterday I listened with very great interest to the speech of the Chancellor of the Exchequer, and I am certain that hon. Members share with him the very great disappointment which has been occasioned on account of the sums required for the rearmament programme of this country, which have so rudely and so swiftly shattered the hope which the Chancellor entertained of giving a substantial remission of the heavy burden which has for so long been imposed upon the taxpayers of this country. The alteration of the equilibrium has been practically entirely due to the money which has to be found for the defence programme. That programme, some of us feel, was postponed too long. The sums required for it should have been more evenly distributed over recent years. Be that as it may, the money has now to be found.

I wish to dwell for a few minutes on the position primarily of the direct taxpayers, and also of the indirect taxpayers of this country, but, before doing so, I think I should make it abundantly clear that, unfortunately, I am myself a man of very slender means—I am a very bad friend, I fear, to the Chancellor of the Exchequer. I must also make it perfectly clear that I sit for no safe seat in the south of England, but, on the contrary, I have the honour and privilege of representing in this House a great industrial constituency of the north. There is no direct taxpayer in this country, in my belief, who would not, and, indeed, has not, shown his willingness to bear all the burdens that are necessary in order to finance proper and legitimate expenditure by the State. Indeed, I think that the story of the last four or five years in this country has shown with what endurance and loyalty the direct taxpayer has borne a burden of taxation which has become almost predatory in its character. But it is not with the apportionment of various forms of taxation, or with the burden of taxation, however heavy, however onerous, however grievous that burden may be, that I am primarily concerned; it is with the economic aspect, which, in my humble submission, is the one aspect that we have to study, and to study with extreme care.

Employment in this country depends on industry, and the development of industry depends both on the ability and on the willingness of individuals in this country to take risks—to put their money into various concerns, faced, as they may be, with a very grave risk of failure. If either that ability to invest money or that willingness to invest money is absent, there is bound, in my opinion, to be a slowing down of the whole economic machine, immediately stopping that very expansion of industry on which alone the employment of the people of this country depends. Since the War, the taxpayers of this country have been subjected to an enormous burden. Since the War vast sums of money have been spent by the State, money which otherwise would have been invested in productive enterprise. It is not only that matter on which I desire to dwell; there is something which, to my mind, is even more important—the fact that that high level of taxation has given rise to a certain mistrust, a certain apprehension, a certain feeling of insecurity on the part of capitalists in this country. In short, it has created an adverse psychological effect, the results of which, I venture to submit to the Committee, are sometimes very gravely underrated.

As I have said, I speak on behalf of a great industrial constituency in Lancashire. What a spectacle that town presents to-day—what a picture of misery, of despondency, of desolation and despair. I have always, when I have been in my division, maintained that the fortunes of that particular town can never be rebuilt on the cotton industry; I have always taken the view that the coming of new industries into that area is the only means by which we shall be able to break down that hard and persistent unemployment which is characteristic today of so many large towns in the industrial North. We talk about new industries, but what incentive is there for people to go and start new industries in any of these hard-hit and depressed areas? In my submission there is no incentive at all to do so. The position, as I see it, is simply this: A man who goes in and invests his money there has to take all these risks, and, if he loses it spells ruin, while on the other hand, if he makes a success of his industry, there is very little material reward left for him, for expropriation by direct taxation very swiftly falls.

In this country to-day, in my humble judgment, no person is doing more good for his country than that very man who is prepared to go forward and take risks in order to build up some new firm, to explore some new invention, and to give employment to his fellow people. The result of all this predatory taxation is that enterprise is killed and all initiative is atrophied and numbed, with the result that we see to-day this hideous spectacle of people willing and anxious to get work and yet unable to obtain it. Then, in the last stage, we see the irony of the whole position, when the State itself, having created the very conditions under which private enterprise cannot work successfully, is then compelled to come in with special schemes of its own—financed again out of the taxpayers' money—in order to rectify such a terrible and tragic position. I do not believe that the great problem of unemployment in this country will ever be successfully solved, I do not believe that, with a few exceptions, real prosperity will ever come to these great towns in the North of England, until the British entrepreneur is allowed what, after all, is only the very primitive and elementary right of reaping where he has so precariously and hazardously sown.

We are now faced with increasing demands by the Exchequer. I think I should make it perfectly clear that, unlike the two right hon. Gentlemen who have spoken before me, I most resolutely, and, indeed, most ardently, support the Government in their rearmament programme. We have to pay a very heavy insurance premium, but it is a premium which has got to be paid, and which we cannot possibly neglect. But I feel that there are fields in which the national expenditure could be very drastically cut down. I feel that the disbursements which are made by the State to-day in certain directions have grown to a figure which is truly fearful in its magnitude. I do not wish to use extravagant language; that is the very last thing I would wish to do; but I think that some of those disbursements are profligate in their character. Bearing these matters in mind, bearing in mind the fact that this expenditure on rearmament has to be met, but also bearing in mind the very grave injury that is done to the trade and industry of this country by direct taxation, I would make two very humble suggestions to the Chancellor of the Exchequer. Neither of these suggestions, I fear, will be popular either in this House or, certainly, in my constituency, but I am not going to be put off from making them by that. The first is that the Chancellor should consider once again setting up a committee on the lines of, and with similar terms of reference to those of, the May Committee, to investigate ways by which expenditure, except for the purposes of the rearmament and defence programme, might be cut down; and the second, on which I know I shall meet with very great opposition from Members of this House and also from people in my own division, is that the Chancellor should consider the advisability of broadening the basis of direct taxation in this country.

There were at the last election some 31,000,000 electors, and, according to the latest figures that I have been able to obtain—and here I am open to correction—there are approximately 3,000,000 direct taxpayers. I must say in all sincerity that these figures appear to me to be exceedingly unbalanced, and, anyhow, I see in this position the very gravest danger, which, indeed, has already manifested itself, of certain sections of the electorate in this country voting to themselves, either consciously or subconsciously, benefits and amenities at the expense of other sections. It is perfectly true that there must be control of finance somewhere. Since the passing of the Parliament Act, which took away the right of veto from the House of Lords, there has been no control over finance except that which has been exercised by the House of Commons itself, and I think many hon. Members will agree with me when I say that it has been very hard sometimes to exercise that control. To lower the basis of direct taxation would surely give a far greater stability to our democratic system; and to draw within the ranks of the direct taxpayers many millions who do not at present pay would surely strengthen the foundations of our financial and taxing system. I know it may be argued that the poorer people would find it too heavy and onerous a burden, but in order to counterbalance that burden I would rather remit a corresponding amount of indirect taxation, so as to secure the principle of every man as far as possible having to pay a certain amount in direct taxation to the State, and thus bring into clearer relief the correlation between cause and effect.

I quite understand that both these proposals will be very unpopular in many quarters, but, after all, we are living under a great democratic system, which is the greatest, the finest and the noblest system of Government. There is not a Member of the House who would not fight to preserve that system. In many countries of Europe since the War it has been swept away, and I submit to this Committee very humbly and respectfully, but at the same time with the most profound conviction, that unless in the future there is some greater control over finance, unless there is some revision of the basis of our direct taxation, we shall, owing to the increased demands that are going to be made upon the Exchequer, find ourselves again going down that slippery slope. We have already been through one financial crisis, and have just pulled through; we might not pull through a second. I believe, unless something is done in that direction, it is not impossible that even in this country we might yet see democracy shipwrecked upon the hard rock of finance, and my great fear of the financial dangers that I see ahead must be my only excuse for speaking as I have done.

5.16 p.m.

Sir W. DAVISON

I am very glad that it falls to me to congratulate the hon. Member on a most thoughtful, interesting and acceptable maiden speech. There was a great deal in what he said that was well worth thinking out and I hope the House may soon have the pleasure of hearing him again. The right hon. Baronet the Member for Caithness (Sir A. Sinclair) said the fires of war will not be extinguished by armaments, but by disarmament. That is true, but for years past we have been trying to get disarmament while we ourselves were disarmed, and it is for the very reason, that while other people were arming we remained disarmed, that the Chancellor has been obliged to bring forward very heavy Estimates. The right hon. Baronet was in some confusion as to whether the Chancellor or General Goering preferred arms or butter. We shall all agree that you can do without butter, but you cannot be safe and independent unarmed in a world that is armed. We are all in agreement with that, whatever the right hon. Baronet may have meant in his rather fiery peroration.

Sir A. SINCLAIR

I think the hon. Gentleman has left out of account the other part of my speech, in which I referred to the fact that we had spent £1,000,000,000 on arms in the last 10 years, and it is not, therefore, correct to say that we are unarmed.

Sir W. DAVISON

We are not disarmed in the sense that we have not a gun or a rifle or a ship, but we are disarmed, having regard to our responsibilities, compared with the other great Powers of the world I hope I may be allowed, as chairman of the income Taxpayers' Society of Great Britain, to preface my remarks on the Budget by expressing the very warm appreciation of the taxpayers of the country on the remarkable report of Lord Macmillan and Sir Frederick Liddell and their colleagues on the Income Tax Codification Committee. I do not think full appreciation is shown of the enormous amount of voluntary work, of vast importance to the State, that is done by a comparatively few people. You could not have a better example of this than the striking services that have been rendered by this committee in the codification of the Income Tax law. It is a matter of immense complication. They have taken years over the work. They have put into legal form the judgment of the courts in some 1,800 cases, and I think the House should express at the earliest possible moment its deep appreciation of what this body of gentlemen have done. They say rightly: The fact that Income Tax legislation cannot avoid being technical and complicated is no excuse for perpetuating its present confused and illogical shape, for, the more difficult and elaborate the subject, the more important are precision and orderliness in its presentation. I feel sure that the House will agree with that, and I trust that the Government will take the earliest possible opportunity of putting the draft Bill attached to the report on the Statute Book, and will add to it provisions which will remove many of the hardships to which reference is made in the report, but which the committee were precluded from dealing with owing to their terms of reference.

With regard to the Budget, which was introduced by the Chancellor of the Exchequer with his usual clarity and charm of speech, I greatly regret to have to express my disappointment at its lack of courage and originality. My regret is the greater as I am a sincere admirer of the right hon. Gentleman and of the skill with which he has restored the finances of the country from the slough of despond into which they had been allowed to drift in 1931 to their present position of stability and prosperity. The case that he submitted, as I understood it, is briefly this: "There is a £15,000,000 net deficit. Why explore new avenues of taxation? There are patient Income Tax oxen still plodding along uncomplainingly, bearing their war load of taxation. Throw another £12,000,000 on to them. They will not say anything. In order to make things look equitable and fair put 2d. on the wage earner's tea and the trick is done. "It seems so simple, but was there really no better or fairer way, no way less likely to upset the returning prosperity of the country? I think we can find an answer to this question if we refer to the Chancellor's speech. In summing up and explaining the method by which he had restored prosperity during his responsibility at the Exchequer, he explained that this policy rested on two main pillars. I do not claim that the financial policy I have followed has been solely responsible for the results which I shall quote, but I do believe that it has been the indispensable foundation upon which those results have been erected, and that it remains the best policy for the country and for the needs of the present time. The two main pillars of the policy have been the introduction of the tariff and the establishment of cheap money."— [OFFICIAL REPORT, 21st April, 1936; col. 57, Vol. 311.] He went on to refer to the tariff, which has converted a deficit of £104,000,000 into a favourable balance of £37,000,000, and said that the revenue produced by the tariff last year was £34,000,000, and that by this means a valuable contribution to the National income has been obtained. He refers to the reduction of interest rates by something like 2 per cent. as a permanent saving in budget charges of £40,000,000 a year and a still larger temporary reduction. We have a solution of our difficulties in those words. Tariffs and cheap money are the pillars on which our national prosperity mainly rests. Are these pillars so fragile that they have reached the limit of their capacity to bear the load? Have they really finished their productiveness? Last year the tariff policy produced £34,000,000 of revenue. Surely it could support another £10,000,000 this year. The hon. Member for Leominster (Sir E. Shepperson) by way of example urged upon the Committee yesterday how important it was that tariffs should be increased with regard to potatoes, bacon, meat, butter and eggs, so as to give our own farmers a better chance of producing these things; and the same applies to industrial products as well. I could quote many others.

As to cheap money, the Chancellor pointed out that during the past year Treasury Bills were being taken up at the absurdly low rate of 11s. 6d. per cent., while long-term interest rates had been reduced by 2 per cent. and no less than £100,000,000 1 per cent. bonds had been issued at a discount. We could not have imagined it possible a few years ago that such a thing could occur. But what is the use of all this cheap money and these great resources if we do not make use of them? Why does not the Chancellor raise £5,000,000 or £10,000,000 by Treasury Bills or 1 per cent. bonds until he sees what he will ultimately require and then take them over by a great national defence loan at 1¾ to 2¾ per cent.? He said he thought the taxpayer to-day should bear his share in providing for the national defence. I do not quarrel with that, but surely the taxpayer to-day is bearing his share when he has been deprived of those remissions of tax which he would have received had it not been for the necessity of making good our defences. This cheap money also affects the unfortunate Income Tax payer adversely. It means that he gets a lower rate of interest for his investments. It also affects his family in this way, that when he dies, his investments, though producing a lower rate of interest, are worth more and he pays more in Death Duties.

That is not all. The Income Tax payer has a further grievance, almost amounting to a breach of faith, to which no reference was made yesterday, for while the Chancellor has added £12,000,000 to the standard rate of tax he has failed to implement the pledge given to the Surtax payer in 1931 that, when the crisis was over, the 10 per cent. then added would be removed with all the other burdens that were then imposed. He is practically alone in still bearing the additional burden put upon him in 1931. This means that in many cases the higher Income Tax payers will now be paying as much as 13s. in the £, and in the case of the very high rates, to which Lord Snowden referred when he was Chancellor of the Exchequer, they are paying, if they make provision for Death Duties over 20s. in the£. [Interruption.] Lord Snowden, if the hon. Gentleman who interrupts writes to him, will tell him whether that is true or not. I am not appealing in this matter—it would not be right to do so—for the sake of a few individuals; this is a national matter. Is this taxation good for the State? I submit that it is not good for the State. The failure on the part of the Government to fulfil their promises in this direction is a short-sighted policy as far as the State is concerned.

As in the case of the Spirit Duties, the Chancellor is gradually killing another goose on which he largely relies year after year to balance his Budget, as, notwithstanding the increased rate of Surtax, the yield from this tax is appreciably lower than it was 10 years ago. Moreover, the number of Surtax payers in the year 1933–34, as compared with 1929–30, dropped from 109,000 to approximately 81,000, while the tax collected from this source showed a decline of no less than £25,000,000 for the same period. It does not matter to any of us what happens to one or two millionaires—we do not know them probably—but we must look upon this question as a business assembly concerned with the management of the moneys of the State. The figures which I have given show that by this continual imposition upon the Income Tax payers of the country we are seriously losing income to the State. In past years it has been mainly this reserve of income to which industry has looked for expansion. If we are to use it more and more for the everyday payments and expenditure of the State, the reserve which is essential to meet the expansion of industry will not be there for us to call upon when we require it, and that will mean unemployment, and gradually more and more taxation.

May I remind the Chancellor of the Exchequer what the Financial Secretary to the Treasury said in this House in 1933? He stated, in referring to the Income Tax payer, that it is the same section of the community, the Income Tax payer, which also provides some £80,000,000 a year in Death Duties. Last year no less than £88,000,000 of individual capital was taken in Death Duties. In the forthcoming year the Chancellor of the Exchequer has budgeted for £89,000,000 of capital, which he is to use a income for the day-to-day affairs of the State, and that is bad business. I do not want to get out of these duties, but I want the people who have to pay them to pay them in the course of their own lifetime. I have repeatedly made suggestions to the Chancellor of the Exchequer as to how this could be done. Only the other day I suggested the issue of low interest-bearing Death Duty stock at say 2 per cent. or 1¾ per cent., which people could buy during their lifetime, and upon their death their executors would have the money with which to meet the Death Duties without estates having to be mortgaged. This would be of importance to the Chancellor of the Exchequer, as he would be paid at once, and there would be no arrears and no trouble in extending the time to enable the money to be paid.

I cannot understand why something of the kind cannot be put into operation. The Government are losing in revenue alone some two or three million pounds a year, and the matter should be looked into. If we are to keep the Death Duties at their present rate, something should be done to enable the taxpayers to provide for them during their lifetime. I hope that the Chancellor of the Exchequer will have something to say in the course of these Debates in explanation of why it is not possible for some such scheme of low interest-bearing Death Duty stock to be introduced.

The final matter to which I wish to refer is also a question relating to Income Tax and one about which Income Tax payers feel very keenly. It has regard to cases where Income Tax payers have appealed to the special or general Commissioners of Income Tax. Income Tax payers win their appeal and the Crown say that there is some point of law involved and appeal against the decision to the High Court. In nine cases out of ten, unless it is an enormous sum—and this matter usually affects people of quite small incomes—it is not worth while opposing the appeal owing to the great expense. They pay the amount rather than go to court and fight au action against the Crown. We should have an assurance that this matter will be dealt with. Hon. Members of this House, including myself, have moved Amendments from time to time to deal with this question, but the Chair has ruled them out of order because they involve a charge. I therefore appeal to the Chancellor of the Exchequer to give an assurance that this injustice will be removed.

I have shown the burden which the Income Tax payers have borne. They have never complained—patient oxen is a good name for them—and they plod along bearing their burdens, but the taxation of these people has now reached a point at which it is dangerous to the State. I beg of the Chancellor of the Exchequer, if he cannot do anything this year, at any rate to see that in forthcoming years their burdens are lightened.

5.38 p.m.

Mr. BENSON

The two speeches of hon. Gentlemen opposite have both taken pretty much the same line, that direct taxation is now so high that it is gravely endangering the development of industry. I should like to add my congratulations to the hon. Member for Darwen (Mr. M. Russell) for the clarity with which he stated the case. It is not the first time the case has been stated in this House. In fact the cry that Income Tax was a danger to industry has been raised ever since Pitt first introduced Income Tax 130 years ago. It has been made in every Budget Debate to which I have listened. What are the facts? Taxation, and particularly direct taxation, in the last 15 or 20 years has been infinitely higher than it has ever been before, and during the past 25 years the wealth of this country has grown at an unprecedented rate. Despite the fact that we had the Great War and have had five or six years of slump, the rate of increase in the wealth of this country between 1913–14 and the present time has been greater than has ever before been experienced in this country. What is the use of saying that high direct taxation is a menace to wealth and industry, when we have shown that we can bear high taxation and at the same time expand the wealth of the country to an unprecedented extent. I will give the Committee one or two facts. The gross income coming under review in 1913–14 for Income Tax purposes was £1,167,000,000, in 1934–35 it had grown to £3,250,000,000, and it will be found to be considerably higher this year when the Commissioners of Inland Revenue publish their figures.

Mr. WRAGG

Is that on the same basis?

Mr. BENSON

I was about to deal with that matter. These figures, admittedly, are not quite upon a commensurate basis because the level of taxation has been reduced from the limit before the War of £160, but even if we make the fullest allowance for that, one can only come to the conclusion that the annual income of the taxpaying members of the community has gone up since pre-war days between two and two and a-half times. That is a very remarkable achievement and one upon which the country can be congratulated. The wealth of this country has expanded enormously, but we cannot congratulate ourselves upon the way in which that increase in wealth has been shared out among the population. The increase in wealth has not been general. I am well aware that conditions have improved among all classes of the community in the last 25 years, but the tremendous increase in wealth has merely extended the gap between the rich and the poor in this country.

Mr. WRAGG

Can the hon. Member give the total amount of wages paid in 1913, and the amount paid, say, last year?

Mr. BENSON

I am afraid that I cannot give the actual amounts.

Mr. WRAGG

Is it more than twice the amount of 1913?

Mr. BENSON

I can give—and I will do so later on—the percentage increases, and deal with them. I do not want the hon. Gentleman to think that I am trying to run away from the facts or that I am trying to make a specious case. Let us look at these facts. We have had a tremendous growth in the wealth of the country. It is not merely judgable by comparing Income Tax figures. Take the amount which comes under review for Death Duties. We find there exactly the same sort of thing, an enormous increase in the amount. Here again we find that the increase in the large estates is vastly greater than the increase in the small estates. The increase in the estates not exceeding £500 is very small. In 1913–14 the amount of the small estates not exceeding £500 that came under review for Death Duties and Estate Duties was £8,000,000. In 1934–35 the figure had increased to £13,500,000. Therefore, the increase in the value of the vast number of small estates of £500 and less was only £5,500,000, but when we take the handful of estates of £5,000 and over we find that they have increased in the same period from £232,000,000 to £412,000,000, an increase on a very much smaller number of estates of £180,000,000.

There has recently been a very careful statistical analysis of the holdings of wealth by two Manchester statisticians, Messrs. Daniels and Campion, and they have come to the conclusion, as the result of their very careful analysis, that even in pre-war days 60 per cent. of the actual wealth of this country was held by 1 per cent. of the population and that the same remains true to-day. The hon. Member for Darwen suggested that certain members of the community were using their votes to win for themselves amenities of life at the expense of other people. What else can they do when the wealth of the country is monopolised by 1 per cent. of the population? The hon. Member for Belper (Wr. Wragg) asked me a question in regard to wages. The latest figures published by the Government are that the rate of wages, compared with 1913–14, has increased by 64 per cent., which is considerably less than the increase in the wealth of the Income Tax payers. But there is a note added to that figure saying that it is based upon the average rates for a full week's work.

Mr. WRAGG

What I wanted to know was the total amount of wages paid, not the increase of 64 per cent.

Mr. BENSON

I am afraid that I am unable to give it.

Mr. WRAGG

The hon. Member would find that that amount is more than double what it was before.

Mr. BENSON

Sixty-four per cent. is the rate of increase. I am sorry that the hon. Member does riot like that figure, but that is the figure with which I am dealing. That figure is only a notional figure, because from it has to be deducted the enormous loss of wages due to the great increase of unemployment, and that great increase of unemployment and loss of wages are certainly not compensated for by the increase in the social services that have developed since the War. The social services have made life more bearable but they have not to anything like the same extent compensated for the vast amount of wages lost due to unemployment.

Despite the tremendous growth of the wealth of the country, on which we can congratulate ourselves, there is a very shameful fact of which we in this House ought to take far more cognisance than we do, and that is that 50 per cent. of our population still shows signs of malnutrition. During the past two or three weeks there has been published a very careful survey of dietary by Sir John Boyd Orr. He has carefully dissected a very large number of household budgets and the amount spent on food according to the various income rates per head of families, and it was found that 50 per cent. of the population so investigated were suffering definitely from malnutrition and that the malnutrition increased as the income per head went down.

Mr. MICHAEL BEAUMONT

I am very interested in what the hon. Member is saying. Will he make this point clear I understood him to say that 50 per cent. of the whole population of the country were suffering from malnutrition. He now says that in this particular report 50 per cent. of the cases examined were suffering from malnutrition. Are those the same figures or different figures?

Mr. BENSON

What happened in this very careful analysis was this, that many thousands of household budgets were examined, and, as is generally done in a careful statistical analysis, great care is taken to get a normal selection of the population.

Mr. BEAUMONT

Of all classes?

Mr. BENSON

Yes, of all classes. These various household budgets were analysed and put into six groups according to the amount of income per head of the family, and from the budget so collected the amount spent per head on food was taken out, and it was found that of this very large section of the population three of the lower groups, representing roughly one-half of the population, were suffering from malnutrition. If one wants rather less suspected evidence than the evidence of a statistician, which may be open to error, Sir John Orr gives the heights of a large number of boys going to council schools and public schools. The result was that boys of 13 going to the public schools were 5.7 inches higher than the boys going to council schools. Unless hon. Members opposite are prepared to suggest that there are two distinct races in this country and that the taller race inevitably go to public schools, they are bound to admit that that stunting of the council school boys is due to the conditions under which those boys have been bred. Sir John Orr gives very strong evidence to show that one of the major factors in this stunting is shortage of food. Indeed, the experiment made by the National Government in regard to the distribution of free milk has shown quite definitely the effect upon growth of giving richer, better and more normal diet to children who, owing to economic circumstances, were unable to get it. It is a shameful thing that in a country which has doubled its wealth in the last 25 years there should be such a blemish that such a large section of the population is definitely short of the very basis of life—food.

The Chancellor of the Exchequer has been asked to temper the wind to the Income Tax payer. He has done so, but when he comes to deal with evasions I am afraid that he will have some unruly children behind him. [HON. MEMBERS: "No!"] Then they have changed since 1930, when we tried to stop evasions. The Chancellor of the Exchequer has enormously increased taxation in the last five years. He is raising a great deal more by taxation to-day than was raised by the last Labour Government in 1930–31. How is that money being raised? If we compare the amount raised by Income Tax, Surtax and Death Duties in 1930–31 with what the Chancellor of the Exchequer estimates he is going to raise in this Budget, we find that these three great engines of taxation are asked to provide £2,000,000 less, whereas Customs and Excise are asked to provide £72,000,000 more. How much more does the hon. Member for South Kensington (Sir W. Davison) want? Is he not satisfied to have so little more put on to the direct taxpayers whilst £72,000,000 more has to be found by the indirect taxpayer?

Sir W. DAVISON

The cost of duties is paid by the foreigner.

Mr. BENSON

In that case I hope the Chancellor of the Exchequer will take all Excise Duties off, take the Income Tax off, and make the foreigner pay for the whole of our Budget. Why he has not done so in the past I cannot say, unless it is that he is a friend of every country but his own. The Chancellor of the Exchequer has a solution for his problem. In the "Manchester Guardian" to-day it is suggested that this is the Chancellor of the Exchequer's last Budget. I did not realise that he had a dangerous rival behind him. In this Budget he has thrown a still greater burden upon the indirect taxpayer, who is primarily the small man, and what has he to offer? He is proposing to increase expenditure by £64,000,000 and of that £64,000,000 there is a bare £3,000,000 allocated for fresh social legislation, namely, the £3,000,000 for the distressed areas. The right hon. Member for Caithness and Sutherland (Sir A. Sinclair) raised the question whether allocation had been made for the new scales of unemployment benefit. The Chancellor of the Exchequer has made definite allocation for various expenses that will come along by £25,000,000 for Supplementary Estimates, but there is nothing allowed for any further social legislation.

Apparently under this Budget the right hon. Gentleman does not anticipate that for the next 12 months we are going to have any more social legislation. He has made no allowance for the new scales that are promised in the spring. Apparently, they are going to cost the Government little or nothing. If they cost the Government nothing they will benefit the unemployed nothing. Finally, the Chancellor of the Exchequer made use of the phrase, "Our safety is more important than our comfort." Safety against what? The enemy within the gates, poverty, underfeeding, malnutrition? Is that the enemy against whom the Chancellor of the Exchequer proposes to make us safe? No. He is piling up expenditure upon armaments to meet an enemy, not an enemy within our gates but one outside, a hypothetical enemy, an enemy who is largely in the position that he is in to-day because of the futile, muddling foreign policy that this Government have pursued since they came into office in 1931.

6.0 p.m.

Mr. M. BEAUMONT

I have listened with great interest to the speech of the hon. Member for Chesterfield (Mr. Benson) and with a good deal that he has said I have a great deal of sympathy, but it seems to me that his speech was a signal failure if it set out to prove the benefits of high direct taxation. If what he said is true, and I do not challenge his general conclusions, his speech was a condemnation of the policy of the redistribution of wealth through high taxation and social services. There could be no better evidence than the remarks of the hon. Member that the policy of increasing Government expenditure and increasing taxation is not having the effect of raising the standard of living of our people, which those who support the policy thought it would have. Let me, however, deal for a moment with the general criticisms which have been levelled against the Budget. I am not an opponent of any portion of the Budget statement and I do not see how anyone, with the possible exception of Members of the Independent Labour party and the right hon. Member for Bow and Bromley (Mr. Lansbury) and the hon. and learned Member for East Bristol (Sir S. Cripps)—I am not quite certain where he stands on any question—can conscientiously oppose this Budget. On what grounds has it been attacked? It had been attacked for the expenditure on armaments. The Opposition speak with two voices. They literally howl for measures which they know must mean immediate war with Italy—

Mr. DALTON

indicated dissent.

Mr. BEAUMONT

The hon. Member should know enough about foreign affairs, as he was Under-Secretary of State for Foreign Affairs for some time, to know that if the suggestion which was made last night by the hon. Member for Kingswinford (Mr. A. Henderson) was carried out and we embarked alone on a blockade of the Suez Canal it would mean war with Italy, and all juggling with words about presenting great difficulties and mealy-mouthed nonsense of that sort, is absolute humbug. If hon. Members opposite wish us to go to war with Italy and consider that we ought to have gone to war with Japan—a suggestion which was put forward by the hon. Member for Edinburgh, East (Mr. Pethick-Lawrence) this afternoon—then for them to cavil about this increased expenditure on armaments is nonsense. They must know that we could not successfully embark on any such policy as they propose without increasing our expenditure on armaments. I would beg hon. Members opposite in their own interests to make up their mind what they want. The Independent Labour party are perfectly clear. They are not going to fight anybody in any circumstances.

Mr. STEPHEN

We are going to fight you.

Mr. BEAUMONT

They are not going to fight any foreigner, and in those circumstances they alone are entitled to complain of any increased expenditure on armaments. The hon. Member for South Kensington (Sir W. Davison) denounced the increase in the Income Tax. No Tory Member who was in the last Parliament has the right to cavil about about this increase. When I and certain hon. Friends of mine, most of whom have been translated to higher spheres, were urging economy on the Government did we get any support from the hon. Member for South Kensington, or from any hon. Member who is now crying out about this increase in Income Tax? Not one word. We were told that we were not loyal to the National Government; that we did not know our place. That may or may not be true, but hon. Members who took that action then have no ground to complain of increased taxation now. If hon. Members want these armaments they must pay for them, and in view of the pledges given by the Government in regard to the social services, the Chancellor of the Exchequer had no other course open to him but to ask the direct taxpayer for an increased contribution.

Then there is the attack on the Tea Duty. There again no one, with the possible exception of the Independent Labour party, can possibly cavil at the proposal. The Chancellor of the Exchequer said that the burden of extra armaments, the burden of the policy of collective security, is the burden of all and must be paid for by all. There is no conceivable reason in equity, in common sense or in finance why the burden should fall on one class of the community exclusively. The same answer applies to the complaint that there is no provision for increased social services. Hon. Members cannot have it both ways. These social services have been growing and growing. The right hon. Member for Caithness (Sir A. Sinclair) denounced in flowing terms the increasing burdens on the taxpayer. He was right, but he cannot complain of the extra armaments which are necessary because of the policy he advocates and at the same time complain that we do not embark upon large and expensive schemes of social services. There is no real justifiable complaint to be brought against the Budget, and, what is more, in the speeches to which we have listened from Members of the Opposition there has been no serious or successful attempt made to criticise its provisions. Nevertheless, the situation which the speech of the Chancellor of the Exchequer disclosed is one of great gravity.

I desire to direct the attention of the Committee to the awful problem of increasing expenditure coupled with the increasing difficulty of finding resources wherewith to meet it. In 1909 the Civil expenditure was £33,000,000, Revenue departments £21,000,000, and Defence departments £59,000,000. In the present year you will find the Civil departments £365,000,000, Revenue departments £82,000,000, and Defence departments £158,000,000; and still expenditure goes up. I take the year 1909 as a commencement because in that year the right hon. Member for Carnarvon Boroughs (Mr. Lloyd George) assumed the direction of the finances of this country and embarked on a policy of redistribution of wealth through the means of social services, which has been such a failure and has led to this reckless expenditure. Almost alone in this House I am an opponent of the principle of social services in this country. I have enough Liberal left in me to agree with Mr. Gladstone that money is best left to fructify in the pockets of the people. I, in common with everyone else, dream of and hope for the day when poverty will be abolished, when there will be a happy and a healthy State for all, but I think this can best be secured by assuring a higher standard of wages for the working classes, by having the minimum amount of State control, of compulsory social services, and instead allowing individuals to choose and pay for their own social services.

I join with the hon. Member for Bridgeton (Mr. Maxton) in deploring that there has not been a big rise in wages. There has been a rise in the wages bill owing to the transference of men from the unemployed list to the employed list, but I should like to see, and I think we could secure it, a big individual rise in wages all round. I would cheerfully join with hon. Members opposite or with anyone else in demanding and trying to secure for the wage-earners of this country a substantial increase in wages and in their standards of living, if at the same time the tax burden, which in spite of the hon. Member opposite does bear very heavily on industry, could be removed. The point is that the working classes of this country and all who desire a redistribution of wealth—I do not suppose there is any hon. Member who does not desire it to a greater or lesser degree—cannot have it both ways. You cannot redistribute wealth through high taxation and social services and through increased wages at the same time. I believe the latter is the sounder way of doing it, because there is only a certain amount of wealth to be distributed.

I maintain that a redistribution of wealth through the social services is extravagant and wasteful and that the people of this country would prefer to have it in cash. I believe it could be done. That is a personal view, but it is reinforced by the Budget statement of the Chancellor of the Exchequer yesterday. We have got this expanding expenditure, which is going on expanding. Hon. Members opposite clamour for more social services. We should be foolish if we believed that this increased expenditure on armaments is merely temporary. We all hope that it may be so, but we should not be prudent if we made our financial calculations on that basis. How is it that we are able to carry the burden now? It is because we are on the upward grade of a trade cycle, when the revenue is expanding and money is coming in well, but while the increase in expenditure will go on the increase in revenue will not.

We are approaching very close to the point where we shall be able to find no new sources of revenue with which to meet our liabilities. The Surtax has already very nearly reached the point where the law of diminishing returns applies. Death Duties expand very largely, as was pointed out the other day in an admirable letter to the "Times" by an old Member of this House, Sir John Marriott, at the expense of the Surtax. The Income Tax is rising again to the crisis level of 1931. The revenue from tariffs is a source that has been tapped, and it was incidentally interesting and, I thought, amusing to hear the hon. Member for East Edinburgh say what enormous additional taxation had been raised by the imposition of tariffs and to hear the other gospeller of Free Trade, the right hon. Gentleman the Member for Caithness, say how measly and contemptible had been the returns from this policy. It was an interesting example of Free Trade solidarity. By the tapping of that source of revenue, the last advantage of Free Trade has disappeared, in my view.

Much fun has been poked by the opposition at the proposals of the Chancellor of the Exchequer to stop leaks in the payment of direct taxation. I, and I think every other hon. Member, will support him in that policy, because we agree that the law has to be obeyed and has to be made as watertight as possible. But the fact that such action is necessary shows a very grave thing. It has often been said that taxation is possible only with the consent of the taxed. I think that the fact that these leaks are becoming so formidable shows that the consent of the taxed with regard to direct taxation no longer persists. I believe, and I think many people will agree with me, that there has practically departed from everyone in this country—and I freely admit I do not feel it myself—any moral obligation whatever to pay direct taxation if it can be avoided. People simply pay without any moral obligation. Direct taxation is simply paid because it is the law, and force can be used to compel the payment. People will embark on any legal remedy to avoid payment of it, because there is the feeling—I do not say it is entirely a right feeling—that direct taxpayers are paying an undue proportion for services from which they get no benefit—

Mr. GALLACHER

They get all the benefits.

Mr. BEAUMONT

—and while that feeling exists the leaks will not be successfully closed. The point to which all this is leading is to try to impress on the Committee that these sources of fresh revenue are diminishing. That is all right at a time of general trade confidence and in a rising trade cycle, but if those two things were to disappear, I venture to suggest that the position of the country would be very perilous indeed. With this continually increasing expenditure, the next crisis will make that of 1931 seem like a joke, and if hon. Members opposite were to assume office in the near future—which I devoutly hope will not be the case—the very fact of some of their utterances with regard to financial crises might precipitate that new one which possibly the hon. Member for East Bristol might welcome, but with which I doubt whether his agile brain would be able to cope, because I would point out that it is of no use trying to keep things going when the money is not there. Even in Russia, a country rich in resources and where the whole of the resources have been in the hands of the State for nearly 20 years, it has not been found possible to give to the bulk of the people of that country, as far as any reliable evidence is concerned, a reasonable and decent standard of living.

I am not now arguing on the merits or the demerits of Communism or Socialism, or of this or that form of political programme. I am trying to point out that if we continue on this course of reckless expenditure, without making a halt somewhere, bankruptcy must ensue. This course which we are following is partly due to what I contend is a vicious habit which has grown up both with regard to public and private expenditure in recent years of regarding requirements and not resources as the standard of expenditure. A person does not buy a thing now because he can afford it; he buys it, whether he can afford it or not, because he thinks he wants it. That is a dangerous attitude which has crept into the Government as well as the private outlook.

I think the situation is extremely grave. I know this is not a popular view, but to my mind a halt must be called some- where. It is for this House to decide where there is to be a curtailment. I have indicated my own preference. Private individuals, if they have no money for something they want or even think they need, must either go without it or go bankrupt, and it is the same in the case of the State. We can curtail our defences if we think that is possible. I do not myself see how that can be combined with League obligations and collective security. We can curtail our social services or even, as I would like to do, reverse the policy of social services in this country and try a. different form of redistribution of wealth. It may seem drastic and impossible to talk about this in the 20th century, but it is only fair to remind the Committee that if the people of this country, after being taught to regard these services as a right, were suddenly deprived of them through lack of money to pay for them at any time, the indignation which they would then show, and rightly so, might perhaps border on revolution, and would be worse than any indignation which a courageous curtailment or a courageous economy such as was foreshadowed, but not, unfortunately, carried out, by the National Government in 1931, could possibly produce.

I would at this point like to read to the Committee a quotation from one who might be called, if not the father, the prophet of social services in this country; I refer to the distinguished father of the right hon. Gentleman the Member for Epping (Mr. Churchill), Lord Randolph Churchill. Writing in the "Fortnightly Review," in 1883, he forecast: A social revolution which, passing by and diverting attention from wild longings for organic change, commences with the little peddling Boards of Health which occupy and delight Local Government Departments, comprises Lord Salisbury's plans for the amelioration of the dwellings of the poor, carries with it Lord Carnarvon's ideal compulsory national insurance, includes Sir Wilfred Lawson's temperance propaganda, preserves and reclaims commons and open spaces—favoured by Mr. Bryce—constructs people's parks, collects and opens to the masses museums, libraries, art galleries, does not disdain the public washhouses of Mr. Jesse Collins. Public and private thrift must animate the whole, for it is from public thrift that the funds for these largesses can be drawn and, it is by private thrift alone that their results can be utilised and appreciated. The tremendous prophecy of the social revolution has come true, but the public and private thrift have been painfully lacking.

I know these are not popular views, but I beg the Committee and the Government to consider these matters with very great care. I know that my remarks will get little attention from hon. Members. If I am lucky, I may get a courteous acknowledgement from my hon. Friend when he replies, but that must be attributed more to the unimportance of the speaker and the incompetence of the speech than to the grave matter with which I have inadequately attempted to deal. Some thousands of years ago there was a beautiful golden-haired lady who lived at Troy and who was called Cassandra. She was unfortunate in many ways, her principal disability being that she always prophesied truly and never was believed. Subsequently she came to an extremely unpleasant end at the hands of the Greek captor to whom she had been assigned. But she prophesied one by one the evils that would overcome her country and the methods that ought to be followed to prevent them. In no case was she listened to. May I ask the House to beware lest under the peculiar guise of myself and some of my friends, without her manifold advantages but at least safe from her unfortunate fate, her spirit may be abroad in this country to-day.

6.27 p.m.

Mr. STEPHEN

I hope that the Cassandra of this Debate will live up to the reputation of the Cassandra of long ago, that his prophecy will come true and that we are really on the verge of a social revolution. However, I am not sure myself that the revolution is as imminent as the hon. Member supposes. The role which he has adopted in this Debate is one which there are always various individuals ready to adopt. I have taken part in a few Budget Debates in this House and I have noticed that there are always some who come forward with a great plea for economy; but as I have listened to those speeches I have noticed that the economy was to be exercised ultimately at the expense of the working class. My hon. Friend shakes his head at that, but the fact remains that the main burden of his plea for economy was directed to the social services. It is true that he suggested that by restricting social services on the present basis and by increasing correspondingly the wages there would be increasing advantages to the working class.

Mr. M. BEAUMONT

Much greater advantages.

Mr. STEPHEN

But when the hon. Member was talking in that way I was thinking of the feeling that existed in this House a short time ago in connection with the miners when they were seeking an increase of 2s. a day in their wages. Hon. Members know how pitiable was the increase in wages which the miners received and that all the sympathy and aspiration for a real living wage for the miners expressed in the House of Commons amounted to practically nothing outside when it came to the miners in their struggle with the employers.

Mr. BEAUMONT

I am reluctant to interrupt the hon. Member, but if that part of his speech is intended as an answer to what I said, I think he is—though I am sure he does not wish to be—a little unfair to me. I said it was my belief that there would be a large increase in wages if there was a corresponding reduction in taxation. I may be right or I may be wrong in that view but it is not in any way related to the recent situation of the miners in which, whatever the merits of the case, there was no question of a reduction of taxation.

Mr. STEPHEN

I do not wish to do the hon. Gentleman any wrong. I am simply pointing out that while there may be all this sympathy and all this desire on the part of Members of the House to see an increase in wages, past experience has shown how little those opinions amount to when it comes to a question of negotiation or to a struggle between employers and workpeople. There have been cases in the past in which a reduction in Income Tax was made on the specific plea that it would lead to the expansion of industry and a consequent increase of wages but it has been found that the reduction in Income Tax did not work out in that way at all, and that wages tended to fall rather than to rise as a result of it. That is comparatively recent history and is, I am sure, within the recollection of the hon. Gentleman.

Mr. BEAUMONT

I do not accept the hon. Member's statement altogether but I do not propose to argue the matter further with him now.

Mr. STEPHEN

I pass on to say that I have been struck by the consensus of opinion shown in this Debate. Practically no real fundamental differences of opinion have been shown in the speeches we have heard. There has been general congratulation of the Chancellor of the Exchequer on the clarity of his statement and his manner of presenting the Budget. I join in the congratulations to the right hon. Gentleman and I would say that we have had less of the mystery and less of the trappings that usually surround Budget statements on this occasion than on any other that I remember. I do not know whether the right hon. Gentleman sought to keep in tune with the general feeling outside the House but I cannot recall a previous Budget which was not able to claim for itself for some days beforehand, a position on the front pages of the great daily papers. This Budget only received a few paragraphs by way of forecast. Evidently there was not much interest on the part of the public in the Budget this year and, if I were asked to describe it I would say that it is a very humdrum Budget. It does very much what everybody anticipated and there is no need for any great excitement concerning it. When I heard the hon. Member for East Edinburgh (Mr. Pethick-Lawrence) opening the Debate to-day I realised that my estimate in that respect was not far from the truth. I was inclined at first to do the hon. Member for East Edinburgh a little injustice. When he twitted hon. Members opposite on the way in which they had received the announcement of the change in Income Tax, many Members thought he was unjustified in what he said, but the subsequent Debate has shown that the hon. Member for East Edinburgh was fairly sound in the view which he took. We have already had protests from the benches opposite against the increase in Income Tax and, evidently, there is no very great enthusiasm for the attempt to prevent future evasions.

One thing which struck me particularly about the presentation of the Budget was the unusual optimism of the Chancellor of the Exchequer. Generally, the right hon. Gentleman appears to be one of the most gloomy individuals in the House, particularly when he is presenting a Budget, but on this occasion he radiated optimism. He spoke again and again of the bouyancy of the revenue and referred to the returning tide of prosperity. It was, possibly, a little unfortunate that the hon. Member for Aylesbury (Mr. M. Beaumont) should have felt compelled to make his Cassandra-like speech on the one occasion when the right hon. Gentleman had really brightened up and taken a cheery view of things. The peculiar thing in the Budget is the provision which is being made for defence. The Chancellor has had a difficult problem to face in providing for a big programme of increased forces and it is evident that he has thought a great deal about it. Evidently in the future most of that provision will be made by means of loan and not out of revenue. Possibly this Budget represents the last attempt to provide for that expenditure out of revenue. The right hon. Gentleman foresees a big increase in expenditure, rising quickly to a peak and then falling somewhat but remaining at a figure a good deal higher than the present figure. He justifies that expenditure on the ground that it is a premium for our safety. I can understand the right hon. Gentleman taking that view. I can also understand the reactions on the benches opposite to speeches that have been made on this matter both above the Gangway and from the benches behind me. They show that all parties in this House, with the exception of my own party, are committed to the League of Nations and the collective peace system.

Last night the hon. Member for East Wolverhampton (Mr. Mander) said as plainly as it has ever been said in this House that, in the interests of the collective peace system, we ought to go to war if necessary against an aggressor and employ the most efficient methods to make sanctions real so as to render the collective peace system workable. The Members of the Government who are facing the situation are entitled to ask the House for the means to provide armaments, if that is to be the foreign policy of the country. If I may digress a little and follow the speech of the hon. Member for East Edinburgh for a moment, I know it is said that the present Government have been weak in their foreign policy; that they have not taken a sufficiently strong line; that people do not know where they stand in regard to the Continent and that the feebleness of their foreign policy has created the present dangerous situation. If the present situation is due to feebleness of policy it appears to me that a strong foreign policy on the part of the Government would certainly have landed this country into war.

I ask hon. Members to note the argument—that a strong policy should have been applied, not in connection with the Italo-Abyssinian dispute but in connection with the aggression of Japan in the East. If a strong policy had been pursued in connection with the aggression of Japan in the East does anyone doubt that such a strong policy—the employment of real sanctions, the attempt to prevent the aggressor from accomplishing his object—would have resulted in war on a large scale? It is necessary to face the facts but while I go so far, I still do not agree with this expenditure because I do not accept the pre-supposition which is behind our foreign policy. I do not accept the League of Nations as an efficient instrument of peace. I believe the League of Nations is a league of bandits. I believe it is to-day, as it was described at its inception, by a great Russian revolutionist, a league of robbers. It is a league of capitalist governments representing capitalist or imperialist interests. [An HON. MEMBER "Russia is in it "] It is true that the Soviet Government is a member of the League but one just man does not save all the others, and the other governments in the League are capitalist governments the representatives and protectors of various capitalist interests.

One of the great difficulties in getting the League to work is that, within it, there is constant competition between various capitalist groups, each seeking to advance the interests of its own particular Imperialism. It is impossible for the League to act collectively in the interest of peace because of these basic conflicts, because of this competition inherent in its constitution or at least in the Powers which compose the League. Since that is our point of view, since we have no faith in the League, we have no faith in the policies which follow from it and we refuse to be parties to expenditure upon these armaments that are to be provided in the years to come. I do not believe that they will give protection, even to British Imperialism.

You have increased your armaments. How long will you get protection by that increase in armaments? I do not believe that there is any real safety for British Imperialism in this great programme of defence, but I believe that to expect the workers of this country to become enthusiastic about this programme is to expect them to misunderstand altogether what these things are meant for. The working class are being exploited in every one of the capitalist countries. They are being exploited in this country by British Imperialism, and it is their job to try to create the instrument whereby they will be able to overthrow their own Imperialism and in that way make their contribution towards real peace in the world.

While this great additional expenditure upon armaments is coolly contemplated, already voices are being heard with regard to possible economy at the expense of the social services. Already voices have been raised in this House demanding another May Economy Committee, and I believe that this Budget, if it is really the beginning of similar Budgets, is the death-knell of the social services in this country. At the present time there is pitiful poverty in this country. I heard one hon. Member on the Government Benches telling us that we should go to Lancashire and see the condition of the people there, the miserable position in which the people of Lancashire find themselves, the widespread poverty, and all the rest of it, but I would remind the Committee that while there is all that misery and poverty, while there is all the hideous poverty in the Special Areas, while there are these great industrial districts which have been ravaged by unemployment, while there are the returning tide of prosperity and so many more hundreds of thousands of people in employment to-day than was the case a few years ago, while there is all that on the one side of the problem of poverty, on the other side we have a Budget which makes no provision for dealing with that problem.

It is true that the Chancellor has brought forward proposals for the floating of this £1,000,000 Special Areas reconstruction company. I wonder just what it means. I wonder whether he is proposing to use it as a subsidiary company to his Exchange Equalisation Fund, or what really he is hoping to make of it. Here you have the general policy of the Government and the policy of industry in this country working along the lines of the rationalisation of industry and the development of big business, and you have the Chancellor in his Budget proposing to set up this company in the Special Areas in order to try to help small businesses come into being. I wonder how it will work out in Lancashire. Suppose somebody there wants to make a venture with regard to a spinning factory. Do you think he would have any chance of getting a grant out of the £1,000,000 in order to provide new spindles? The Government are providing the money for the destruction of all those spindles in Lancashire and then making this fantastic proposal to provide money for small industries here and there.

One thing that I have noticed is that, of all the concerns in the Special Areas, the business that has come best out of the time of trouble has generally been the co-operative society. From the business point of view the co-operative society has been the one business that has been able to remain solvent and to provide the people with a certain amount of hope, and I wonder whether in those districts the local co-operative societies will be able to get grants out of this fund, in the same way as private individuals, for the expansion of their business in the particular areas. I am told that they do not need it, but does that mean that the co-operative societies are to get subsidised competition in the future? I hope the Chancellor of the Exchequer will make it plain that there will be no discrimination against the co-operative societies in those areas, but that if there is going to be something done on this small scale in the Special Areas the organisation which has already proved itself the most efficient in those districts will have the opportunity of using the money so supplied in the most efficient way that the money can be used.

One thing more. I want to contrast against the Chancellor's optimism the fact that while he tells us about the returning tide of prosperity, it is strange that there has been no real movement for an increase in working-class wages. The struggle of the miners for their little bit, the struggle of the engineering industry for the small increase granted them, does not appear to show that the prosperity that is being talked about is a prosperity in which we should put too much trust. If it means that now we are on the crest of the wave again, that by this time next year we shall be going down, that this returning tide of prosperity will be passing away, and that the number of unemployed workers will begin to increase again, then this Budget will be as unsound as was the Budget of 1931. I doubt very much whether the Chancellor's optimism is justified at all, but if it is justified, then I believe there is a stronger case than ever for better treatment of the unemployed than they are receiving at the present time. Let me remind the Committee again that the unemployed are the one section of the community who have not had their cuts really restored. They have only 26 weeks' benefit in the year, and they have not had that cut, which was a very big cut for the unemployed, restored to them.

I hope that the fact that there is no indication in the Budget of any provision for the abolition of the means test does not mean that the means test is to be retained. I join with those who have drawn attention to this question of the means test, and I say to the Chancellor that it will be criminal to spend all these millions of money upon instruments of death while nothing is being done to bring some measure of hope to the unemployed who have suffered for so long under the cruelty and the rigours of the means test.

As I have said, I think this is a humdrum Budget. I do not believe that it offers anything of hope to the working class. I believe that as events develop, as the working class in the various countries see how they are being driven to the verge of war, there will be an outcry against this policy of the League of Nations and the faith of the working class in this false, so-called instrument of peace; and I believe that the working-class struggle against this Budget may be but one of the indications of the rising working class that will overthrow the capitalist system.

6.57 p.m.

Mr. MABANE

The Chancellor of the Exchequer will no doubt have observed that the Opposition, in their attempt to criticise his Budget, have been driven to make that criticism an oblique criticism, and their criticism has been based mainly upon foreign policy. Foreign policy is not the subject for debate to-day, though there are in the Budget proposals for increased expenditure on armaments. I take it that the House has decided on that matter, but, if not, to-day is not the occasion on which to discuss it, and the Official Opposition, seeking for criticism, have found it extremely difficult to make any direct criticism at all. I was particularly struck by the fact that the two hon. and right hon. Gentlemen who opened this Debate for the official Labour and Liberal Oppositions made no attempt to refute the general review of the last four years made by the Chancellor of the Exchequer at the end of his Budget speech, and particularly did I observe also that neither of them paid any attention to the fact that conditions now are very different from what they were four years ago and that the international situation is entirely different.

There are two ways of criticising a Chancellor's régime or Budget. It is possible to argue that the whole thing is bad and ought to be swept away, and I think that is the function of the Opposition, and that is the function which they have been trying to perform, though not, in my view, with much success this afternoon. But there is another form of criticism, and it is one which depends on the view that the Budget and the Chancellor's régime are good, but that they might be better. Some such criticisms have been offered from this side to-day, and I want to add to those criticisms. Perhaps their purpose will make my right hon. Friend the Chancellor of the Exchequer excuse such criticisms as I shall make.

As we look back over the past four years—and I think we are entitled to do so, as he looked back over that period—we see that he has pursued a Conservative financial policy, and I think he has pursued that policy at a time when the country badly needed such a policy. It has been said often that the Chancellor of the Exchequer lacks imagination, but I myself have never been attracted by imaginative finance. I think that a financier, particularly the Chancellor of the Exchequer, ought to be first of all a realist, and when we listen to the Chancellor of the Exchequer we are apt to feel that we are dealing first and foremost with a realist. Therefore, perhaps he will again forgive me if I make some criticisms—perhaps severe criticisms—of his whole Budgetary outlook.

As we look back on the last four years none of us can do other than approve the financial results which have been achieved in those four years. It is not so easy to approve the methods by which those results have been achieved. In his review yesterday the Chancellor of the Exchequer referred to the fact that he was presenting us with a true surplus of £15,500,000. On this same day last year I ventured the prediction that there would be a surplus of £17,000,000. The Financial Secretary to the Treasury, now the Secretary of State for War, chaffed me, but facts have proved that I was on the whole right, and that he was on the whole wrong. I take no credit for that. Anyone could have observed that the estimates of revenue in certain respects last year were so short of probability that they bore no relation to the truth. Yesterday the Chancellor of the Exchequer referred in his review to the fact that some of us would regard this particular surplus this year as a demonstration not of success but of excessive and unnecessary caution. He went on to say: However … I myself remain of the opinion that subsequent events have fully justified my conservatism."— [OFFICIAL REPORT, 21st April, 1936; col. 37, Vol. 311.] That is a very remarkable statement for a Chancellor of the Exchequer to make. The Chancellor of the Exchequer comes here, admits an error in his estimates, and glories in it. If that sort of thing is to be permitted to be approved by the House of Commons, we might as well abandon Budgets altogether. The Chancellor of the Exchequer ought to have come to the House and begged forgiveness for the fact that he had estimated that he ought to receive only a certain amount of revenue but here he had received so much more; he ought to have asked for the forgiveness of the House and pleaded that it was an error and not a justification of an intention which he had always had.

This is not the first time that this has happened. For four years past several of us in this House have on these occasions been urging the point of view that the estimates of revenue were lower than any normal expectation would justify. We have been told that we have been wild guessers, but the facts on the whole have proved that we were right. It is the duty of the House to ask that we should have accurate Estimates and inaccurate Estimates presented to the House by the Departments through the Chancellor of the Exchequer really deserve censure. We ought not to have these inaccurate Estimates year after year. If the House abandons this duty its financial control goes and Budgets become even more a farrago of fantastic nonsense than they are. In the last three years there have been surpluses of no less than £74,000,000. Automatically that £74,000,000 has gone to debt redemption, and in years when the Chancellor of the Exchequer in introducing his Budget has said that he did not consider the moment was opportune for making provision for the Sinking Fund. I am not making any complaint of that particular fact, but I am making complaint of the fact that that amount went to the Sinking Fund without approval beforehand by the House and as a result of, not deliberate provision, but of inaccurate Estimates.

It seems to me that the Chancellor of the Exchequer could have been equally and more properly conservative if instead of making his Estimates low he could truly have revealed his surplus and appropriated that beforehand to the Sinking Fund. There are two replies which might be made. One is that the Treasury is incapable of making accurate Estimates. If that reply were returned by the Treasury it would be a severe criticism by the Treasury of itself, and one that ought to receive the attention of this House. There might be one other reply that could be made, that is, that in these last three years the House might not have been willing to approve the provision of these large sums for the Sinking Fund, and therefore the revenue should be set low and the amount provided for the Sinking Fund by a back door. I cannot believe that that reply would be made. If it were made, the Treasury would have to admit that it was submitting the House to a form of sharp practice.

Following on the last four years I am inclined to believe that the Budget now before us follows the same bad practice. I believe that the revenue is still underestimated. I believe that there is no real necessity for the imposition of the Tea Duty and the increase in Income Tax. Were war to break out these Estimates would be overthrown, but surely Budgets must be arranged according to a normal, and not according to an abnormal estimation. This point is not academic for another and even more important reason. If there has been a theme running through the speeches of hon. Members who support the Government this afternoon it has been economy. It was powerfully voiced by the hon. Member for Aylesbury (Mr. M. Beaumont) and the hon. Gentleman who made such an able maiden speech earlier.

These surpluses promote extravagance; they destroy economy. Year by year the Departments see a flood of unappropriated revenue flowing in. With that unappropriated revenue there, surely, the Treasury is less in a position to resist the demands of the Departments. Yesterday the Chancellor of the Exchequer said that his financial sky had been obscured by Supplementary clouds. Surely it is a natural consequence that we should be met by clouds of Supplementary Estimates when there is a lot of unappropriated revenue there to spend. In the last year we had Supplementary Estimates amounting to £22,000,000. In the year before we had Supplementary Estimates amounting to £18,000,000. In any ordinary time Supplementary Estimates of that kind would be considered grossly excessive. Let the Committee remember that without the existence of these Supplementary Estimates the Chancellor of the Exchequer would have had to come to the House to present in the last three years surpluses of no less than £75,000,000, an amount of rather more than 9d. in the Income Tax each year. I suppose that it cannot be argued that at the beginning of the year Supplementary Estimates are foreseen. I, therefore, urge that we are in danger of developing the kind of extravagance which the hon. Member for Aylesbury so depored.

Mr. MAXTON

The House had an opportunity of discussing and deciding whether it would have these Supplementary Estimates or not, and the hon. Member always voted for them.

Earl WINTERTON

The rules of order are so rigid.

Mr. MAXTON

Not the rules of order, but his party whipping.

Mr. MABANE

My hon. Friend knows very well that when a Supplementary Estimate is presented it is easy for an able Minister to present the point of view that the need for that money is absolutely inevitable, and we may be overcome by his eloquence on that occasion. But had the money not been there a Department would not have been so ready to ask for it.

Mr. MAXTON

My experience of this House—I am sure that it is the hon. Member's also—is that a Supplementary Estimate is always subjected to a closer scrutiny by this House than is the general Estimate for any Department.

Mr. MABANE

Certainly, I agree, but the hon. Gentleman will agree also that any appeals by the Chancellor of the Exchequer for increased revenue are resisted by this House. If the House has to consider not merely a Supplementary Estimate but greater taxation in order to meet it, there is a greater chance that the Supplementary Estimate will not only not be presented but that it will be refused by the House if it is presented. In the next year the Supplementary Estimate tends to become normal. The hon. Member for Aylesbury has powerfully presented to the House the rising expenditure with which the country has been faced in the last few years. It is necessary that the House should pay increasing attention to this matter of economy, because it seems that we are in danger of proceeding from financial crisis to financial crisis. We have a crisis, a committee is appointed, the axe is wielded with not much discrimination, we get the Budget down to normal figures, and then we sit back after the virtuous chastening and the figures mount until we reach the figure of crisis.

I think that there are grounds for believing that we are again approaching that figure of crisis. Whereas in 1934–35 the issues from the Exchequer for expenditure amounted to £696,000,000, the issues which are provided this year amount to £798,000,000, an increase of no less than £102,000,000 in two years. I know very well that Defence counts for a lot of that, and that the Defence Estimates show an increase of more than 60 per cent. in the last three years. I make no comment on that, because we are not deciding that issue this afternoon, but there has been also a substantial increase in the amount of the Civil Votes. They show in only one case a decline—in the amount of war pensions, the reasons for which we know and lament. As to the rest, consider what they are: Vote II, Foreign and Imperial, an increase again, compared with 1933–34, of £3,000,000; Vote III, the Home Office, £3,000,000; Vote IV, Education, £7,000,000; Health, Labour and Insurance notwithstanding the decline in unemployment, £8,000,000; Trade and Industry, £7,000,000; and even my right hon. Friend the First Commissioner of Works has managed to spend another £500,000. These Votes account for an crease of £28,500,000.

How long are these increases to continue? Where is the breaking-point to come? Has not the time come when the Government would be wise to institute once more an inquiry into Departmental spending in order to check this increase, or even to bring about a decrease? I feel that unless something of that sort is done we shall reach again the time when a financial crisis is upon us and revenue is insufficient to meet expenditure. I have always held, and done my best to present, the point of view that it is the duty of this House first and foremost to try and secure a lightening of the taxation of the people. Industry is more prosperous and the generality of the people more content when taxes are light. In order to achieve that object we need careful attention to this matter of economy. Therefore, I am bound to say that I object to the two new taxes proposed in this Budget. As to the other proposals, I cannot see how anyone can complain about the methods whereby the Chancellor intends to provide himself with new revenue. Most of us have known of tax avoidance for some time past, and the forms of tax avoidance to which the Chancellor referred have been growing so rapidly that some action was essential to stop the leakage. It is a pity that the Chancellor did not at the same time propose to deal with a form of tax avoidance that depends on the registration of companies in the Isle of Man or the Channel Islands. If he bad included that it would have been an advantage, and I suggest that he should consider it between now and the introduction of the Finance Bill.

Again, I do not think anybody can object to the manner in which the Chancellor proposes to deal with the Road. Fund. It is wrong that revenue should be specifically appropriated for particular purposes, and I do not think there is any reason to believe that, if the Ministry of Transport make their case well, the change will interfere with their work; certainly, if this proposal means that Estimates will have to be presented by the Ministry of Transport, it will have the additional advantage of bringing that Ministry more directly under the control of Parliament. The Chancellor referred in passing to what he described as the Special Areas Reconstruction Association, Limited, and I gather that he imagined the proposal to establish this association would be non-controversial. To some of us the proposal seems dangerously near State banking, or, at any rate, the State putting a finger in a banking pie. We feel that there are considerations in connection with this new proposal that seem alarming, and we shall want to examine it closely when it is made.

Included in the Budget statement this year is a matter of £25,000,000 for supplementary expenditure which is not yet known, not yet submitted to the House, and not yet approved. We know the reason, and apparently the House is prepared to excuse it, but surely it is a most unorthodox thing to do and a most dangerous precedent to set. I want to ask the Chancellor whether the House is to understand that the whole of the defence programme, which we understand is to be spread over five years, is to be dealt with in this fashion, and that instead of having specific Estimates at the beginning of each year, we are to be asked at the beginning of each year to provide Supplementary Estimates for an unspecified expenditure the nature of which we shall not know until the year passes by. The House would be alarmed if that were the proposal, because, while such a method would be quite safe in the hands of the present Chancellor, we have to consider what would happen if others less responsible than he is and with different political and social views were in his place. We may quite properly say that we can trust the present Chancellor to do certain things with financial propriety and yet feel some fear if the same latitude were given to an hon. Member drawn from the party opposite. Therefore, I hope that this method of including Supplementary Estimates in the Budget is not to be regarded as a normal budgetary procedure. It would have been far better to have left out this provision and to have provided the revenue when it was required when the Supplementary Estimates were presented.

The Chancellor, as the right hon. Gentleman the Member for Caithness and Sutherland (Sir A. Sinclair) said, has for the first time omitted any reference to the American debt. I should like to ask what the position is with regard to the American debt.

Mr. MAXTON

Why bring that up?

Mr. MABANE

For a very good reason, apart from other reasons. As the right hon. Gentleman the Member for Caithness and Sutherland said, unless we can effectively settle this difference we are likely to find difficulties in discussing political questions with the Americans. That is one reason why I think it better to face it. Another good reason is that it is impossible to know whether we are to understand, that negotiations with the United States are ended or not. If they are ended, I would like to ask what happens to the final act of the Lausanne Conference, because by the final act, if negotiations with the United States are ended, Germany is back on the Young Plan. The idea of asking for reparations from Germany at this time would not be popular. Therefore, I feel the House is entitled to ask what is the exact position with regard to the American debt?

Mr. GRANVILLE GIBSON

Why does the hon. Member ask for that information? Does he desire that we should restart payments? If so, how does he propose it should be done if America will not take goods or services?

Mr. MABANE

I am anxious that it should be finally wiped out instead of being left in the air in this manner as a kind of hidden sore between the two nations which is apt to cloud discussion between the two nations. I hope that the criticisms I have made will not seem improper.

It seems to me to be our duty in our job of exercising control of the national finances to do our best to look at the Budget as a general picture of the national finances. I feel that sometimes in this House we are apt to forget that the Budget is a picture of the national financial conditions and to concentrate on details instead of on the whole picture. Unless we do from time to time concentrate on the picture our control of finance will become less powerful than it ought to be. It is far easier to criticise in detail in this way. The virtues of the Chancellor of the Exchequer and of the financial regime for which he stands surely speak for themselves. The review that he made at the end of his speech yesterday, in which he compared conditions to-day with conditions four years ago, was one that brooked no contradiction. As long as he can make such a review and command, as I observed he did, the consent of the whole House in making it, the Chancellor ought not, and I am sure will not, resent the criticisms of detail of those of us who take a careful interest in the finances of the country and who have an admiration for the manner in which they have been conducted in the last four years.

7.27 p.m.

Mr. CECIL WILSON

In discussing the Budget we ought to ask ourselves the reasons for this very heavy increase in expenditure. We are in the position to-day that out of every pound of national expenditure, 11s. 4d. is for past wars and for the present provision of armaments, and only 8s. 8d. is left for the whole of our ordinary home needs. From what the Chancellor said in his speech, the future will show a still greater divergence, and an increase on the war side and a lessening proportion for our home needs. We should remind ourselves that we are within 12 months of the Peace Ballot, which was very expressive of the will of the people. That was fully recognised by the late Foreign Secretary in the speech he made at Geneva in September when he said that peace was the will of this country. No one would think that in what was expressed seven months ago there was any contemplation of the conditions that we are facing to-day and that we are asked to face in the future. One cannot think that the late Foreign Secretary was endeavouring to indicate something which was entirely untrue; we know him too well to think that. Therefore, we need to ask what changes have taken place since that time which warrant this increase in Budget expenditure. We have had nothing of a definite character by way of explanation.

Here and elsewhere we are all united in one desire, and that is that our country should lead the world. There may be considerable differences over the methods to be adopted for that purpose, but we are united in the one desire. We might express the methods in three ways. There are those who think of full armaments as being the one method by which that position is to be maintained, or retained, there are others who think that some armaments are necessary; and others, a small but growing number, who feel that we ought to endeavour to do without armaments at all. The method we are to follow depends, of course, upon the policy to be pursued. I believe there is a means of lightening taxation to which the hon. Member for Huddersfield (Mr. Mabane) referred just now by adopting an entirely different policy from that which is being pursued at the present time. We may well have different views as to the means by which friendship and good will are to be secured from other people, and there are conditions around us to-day which make a good many people almost hopeless of securing that good will, but we must not overlook the deep-lying causes which have brought about this condition of affairs.

When we speak of friendship and goodwill requiring nothing in the way of armaments we need to remind ourselves that people have lived in this world and are living to-day who are securing a great deal in the way of friendship and goodwill without anything in the way of armaments at all. David Livingstone travelled through something like 10,000 miles of Africa in perfect friendship with people who were, at times, very unfriendly. There were times when he was in considerable danger of his life, and yet he always came through successfully because of the methods he adopted. When we speak of the North-West Frontier of India we ought to remind ourselves of the great work of Theodore Pennell, a man entirely alone, threatened more than once, told that chiefs desired to put him to death and yet going on to interview those chiefs and becoming perfectly friendly with them. If you can develop that kind of spirit of friendship and goodwill you are going to accomplish a great deal in the way of good in the world.

Again, there is the case of Mary Slesser, that woman in West Africa, hundreds of miles away from any other white person, and yet succeeding in quietening and repressing the wild tribes in those districts. Only the other day, too, we had the story of a man in China who had been seized by bandits and kept by them for months. He was asked to secure £80,000 for his ransom, but declined to do anything of the kind, and he was eventually released because of the life he led and of the friendship and so forth among those people. We have a right to ask, when considering this large Budget, which policy it is that is being pursued. Is it the policy expressed a few months ago in the Peace Ballot, or is it a policy which is really in defiance of the will of the people as then expressed? It is perfectly certain that our people, like the people of other countries, do not desire war, either now or at any time in the future, but they do know that armaments are intended for war and that they inevitably lead to war. The whole story of 1914 and the years leading up to it, as the late Lord Grey so clearly showed, is that while armaments were intended for defence and for security they yet resulted in the disaster which we deplore to-day.

Our people and the peoples of the world are waiting for a real lead, something entirely different from what we have had in the past. For rather more than nine years I have represented an armaments constituency. In the six contests I have gone through I have only once been asked about my views on armaments, and that was entirely a friendly question. In the last General Election I made my position perfectly clear in my election address, when I said: I am at one with George Lansbury when he says that war under any circumstances and for any purpose is unchristian and is therefore wrong and that only by endeavouring to live up to the teaching of Jesus Christ and by promoting international friendship and good will can the peace which the people of the world so earnestly desire he secured. I believe that is what we have got more and more to stand for and to endeavour to cultivate. In a reduced electorate I had a larger majority than I ever secured save once. People are waiting for a lead; the people of the world are waiting for a lead, a lead in things that are real and lasting and of spiritual value. At some time some nation must take that lead, the proudest lead that any nation can take, and I want to see our country taking that lead.

7.37 p.m.

Major HILLS

The last speech brought home to me very strongly a feeling which I have had previously as I sat through this Debate, namely, that it has been a different Debate from our usual Budget discussions. The subjects discussed have not been mainly financial. Two great shadows are hanging over us, the shadow of war and the shadow of unemployment, and finance has only come into our discussion when considering means of staving off these two dangers. With the permission of the Committee I propose to deal with those two questions only. There are a good many things I might say, but those are the most important matters. Ought we to arm, have we armed enough and how should we pay for armaments? That is one question. The right hon. Member for Caithness (Sir A. Sinclair) who, like his party, is more pleasantly occupied at the moment, tried to get the best of both worlds. He turned to these benches and exclaimed with indignation that he was just as much in favour of strong defences as any Member on this side, and he got a cheer for that; and then he drew equally loud cheers from the hon. Members on his right by saying that he was in favour of disarmament. How he reconciles those two statements he omitted to tell us, and he also omitted to say how much armament he wants. When he came to discuss the ways of providing the money for armaments he also tried to get the best of both worlds. He did not want an increase of taxation, and he did not want a loan. He said, "Do not borrow, because it is not for a remunerative purpose." I would remind him, if he were here, that the test of whether you ought to borrow or not is not whether the return is remunerative directly. The test is, Which method imposes the least burden on all classes in the country, and which encourages most the national prosperity?

There are four ways in which we can get the money we need for armaments. It can all be got from taxes, or all of it, or part of it, can be raised by a loan, either a permanent loan or by temporary borrowing on Ways and Means account at the low rate of interest which prevails now and on which the Chancellor so rightly prided himself. I do not like the idea of all the money being provided by taxes and should prefer to see a loan; but I have a better way even than that. I believe that if the Chancellor had taken his courage in his hands and increased the protective duties under the Act of 1932 he would have got all the money he wants, would have encouraged agriculture and industry in this country, and would have avoided the great disturbance of an increase of 3d. in the standard rate of Income Tax and the great unpopularity of the increased Tea Duty. It seems to me he has been rather pedantic.

Mr. MONTAGUE

Will the right hon. and gallant Gentleman say how it is possible to get all the money we want out of duties on imported foodstuffs and at the same time encourage British agriculture?

Major HILLS

I think you can do it, and the proof is that you have not raised prices by the duties imposed under the Act of 1932, and you have encouraged industry and I hope you will encourage agriculture.

Mr. MONTAGUE

By keeping out imports?

Major HILLS

I know it sounds like a conjuring trick to say that you can impose a duty and at the same time not raise prices here. It all depends on the amount of duty you put on and what articles you tax. If you tax an article that is freely produced here, with a great amount of production always coming on to the market, competition will keep down prices and you will not get a rise in prices to the consumer.

Mr. MONTAGUE

But then the right hon. Member would not get his imports and therefore not get his revenue. He cannot have it both ways.

Major HILLS

Yes, the odd thing about a reasonable tax is that you do get it both ways.

Notice taken that 40 Members were not present; House counted, and 40 Members being present—

Major HILLS

The Chancellor provides £13,000,000 by the increase in the Inland Revenue and £3,500,000 by the increase in the duty on tea. I believe he could find that money in a way less burdensome to the public by increasing other duties. I would rather do that than do it by loan. I have a better way still, and I believe that the Chancellor has, too. I believe that he has the money already in his pocket, and that he knows he has. He likes to spring a surprise upon us on 31st March; he has done it so often that he is getting used to it. An hon. Friend has criticised the Chancellor for doing so, but I do not criticise. I am quite sure that the money is there. The Chancellor told us quite truly that the £10,000,000 increase which he expects in Income Tax is really an increase of £15,000,000, because of deductions. I believe that there is a buoyancy of more than £15,000,000. From what I have been able to gather in a study of joint stock companies I believe there is a much bigger buoyancy than £15,000,000. I would have liked to have seen it provided in that way, but since the Chancellor has not chosen to do so I should have liked to have seen the protective duties increased. The hon. Gentleman opposite will pardon me if I say that sometimes contradictions are true, and that you may both impose a tax and increase production at home, while also getting revenue.

Disarmament, of which great play was made by the right hon. Gentleman the Member for Caithness and Sutherland, is a myth; it is a shadow. It does not exist now. It is no good talking, as does also the Opposition, with few exceptions—although the last speaker, in whose speech I was very interested, was very careful—as though there were on the Continent a peace party to Which we might appeal to-day. I wish I could think so. We have reduced, and the world has not followed. Whether we should put safety or comfort first I will not discuss, but no man, whoever he be, feels comfortable unless he also feels safe. I believe the Chancellor has chosen rightly. I cannot criticise the exact amount of the expenditure; I am prepared to accept that the amount is the correct amount.

Before I pass to the subject of unemployment, I would say a word about one of the minor changes in the Budget, in respect of educational trusts. If a man uses an educational trust to avoid paying Income Tax, that practice ought to be stopped, but I would beg the Chancellor to be careful that his legislation does not go too far. He said yesterday: The legislation will take the form of saying that the income of an infant and unmarried child which is in any way derived from the parent shall be aggregated for all purposes of Income Tax law with the income of the parent. "—[OFFICIAL REPORT, 21st April, 1936; col. 48, Vol. 311.] Any provision or settlement on a child, even though made absolute and though the father has parted with all interests, will be aggregated. Can the Chancellor not draw the line at rather a different point? Should not the line be drawn between cases where the parent does not part with all the income and cases where the parent does so? If all the income is given to trustees, and the child, after attaining a certain age, continues to enjoy the income, that income ought not to be taxed. The other line will be a difficult one to hold. It will be extremely unpopular. Educational trusts are very important in the present state of things, in which no man knows whether he will be able to afford to educate his children when the time comes. A large number of people who would have laughed at the idea that they could not afford their child's education, are now doubtful about what the position will be in 10 years' time. Educational trusts make certain that the child shall receive a decent education.

I believe, further, that the Chancellor's words would include cases in which the parent takes out what is called an education policy. Some parents pay a lump sum down and others a yearly sum to an insurance office, and when the child attains a certain age a certain amount of income is paid for a certain number of years for that child's education. I am afraid that such schemes could be struck at on the wording of the Chancellor's statement which I have just read to the Committee, but I am certain that that is not the Chancellor's intention. It is a perfectly legitimate transaction by that class of insured person—I wish people would insure more, and that we had as large an insured population as has the United States—and such educational policies are increasing in popularity. They are a very valuable factor in our social life which ought not to be hit at by being taxed.

I want to speak now about unemployment. I listened with very great sym- pathy to the speech of the hon. Member for Chesterfield (Mr. Benson) and to his description of present evils. I hoped that he would tell me how those evils were to be remedied, but the solution which he offered did not seem adequate. He appeared to think that the remedy could be effected by changing the proportions of direct and indirect taxation. Hon. Members complain of large increases in indirect taxation and a lessening of the amount raised by direct taxation. I will not discuss whether that is the case, but does the hon. Member think that if you were to reduce the amount raised by taxation of the three great articles of consumption which produce the biggest revenue—beer, spirits and tobacco—you would bring in a new world? He cannot think that. The remedy is not so simple as that. I always distrust simple remedies, although I wish as much as any hon. Member to see an improvement in the. social conditions.

I believe that high Income Tax reduces employment. I gave figures in this House some time ago, and I will not use them again. I did not choose those figures. I took the periods of high taxation and the periods when taxation was slowly coming down, and I found an immediate correspondence between the number of men and women out of work and the level of the standard rate of Income Tax. There may be some other factor which ought to be taken into consideration, but there are facts, and anybody who cares to look at the figures in books of reference will find that that is so. I, therefore, mistrust an increase of income taxation because of its effect; upon employment.

The bigger questions which occupy us are those to which nobody in the world, has yet found a solution. There is overproduction, food destroyed, corn burnt and herrings thrown back into the sea; at the same time people are going hungry. There is cheap money, cheaper than ever in my lifetime, but nobody will use that cheap money to start new industries. I believe that, the solution of this situation will turn out to be extremely simple, and that future generations will say: "How could they be so foolish?" [HON. MEMBERS: "Hear, hear!"] Well, if any hon. Member opposite has the solution, it is his duty to give it to the-country. It is his duty to stand forth, and he will be the most distinguished man living and will go down to history as the greatest benefactor of the age. I cannot find such a solution, but I believe it is simple. I remember reading that when the French Revolution started there was a great shortage of corn, although there was plenty of corn in France at the time. The corn was in the wrong places, and owing to the inefficiency and corruption of the Government and the bad transport and bad roads, it could not be brought to the people who wanted it.

I believe there is some simple rule by which we could bring this over-production of food to the people who want it, and that that solution will be a financial or a monetary one. That question is bigger than anything, except the problem of peace and war. The world is going further into the pursuit of under-production, restriction of production and the destruction of articles produced. If anybody could find a way whereby we could bring these two things together, wastage or non-production of food and hungry people, I should be inclined to follow that leader for the rest of my political life.

7.59 p.m.

Mr. BANFIELD

I have listened to most of this Debate and have heard hon. Members declare that this is a humdrum Budget. I beg to differ. This Budget is one of the most grave and serious that has ever been produced. It brings definitely into being a war psychology. This is a war Budget, or a preparation-for-war Budget. I believe that ordinary men and women throughout the country, reading and discussing this Budget, will inevitably say to themselves that it represents preparation for war. I have listened to hon. Members discussing the Budget, and in the same breath talking about economy. I think I can sense the feeling of a good many Members who have spoken. They do not like the imposition of further Income Tax; they are very much perturbed about it. They talk in one breath about the necessity of spending millions and still more millions on new armaments, but, when it comes to the question of payment, and when they realise that this means a Budget of £800,000,000, they begin to talk about economy; and I begin to wonder at whose expense they are going to economise.

We have heard this afternoon statements as to the necessity for setting up a new May Committee. Does that mean that the new armaments, the new preparations for war, are to be paid for at the expense of the social services? I look at this Budget from the point of view of one who is the representative of an industrial constituency composed in the main of very poor people—of men who, when they are in regular work, seldom get 45s. a week, and in many cases less than 40s. a week. I try to look at this Budget from their point of view, and I ask myself, what does it bring to the ordinary working man and the ordinary working woman? Does it offer them any hope of higher wages? What hope does it offer to the old age pensioner?

I do not know what has been the experience of other Members of the House, but in the first three months of this year I received literally hundreds of letters from old people all over the country pointing out to me the hardships involved in the Old Age Pensions Act. I have had letters, which almost brought tears to my eyes when I read them, from widows trying to exist on 10s. a week and paying 5s. a week rent, asking me, "What are we to do with this other 5s.? Can you tell us how we are to live upon it?" I have had letters from men who had served a lifetime in industry, who at the age of 62 were discharged, and were unable to get another job because they were too old. They have carried on until they have reached the age of 65, drawing from the Employment Exchange some 22s. or 23s. for themselves and their wives. At 65 they have received an old age pension of 10s. a week, and, because the wife is a year or two younger than the husband, the old couple are left with 10s. a week to live on. I would ask the Financial Secretary, what hope does the present Budget hold out to these people in connection with old age pensions? I am satisfied that, if there is one social service more than another which might have received some human consideration from the Chancellor of the Exchequer at the present time, it is this question of the old age pension. Really, some of these cases are so bad that one feels almost ashamed that the House of Commons is unable to raise a finger to help any one of them.

In connection with this Budget, £800,000,000 is to be raised—a tremendous amount of taxation, a big burden upon the country, almost, I suppose, the largest amount that has been raised in any year in a time of peace. Apparently, from the Chancellor's speech yesterday, we are to have still greater expenditure, rising rapidly to a peak, say within the next three or four years. That means, so far as I can see, that there is no possible hope of any extension of the social services—no hope for the old age pensioner, no hope for the unemployed. On the contrary, to my mind the tone running through this Debate, veiled though it may have been, has been in the direction of another attack upon the social services. If some of the speeches did not mean that, I cannot see what they did mean. We had a maiden speech this afternoon which, if it meant anything, meant that Income Tax should be brought down for the sake of industry, that direct taxation should be placed upon the shoulders of millions more of the workers. May I ask hon. Members what sort of Income Tax they expect a man with 37s. 6d. a week, and with a family to keep, to pay? What sort of Income Tax do they expect a man to pay who receives 45s. a week, which is a big wage in many parts of my constituency? Hon. Members get up in this House and say that we must broaden the basis of taxation, but I think the right hon. Gentleman the Member for Ripon (Major Hills) will agree with me when I say that indirect taxation has gone up by something like £90,000,000 since 1929–30, while direct taxation has rather decreased than increased over those years. I am satisfied that, in proportion to the amount of actual income that comes into working-class homes, they not only pay their fair share of taxation according to their income, but in many cases far more than they should be called upon to pay.

There is one point to which I desire to draw the attention of the Financial Secretary. The Chancellor told us that he was putting aside the sum of £1,000,000 for the purpose of helping to finance new businesses, or new enterprises, in the depressed areas. I think the intention is good, but the right hon. Gentleman should know as well as I do that it is extremely difficult for small businesses to prosper at all in these days of trusts and combines. I can imagine small businesses being started, say on the North-East Coast, in an area where iron and steel are the staple products; but, unless something happens there very different from what is happening in the Midlands, even if a small business is established with the assistance of this fund there will always be the danger—nay, almost the certainty in these days—that the big combine in the iron and steel industry will make its own terms as to the supply of raw material to these firms. In my own constituency small businesses are going out almost every month. The small business man in the iron and steel industry is absolutely at the mercy of the Cartel and the Iron and Steel Federation. Iron and steel are his raw materials; he wants an open market in which to buy them; he cannot get an open market; he is obliged to pay what the federation or the combine demands; and, if they choose to put him out of business, they are in a position to do so. They are making matters extremely awkward for that class of small business men. The intention at the back of this proposal may be quite sound, and I believe it is capable of extension, but I say to the Government that, if they are sincere in their desire to make these small new businesses prosper, they must see to it that the small business man—because they will be small businesses—shall have proper protection and a square deal in face of the big combines and the big competitors that he will have to meet.

I am very sorry indeed that the Chancellor has found it necessary to tax tea. I suppose he would say that, as he is putting 3d. on the Income Tax, he must put something on tea or something like that, just to make it appear that everybody is getting a square deal; but I suppose there is no tax that comes more into every home than the Tea Duty. In my experience, the poorer people are, the more tea they drink. Tea is the cheapest thing they can get when they cannot afford to get anything else. Here is a tax which once again is going to be a hardship on the poorest section of the community. I suppose the honour and glory and prestige of this country depend upon this money being raised for armaments, and everyone must be prepared to make a sacrifice. The Chancellor of the Exchequer says that everyone—even the poor widow and the child—must be roped in to make this sacrifice for the good of the country.

There is a further point that I would put to the Financial Secretary. I have sat here snice 1932, and have heard each of the Budgets that the Chancellor has brought in. In 1932 he began to have his prosperity year; he began to tell us how things were turning the corner, the end of the lane was in sight, and so on; but each year in my opinion, and I think in the opinion of other Members of the House, it appeared to us that although the Chancellor declared that his surplus would be comparatively small, the probabilities were that it would be very large, as, indeed, it turned out to be. But suddenly this year the optimism of the Chancellor becomes greater. Everything seems to be enlarged—nearly another £2,000,000 from beer, hundreds of thousands from spirits, millions more from tobacco, and so on. It seems to me that everything is being stretched as far as it possibly can. But it seems to me, in spite of the great knowledge of the hon. Member for Huddersfield (Mr. Mabane), that this time the Chancellor's optimism is not justified to the extent that he apparently believes. It seems to me that this year's Budget, with all its implications, is only the forerunner of rather worse Budgets, from the point of view of the nation, in the future. I think the House of Commons must realise that, if it wants all these millions spent upon armaments, it has got to pay a bitter price. My own opinion is that, the more that is spent upon armaments, the greater is the certainty of war as a consequence.

I am satisfied that the Budget of this year is bound up with the foreign policy of the country. A great many speeches have been made on that point, and I have no wish to repeat them, but, looking at the Budget from the point of view of the ordinary working man and the ordinary working woman, from the point of view of those who are poor, from the point of view of those skilled workmen and mechanics who are the backbone of the nation, I cannot find anything in it that is calculated to bring joy and happiness and prosperity into the homes of the majority of our people in this land.

8.15 p.m.

Mr. ANSTRUTHER-GRAY

I think the hon. Member would agree with me that one's attitude towards this Budget depends very largely on the importance that one attaches to strengthening our defence. I regard this as vital if we are to hope to be allowed to survive in peace in Europe as it is to-day. I am quite prepared to admit that this is not a popular Budget. Increased taxation for the sake of extreme financial orthodoxy is inevitably unwelcome, yet I believe the Chancellor of the Exchequer was right to do it. It is right that the country as a whole should realise the gravity of the situation which makes this expenditure on defence essential. My only criticism of my right hon. Friend is not on the ground of the taxes that he has imposed but of his manner in springing them upon us unawares. In the country generally, certainly in the Press generally, an increase in these taxes was unexpected and I feel that, if he had prepared the country beforehand for some sort of increase and then introduced his Budget, showing that the increase was in fact very small, the reaction would have been a feeling of relief at having got off so lightly rather than one of depression. We all prefer to find ourselves richer than we expected rather than be put to renewed expense. But I think it is right that the taxes should be imposed much in the manner that they have been. It is right that the burden should be distributed. I appreciate what the hon. Member who spoke last said about tea being largely drunk by the working classes, but I read in a paper to-day that you would drink 90 cups of tea before you felt the tax of 2d. a lb. That is not a very severe tax. One could avoid it by drinking weaker tea. As for the 3d. on the Income Tax, except for very large incomes it can easily be borne by some small personal economy. One could do without another suit of clothes in the year or one could make an overcoat last a little longer than it would have done. That may be hard luck on the tailor or the person who produces the cloth, but I find great consolation in reflecting that a good deal of this money is going to be spent in the depressed areas. When hon. Members cry out for a policy for the depressed areas, it seems to me, although the object of the policy is primarily defence, it should be quite rightly a consolation to us that the expenditure of the money is going to bring work and wages to places where they are most sorely needed.

Nobody can say the Budget is not keeping faith with the electorate. Defence played a very large part in the policy that I put before my constituents, and no one who voted for me was under any delusion that that defence would not cost money. The country voted for defence and, I think deliberately faced and reckoned on the expense that would be entailed because they believed, in the words of the Chancellor, that security is more important than comfort. But, for all that, what I welcomed most in the Budget speech was the indication that in future some of the defence expenditure may be met by loan. It is right that the country should recognise the cost of defence but, if they are reminded of it too often by repeated increases in taxation, it may cool their enthusiasm. The British people are quite prepared to face a crisis when they are convinced of the gravity of the situation, but foreign crises in the Press are becoming stale news. They are losing their news value. It is very difficult to keep the gravity of the situation for ever before the people of the country. Even in this House foreign affairs Debates are assuming very much of a sameness. The same hon. and right hon. Gentlemen make very much the same speeches—rather like the same horses jumping over the same fences over and over again. We begin to weary of it. We know what they are going to say before they say it. So it is with the country.

We do not want the Minister of Defence to be afraid of asking for money for storing essential materials—grain perhaps, oil certainly, or to provide shelters and equipment against air gas attack. We do not want the War Office to be afraid of asking for money to bring the Territorial Army up to strength. We do not want the Admiralty to be afraid of asking for money for new cruisers or more storage capacity for oil if they believe they need it. I believe the whole of the Mercantile Marine will find itself relying largely on the service stores for oil in case of emergency. We do not want the Air Ministry to be afraid of asking for money for new bases or to enlarge the personnel of the Air Force. But I believe, if the Chancellor faces them with the answer that this new money can only be raised by putting 6d. on the Income Tax, a 1d. or 2d. on tea, beer, petrol, or tobacco the Ministers in charge of those Departments will be afraid of a hue and cry in the country against un- popular taxation which the country at the moment might not realise to be necessary. As a result I think he would find the Defence Departments cutting down their demands below what is necessary for safety. That is exactly what we do not want to force them to do. We want the Defence Services to get what they need to keep us, humanly speaking, safe. For this reason I welcome the Chancellor's indication that further expenditure on defence cannot be met out of existing revenue, but may in future be met by loans rather than by increased taxation.

8.25 p.m.

Mr. DAVID ADAMS

I should have been delighted to have congratulated the Chancellor of the Exchequer upon a democratic Budget if such had been the case, for I fancy that I am rather a loose liver in the matter of party loyalty, as it is so described, but we cannot, taking the most kindly view of the Budget, describe it as democratic. Yet we are living in the most democratic age which the country has yet seen, and democratic sentiment is rising. The masters are taking greater interest in politics, which will lead inevitably to new forms of government and a new economic system in due course. The claim which the Chancellor of the Exchequer has made that tariffs have added to our prosperity is, in my judgment, not proved. Tariffs are a hindrance at any time to international trade and it will be agreed by the historians that the period when we went off the Gold Standard, only a short period before the introduction of tariffs, some six months in all, was a period of unexampled prosperity, and was indicative of the fact that world markets were open to Great Britain, and the position of the country was more assured in the matter both of exports and of imports than at any time in its recent history.

The Government, however, thought fit to extinguish the Free Trade system and to introduce tariffs, with the result that, we have in our midst to-day distressed areas directly attributable to the policy of the Government. The artificial stimulus which we are giving to trade is certainly due to world rearmament. On the Tyne, a river of which I know something, for some time past industry has been steadily increasing, not so much from this country's orders as from orders from abroad. If we were to eliminate the stimulus given to our trade by world rearmament we should find that that trade was in a relatively depressed condition. But especially we have been depressed by government policy, and we are not in receipt of any practical relief.

We are to have trading estates in due course, but when will these be established? My inquiries go to show that certainly it will be an additional year or more before any estate, if it is to be established on Tyneside, will be ready. It is clear that the Government have been relying not upon any beneficial result from such estates, but upon some revival of trade. No doubt they had in mind the artificial stimulus of the production of arms. The grant or loan by the Government of £1,000,000 is precisely the amount that was suggested for one estate on Tyneside at a meeting of the Tyneside Industrial Development Conference. The general view of industrialists and economists there, and, I think, of the Tyneside and North East coast Industrial Boards, is that you will require a very much augmented sum, if we are to attract new industries of any moment to those particular areas.

I am, however, more deeply interested in the position of County Durham. There we have a vast desert so far as industry is concerned. County Durham may be described as a huge workhouse. There is a vast population, and there is a deepening depression in the townships among the shopkeepers, the small traders and the industrial population generally, and relief is urgently required. Durham is heavily taxed for the poor and the unemployed. It is being taxed under the De-rating Act and for agricultural relief, with the result that we have a depressed area of an unexampled character which ought to receive the sympathetic consideration and attention of the Government. We have attempted, by questions in this House, to elicit what the Government propose, but so far there has been no proposition by them. One could not have a better occasion than a discussion of the Budget to call attention to some of the facts relating to County Durham. I, with other Members of Parliament, attended a confer- ence last week summoned by the Durham County Council to demand relief for the grave and parlous state of affairs prevalent. Poor relief in the county has increased in cost since five years ago from £5,292 to £7,609 per week. On outdoor relief there is an expenditure of £1,104,000 per annum, equal to six shillings in the £. The total expenditure of the county upon public assistance and relief is no less than 8s. 6½d. in the £, while the average expenditure among the whole of the counties of England and Wales is 3s. in the £. It is perfectly clear from that that Durham is bearing a burden of 5s. 6½d. in the £ in excess of the average throughout the country for unemployment and poor relief purposes.

It should be obvious to the Government that the able-bodied unemployed under Section 45 of the Unemployment Act, 1934, should be a national charge, as, clearly, the local authority is in no sense responsible for the unemployment prevalent in the county. There are 67,000 persons of the insured population who have been out of employment for two years, 40,000 for three years, 20,000 for four years, and 9,000 for five years who are anxious and eager to obtain employment which is not available for them. To contrast the position of County Durham with that of Great Britain generally, the latest figures given by the County Council up to February of this year show that whereas for the whole of Great Britain 16 per cent. of the insured population are unemployed, in County Durham 31.5 per cent. are unemployed. I do not believe that it is possible so to amend the arrangements of the block grant as to relieve that situation next year, when it is due for further review. I would urge that in the distressed areas in particular special treatment should be given. They are admittedly special areas and require special treatment. Specific grants should be made for each of the social services in order to equalise to some extent the huge disparity in rating burdens.

Durham also suffers the handicap of steadily lowering rateable values. Whereas a certain expenditure in Durham might entail a charge of 9d. in the £, the same expenditure in the County of Surrey would only cost 4d. in the £, because of the lower rateable value of County Durham. The State makes a levy equally upon the man power of the country for national needs and its taxation demands ought similarly to be equalised throughout the State. I have said that the rateable value of County Durham is abnormally low. The deficiency as compared with the average of the counties of England and Wales is no less than £2,000,000. The loss by derating is £1,334,000, which accounts very largely for our weak financial position. Then there is the loss of the rating advantages due to the railway decision, and the loss also through the operation of the block grant, from which is received the sum of £516,000 per annum. The rateable value of the county is only £3 11s. per head as against a rateable value on the average for the other counties of Great Britain of £5 17s.

The County Council of Durham advised the Members of Parliament for the county—and it was a strictly non-party gathering—that additional charges are certain during the ensuing year if the social services are to be maintained on a normal level. Money is required for public health, for mental deficiency, for the construction of hospitals, for highway purposes, for education and other directions. The net rate at the present time in County Durham is 16s. 7½d. in the £, whereas the average for the other counties of Great Britain is only half that amount, namely, 8s. 3d. In the City of Newcastle, which may be described as low rated, the rate is 10s. 8d. in the £. Hence, it must be admitted by all reasonable-minded persons, and particularly by Chancellors of the Exchequer, that the situation which I have described ought to be dealt with. It is admitted that the most valuable instrument which any Government possesses is its Budget, an instrument which can aid communities or depress them, and which can be neglectful. We ask very seriously that that consideration should be given to this situation which the Chancellor of the Exchequer and the Cabinet have not yet given to it. It demands fair treatment without further delay.

There is another matter for consideration, and that is the fact that the Road Fund is being raided to the extent of £5,250,000. That is an act of great injustice. It means that there will be that amount of money less expended on the roads, or that there will be that much less available for relief of rates, because the function of grants from the Road Fund is to relieve the burden of taxation on the highway rates of our counties and towns. The highway rate in County Durham is the abnormally high one of 3s. 8d. in the £. We are advised that the Minister of Transport is making very strong demands, perhaps legitimate and proper for the times in which we live, for lighting. If we light only half the classified and none of the unclassified roads in County Durham there will be an additional 8d. rate required. Then there is the safety-first devices, the restrictions of the Ribbon Development Act and compensations to landowners and others, the reconstruction of weak bridges, mostly railway bridges, and the construction of dual carriage ways, all of which will add a very substantial burden to the rates of County Durham in the ensuing year, if the county does its duty, yet we are having the Road Fund raided, presumably in the interest of the Income Tax payers, to the extent of £5,250,000. We say that that money should have gone to the relief of highway taxation.

I am satisfied that the situation in Durham will not be remedied by the creation of a trading estate. The influence of one trading estate even if fully occupied and busy during the whole of the year would have little or no effect upon the situation in County Durham. I do not believe that migration is a remedy or that the transference of employés elsewhere is beneficial. We have also to face the fact that 11,000 young men, anxious and eager for employment, turned out of the schools at the age of 14, will be without employment, perhaps, until they are 18 or 19. There we have a problem of a grave and acute character, which can only be remedied by new industries in these particular areas. So far as the mines are concerned, I had hoped that some evidence would be given by the officials of the Ministry of Mines to the Commission which is sitting upon safety that the time had arrived when our young men should be apprenticed to their trade in the mines, giving them a. greater sense of responsibility, and also that the mine-owners would treat the young men in the mines who were apprenticed as persons with rights as they have duties, and not merely as chattels and cogs in the machine.

It has been my business to lead protests against the dismissal of young men from the mines when they have reached the age of 20 or 21 years. They are dismissed because they are about to obtain a man's wage. It is a vicious system and ought to be eliminated in all trades in this country. Mining, in spite of it being one of our basic industries, is not recognised as a craft but as the work of labourers and casual labourers. There is no differentiation of labour such as there ought to be. For many reasons it is regarded as an objectionable industry, and not the least of these reasons is the treatment meted out to the younger fraternity employed in mines. Why should we not set up in the county of Durham further schemes for the erection of distillation plant for the extraction of oil and petrol, and more adequate use of our coal? It cannot be beyond the capacity of the Chancellor of the Exchequer to make some provision of this character. Have the Cabinet taken the matter into serious consideration? If they have not, will they do so? Will they give some hope to the county council which is doing its duty in an area where there is such gross unemployment and suffering, and where penury stalks through the streets?

Let me say one word upon the Tea Duty, which is going to call for £3,500,000, largely from industrial workers. It is a melancholy thing that at this time of day we should have any increase in indirect taxation, which stands now at 45.9 per cent., whereas direct taxation stands at 54.1 per cent. If we are to assist poorer people, if the industrial workers are to have some substantial share in the alleged improvement which is going on financially and industrially, such relief should be given largely by a relief in indirect taxation. Instead the Chancellor has taken a most reactionary step. Tea forms the primary beverage of, a large majority of the poorer people and the tax will fall on the poorest sections of the community. I appeal to the Chancellor and to the Prime Minister, who I have no doubt have been supplied with figures regarding the county of Durham and the appalling situation which exists there. The county of Durham has knocked at the door of the Cabinet but so far there has been no answer. Are the representatives of Durham to be able to say that the Government have at last recognised their responsibilities, perhaps not in the Budget, but will recognise their responsibilities in some subsequent legislation, and that the pressure upon all sections of the community in the county will be relieved without delay?

8.51 p.m.

Sir WALTER SMILES

We all sympathise with the county of Durham in the situation which prevails there. In my own constituency we are affected in almost the same way, because we are living in 1936 instead of in 1896. If every oil well in the world was stopped there would be more work available than the whole of the population of Durham would be able to cope with, and, in the same way, if every cotton mill in Japan was stopped there would be plenty of work for the cotton weavers of Lancashire. The Chancellor of the Exchequer can do much for this country, but he cannot do those two things. I have some congratulations for the Chancellor and some criticisms. I must criticise the taxation of tea, in that the Chancellor of the Exchequer has departed from the family tradition of Imperial Preference. I have listened to most of the speeches during the Debate, and it seems to me that many of the complaints which have been made would have been far better if they had been made in the Reichstag to Herr Hitler. If it had not been for him there is no doubt that this extra taxation would not be necessary. One hon. Member mentioned the Peace Ballot and the League of Nations Union. I wonder whether there has been any peace ballot in Germany, and whether 10,000,000 of the people voted for peace? It would have a great effect on the taxation we are now discussing if Germany would reduce her armaments.

We cannot, of course, improve our defences as cheaply as other nations. There is no hon. Member who will support conscription, which is absolutely the cheapest form of defence. If we have a volunteer Army, Navy and Air Force, we have to pay them properly or men will not join up. There are many things which can be manufactured far more cheaply in Germany than here. It is possible to get aeroplanes or shells manufactured more cheaply in Germany with the lower standard of living and wages which prevails there. If we have to go in for economies, I hope it will not be in a reduction of the wages of people who are making munitions or in the wages of men in the Army, Navy and Air Force. I am glad, however, that we are going to pay our way and not increase our debt at present. The hon. Member for Huddersfield (Mr. Mabane) complained of the Chancellor of the Exchequer being conservative one minute and under-estimating his revenue the next. At the beginning of every financial year most middle-class people estimate what their expenditure is going to be for the year; so much for the wife's new hat and so much for holidays, but at the same time they always leave a balance because they never know what will happen during the year. This year every middle-class taxpayer will be badly hit by the increase in the Income Tax, and if he has budgeted right up to the limit of his money he will be in a bad way just now. It is a sensible thing that the Chancellor of the Exchequer should be prepared for contingencies, and I am glad that in the past he has under-estimated his revenue, because he has now something to spend on these armaments due to the re-occupation of the Rhineland and the Italian-Abyssinian war.

I always notice that tea seems to be the plaything of every Chancellor. It has been said several times that tea is the cheapest drink which poor people have. The right hon. Gentleman the Member for Epping (Mr. Churchill) took the tax off tea altogether, and it has been moved backwards and forwards and varied, I suppose, as the finances of the country required it. I would, however, point out to the Financial Secretary that whereas the Imperial Preference on coffee is 66⅔ per cent. at the present moment, the Imperial Preference on tea has now been reduced from 50 per cent. to 33⅓ per cent. When the Chancellor was speaking yesterday, he glibly passed over that and said it was a flat 2d. a lb., but I would point out that 2d. a lb. makes a very great deal of difference in the incidence of taxation.

The right hon. and gallant Gentleman the Member for the Drake Division of Plymouth (Captain Guest) said yesterday that he was proud to be connected with the planting industry in East Africa and had many friends there. I am connected with the tea-planting industry of Assam and I have many friends there. I hope that the Chancellor, who was a planter himself—I met a man in America who knew him when he was planting in, I believe, the Bahamas—will reflect on the position of the planters in Assam and in the Bahamas, because when many Indian tea-planters read the proposals of his Budget speech they will begin to wonder how they will get their leave home this year after five years of work in the tropics. They will wonder whether they will have to stay out six years instead of five years. These people will be very gravely affected by this little incidence in taxation which is passed over as a flat 2d. a lb.

There has been a glut of tea in the world. The Dutch interests of Java and Sumatra and the Indian and Ceylon interests have joined in a scheme for keeping the market steady, and they have agreed to tax themselves voluntarily at the rate of approximately a halfpenny a lb. for the purpose of advertising tea all over the world. They have raised by this tax upwards of £400,000, and of that £300,000 have been contributed by the tea industries of India and Ceylon. By this means the industries concerned have been able to get on their feet again, but the alteration which the Chancellor has made in the taxation on tea would seem to render it possible that this scheme, evolved with a great deal of trouble, will be wrecked by people who are not in it, and who do not tax themselves for the purpose of advertising tea. I refer to the tea industries of China, Japan and Formosa. I know these countries do not produce a great deal of tea at the present time, but whereas in the past Lancashire laughed at the efforts of Japan in making cotton textiles, they do not laugh nowadays, and I anticipate that many people know as well as I do that the great island of Formosa will be a serious producer of tea within the next 20 years or less.

This reduction of the Imperial Preference on tea from 50 to 33⅓ per cent. will have an exceedingly adverse effect on the Empire tea industry. I see on the Front Bench opposite the right hon. Gentleman the Home Secretary. He knows about the Assam tea industry; he saw the plantations for himself and has many friends there, and he will know what their feelings will be when they hear about this reduction. I hope he will make representations on this subject to the Chancellor, who is not present on the Front Bench at the moment. It is tragic sometimes to read about the deterioration of noble families. The family to which the Chancellor belongs has for years been preaching the gospel of Imperial Preference, and now the right hon. Gentleman has let the whole of the family down. There will be many tea companies which will not be able to buy a British engine, a British rolling machine or dynamo next year. This little incidence in the duty and the reduction in the Imperial Preference will affect them, and in two years' time the Chancellor will find that his Income Tax returns will be considerably less in the case of the tea companies of Ceylon and India which are registered in this country.

I agree with the hon. Member who complained of the rating system of this country. I agree that it will not do any good, to the building industry at any rate, if a man who puts a small addition to his house immediately has his rates increased. But as there are many other Members waiting to speak I will not go into this matter to-day. I hope that when the Committee stage is reached the Chancellor of the Exchequer will reconsider this Tea Duty, and perhaps at any rate reduce the duty on tea produced within the British Empire, and allow the Preference for tea produced within the British Empire to remain at 50 per cent.

9.3 p.m.

Mr. R. J. TAYLOR

I listened yesterday to the Chancellor enumerating the various aspects of the wealth and prosperity which we have in this country, and I noticed that one of the signs of wealth of which he was very pleased to tell the House and the country was that after many years prosperity had percolated through the thick stratus of depression and had the effect, he said, of bringing an increase in whisky drinking. I look to a place other than the Budget to find prosperity in this country. In the area in which I am living, an area which is not scheduled as a depressed area, I can see innumerable evidences of a lack of that prosperity which the Chancellor was so proud to speak about yesterday. There are, however, evidences of prosperity in the Budget, and I find them in the returns of Income Tax, and more particularly in the returns of the Surtax. If I have one protest to make it is that there will be no return in general prosperity until there is a redistribution of the wealth of the country.

My real point in rising to-night is to deal with what, to me, is a very important matter. The Chancellor has decided that the distressed areas are a fit and proper place for experiments. Since I have been in this House I have received all manner of letters from societies protesting against experiments, especially vaccination and that sort of thing. The Chancellor of the Exchequer evidently intends to try further experiments in the distressed areas. I welcome anything that will help employment in the distressed areas. In the area in which I live the unemployment among adult males, in the Ashington district is 12 per cent. and among juveniles 33 per cent. and in the Blyth district the figures are 21 per cent. among adult males and 34 per cent. among juveniles. But if these experiments are to prove beneficial, they will have to be extended and I regret that the proposal in this case appears to be restricted to the distressed areas. In my division we need employment for these large numbers of men and juveniles who are at present without work.

If we are, in truth, returning to prosperity, then it ought to be possible to provide increased employment. The present Government and the Government which preceded them in office claimed that a return to prosperity had been achieved by the introduction of tariffs. We have been told that tariffs have provided a sort of umbrella or shelter, under which industries corning to this country could set up here and carry on their business profitably. If that claim is justified then the Government ought to have a say in deciding where such industries are to be established. We know what is happening in and around London in that respect. I have heard hon. Members state that there is a potential danger in the concentration of huge masses of people round London which we see in progress at the present time. It is said that there is an advantage to industries in establishing themselves here, because there is an excellent market, practically on the doorsteps of the new factories. A report issued by our Northern Development Board shows that in the area from which I come we are in close proximity to a market of 6,500,000.

If the Government by means of tariffs have brought about prosperity, then I ask them to extend that prosperity to areas such as Durham and Northumberland. Those areas are largely dependent upon an industry which helped to make this country powerful, industrially, in the past. There can be no gainsaying the fact that the industrial prosperity of this country has been built up on the coal industry. Yet see what is happening to-day in the coal exporting districts. This is the tragedy of the position to-day. If tariffs have made it possible for certain industries to be conducted profitably in this country, those same tariffs have damaged our coal exports and the distressed areas of Durham and Northumberland which depend so much on the coal industry have a moral claim upon the Government in that respect. When the coal industry languishes there is, inevitably, poverty and suffering in those parts of the country.

In my view, it would be well for the Government to consider other measures of dealing with the situation in those areas instead of bringing our youngsters to the South of England. I was speaking last week to the manager of an Employment Exchange who bore out what hon. Members on this side have repeatedly said on the subject of transference. He had been able to find work for 12 boys from our districts in the Birmingham neighbourhood and after those 12 boys had been transferred, there came a request for another four or five boys. I asked him "Was that because you sent the best boys you could find in this district?" and his answer was "Yes." But if the best boys are to be drained from the North of England the Government will only make the problem much more difficult in the future. As I say, in the district in which I live we have a market for industry. In the Blyth area we have the advantage of sea transport. We have a harbour that is capable of expansion and of dealing with a considerable volume of export trade. We have railway and other facilities second to none. If we could only have established there some of the factories that are being set up elsewhere, we would then have alternative forms of employment to which our men could turn.

I regret that no mention was made in the Budget Speech of a problem which is distressing the minds of all decent men and women in this country and that is the problem of maternal mortality. I find no evidence in the Budget statement of any projected expenditure to deal with that serious matter, but if we are to continue losing 3,000 mothers every year in this country we may expect serious consequences. If we are as prosperous as the Chancellor of the Exchequer would make out, and if we are to undertake the increased expenditure on armaments foreshadowed in the Chancellor's speech, nebulous as it was, we ought to be able to take measures to deal with such a problem as maternal mortality. It may be that in the projected expenditure on armaments we are looking after our safety, but we should not forget we have a problem and a danger at home so long as we are losing these 3,000 mothers every year.

The Secretary of State for War has been very prominent recently in the Press. He has also appeared in a picture appealing for recruits for the Army. In view of the international situation and having in mind a book which I have been reading lately, I wondered whether the right hon. Gentleman was assuming the mantle of Peter the Hermit in working up enthusiasm for an increased Army. I suggest humbly to the Committee and to the right hon. Gentleman a way of bringing the Army up to strength. I think a sufficient number of men are offering themselves for the Army, but the trouble is the number who are rejected on account of physical disability which simply means lack of nutrition. These men are not being fed as they ought to be fed, especially in the distressed areas. Raise the standard of life for our people. Give us some industries in our distressed areas. I was speaking to a man the other day who said that the average wage in London and the surrounding districts was in the neighbourhood of £4 5s. a week. Give us some of the factories that have come into the London district, and we will supply strong and healthy men, because we have the breed to do it in the North of England, but you cannot make virile, strong men on the means test pay that our men are getting.

When I look at this Surtax, I remember what our people are going through in the areas that are distressed and others that are not scheduled, and I remember that some time ago, after a battle that we were fighting, which fortunately did not come to a stoppage, we in the mining industry got an increase in wages to the extent, in Northumberland, of 6d. a day for men and 3d. for boys. Does this House know what happened? Boys got 3d. a day, and if they worked six days a week, they got 1s. 6d., and 2s. a week was taken from their fathers' dole money. You will never get soldiers like that. You will never make decent citizens like that. Therefore, I draw the attention of the Financial Secretary to the Treasury to these things, because, after all is said and done, these are the things that matter. If our people are going into the Army, they want something to fight for, not Surtax payers. They want decent, comfortable homes, and in those homes they want something in the pantry that will keep health and strength together.

9.17 p.m.

Sir ISIDORE SALMON

The last speaker said that what is required is that the working men or women should have something decent in their homes. I do not think that a better method could be found of giving them something in their homes than by finding work, which has been done to a very considerable extent since 1931. It seems to me that a large number of the Members of the Labour party are not realists. They do not seem to realise the extraordinary improvement that has taken place in the trade of this country during the last four years, and they do not consider how that trade has increased. I venture to suggest that it is because a National Government is in power that the people of this country have confidence, and that that confidence has bred a large increase in industry and trade. That again has made possible a reduction in unemployment and the employment of vast numbers of persons.

We hear from all sides criticism of the present Budget. Frankly, I think it is only fair and right that all classes of the people should contribute to the defence of the country, and the only way in which we can ensure the existing buoyancy of our trade is by having security at home and security abroad, and I believe that the system of strengthening our armed defences is the best means of ensuring the peace of the world. I am sure that so long as the money that is spent for increasing the armed forces is properly expended and properly controlled, a, very fine thing is being done, not only for this country, but for the world as a whole. It was very agreeable to see in a report that was presented to the House a few weeks ago that a committee is to be set up to see to the money that is to be expended for the three Defence Forces. It is a committee representative largely of the Treasury, and I think it will have the effect of controlling expenditure and at the same time of being able to deal with the whole proposition in a businesslike way.

We have heard a great deal to-night with regard to the question of the money that is to be taken from the Road Fund. After all, the money, when it comes direct from the Treasury or from the Road Fund, is really under the control of the Treasury the whole time, and the criticism in this respect is more sentimental than practical, because the Ministry of Transport can only agree to schemes subject to the approval of the Treasury. Therefore, it seems to me to be a short cut for the money to come under the aegis of the Treasury rather than that of the Ministry of Transport, which in turn has to get Treasury consent. I am quite sure that the programme that the Minister of Transport put before the people of this country some little time ago will be carried out to the full and that the great investment he has made will be backed up by the Treasury.

Again, I would like to say a word in reference to the question of the money that is necessary in connection with maternal mortality. May I remind the last speaker that no one has taken a greater and keener interest in that subject than has the Chancellor of the Exchequer? When he was Minister of Health, he spent a great deal of time upon it—[An HON. MEMBER: "But not much money."]—and money too. He set up a special committee of experts to get the best advice, and the present Minister of Health is taking every step to do all that is humanly possible to deal with this very serious evil. It strikes me as somewhat ungracious rather to suggest that for the sake of money women's lives are not to be saved. That must be in the minds of those who make the suggestion, and it can only be made for the purpose of being offensive and for malicious purposes, because, as a matter of fact, I am satisfied in my own mind that no money will be spared, whatever the cost, to reduce maternal mortality.

When we hear discussion about new industries being started in depressed or special areas, we must remember that if you are starting an industry, you must have regard to the class of industry that you are starting, and you must consider whether it is suitable to take as far North as some hon. Members would wish. It is all very well to make general statements, but if you are going to start a new industry in a particular area, you must have regard to costs of transport and costs of rates and taxes in the locality, and you must also have regard to the general surroundings. I do not think it would be quite so easy as some hon. Members opposite seem to think. Because a particular industry is protected, you cannot necessarily compel that industry to go to a particular area and ensure that when it gets there it will be successful.

If we took a retrospect of past years we should be very pleased to see how it has been possible to find the necessary money for Supplementary Estimates out of savings and out of extra income that was not anticipated. We were returned by a large majority to see that the country was protected, and I am sure that the Government are going to carry out their election pledges.

Mr. LOGAN

Protected against what?

Sir I. SALMON

Against aggression. If we are protected against aggression we shall be able to play our part in the world, and ensure security and peace much sooner and much surer by having a strong armed force. We have to get down to reality. We tried for years to get disarmament. We not only preached it, but we practised it. [HON. MEMBERS: "No! "] Hon. Gentlemen may say "No," but facts speak better than their statements, and the fact can easily be proved that we did more than any country in the world to reduce our arma- ments. What has been the effect? The rest of the world went on increasing armaments, and we reached a time when it became dangerous for this country. Any body of men occupying the Ministry to-day, of whatever party, would find is essential, having regard to the general affairs of Europe, to increase our armed forces. Hon. Gentlemen criticise the increase of our forces, but a few weeks ago they would have had this country entering into war. [HON. MEMBERS: "No! "]. Then they would have barked without being able to bite. The hon. Member seems to forget what his party advocated. It is to be regretted that the majority of the Labour party do not seem to realise that to carry out the programme that they wanted—oil sanctions, on which they were very keen, but which the Government refused unless the whole of the League of Nations came into the scheme—if that had taken place there is not much doubt that we should have been at war.

Mr. BENSON

Can the hon. Member tell us whether any Member of the Labour party advocated the imposition of oil sanctions by this country alone?

Sir I. SALMON

The hon. Member will remember that the hon. and learned Member for Bristol, East (Sir S. Cripps), and I believe a large number of other hon. Members whose names I cannot call to mind, advocated the closing of the Suez Canal, equivalent to a declaration of war. If we had followed that policy we should probably have been in that plight. It was because we had more statesmanship, because we looked at the question from a longer point of view, that we did not think it desirable to send either our troops or our Navy to meet the enemy on unequal terms.

Mr. BENSON

When has any Member of this party advocated either oil sanctions or the closing of the Suez Canal by the action of this country alone and irrespective of the action of the League?

Sir I. SALMON

I have heard Members in this House advocate the closing of the Suez Canal and oil sanctions. It has been the gravamen of the charge of the Labour party that that has not been done. They said it was a muddled policy on our part because we had not done it. Now, when they are asked to foot the bill to put the country in a position to meet any dangers that are likely to arise, they are howling about finding the money.

Mr. BENSON

The hon. Member did not answer my question. When did this party advocate this being done, save by the League as a whole? Nobody on these benches has ever suggested that it should be done by this country alone, irrespective of the League.

Sir I. SALMON

Does the hon. Member not know as well as I do? That is a subtle way of putting it. Which were the navies of the world that would have assisted? On whom would the task have fallen if the Suez Canal had been closed? On this country.

Mr. BENSON

And the navies of the League. We had a guarantee that France and other countries would come to our assistance. That was in your own Foreign Secretary's statement.

Sir I. SALMON

When the hon. Member says that other countries would have come to our assistance perhaps he has forgotten a speech made by the late Foreign Secretary, in which he said that not a thing had been done by any foreign country in the way of trying to meet the question of collective security. There was not a ship moved nor a man sent anywhere. I do not wish to prolong the discussion; it will not lead to any useful purpose. I feel that the Chancellor of the Exchequer and the Cabinet have much to be satisfied with on the way in which trade, industry and employment have improved during the last 12 months. The policy that has been adopted by the Government is one that means, always subject to no troubles abroad, as the Chancellor said yesterday with a great deal of truth, that we are on the way to success, and that success will be increasingly strengthened when the rest of the world knows that we are prepared to meet emergencies should we be called upon to do so.

9.34 p.m.

Mr. LOGAN

I cannot say that I listened with pleasure to the remarks of the last hon. Gentleman. He told us that Labour men are not realists. If a little of the realism of the North country could be shown to him perhaps he would better understand the realism that exists. In a land that is properly managed every individual would have the rights to which he is entitled as a citizen. Surely it cannot be said that the party to which the hon. Gentleman belongs stands for the class to which I refer. The kind of realism to which I can point shows the instance of a widow woman in the City of Liverpool, 65 years of age, lying dead upon the floor with rats running over her body and eating it. That is realism enough, and the hon. Member should know that when we are speaking from these benches we are speaking on behalf of a certain class of people who have a right to live and to be defended in their homes.

Sir I. SALMON

Does the hon. Member suggest that other Members of the House do not also represent: those people?

Mr. LOGAN

What I am saying is that in a land that preaches Christian ethics—and we have had a lot of that sob stuff to-day—I am able to find in my division a woman receiving only 10s. relief dying of starvation in a cellar for which she had to pay 4s. a week rent. I am bound to deal with the position of the people I represent. While certain Members of my party have enunciated their views on the question of defence, I want it to be understood that I am prepared at all times to do all in my power to see that our own people on the seas and at home are protected. I remember in the Great War that six out of my home had to go to the fields of Flanders, and when they returned home I was not pleased, nor was their mother, with things we heard about the Great War. I am not going to criticise Mussolini or Hitler in regard to affairs in Europe. There are so many Caesars and Napoleons moving about to-day that I consider it is more discreet in the House of Commons to allow the Secretary of State for Foreign Affairs to manage them and to extricate us out of our difficulties.

What I am concerned with is this unparalleled Budget. I remember in my very early days a Budget of Mr. Gladstone which amounted to £95,000,000. He then told the country that it was threatened with great evils and that it was possible that within living memory it might have a budget of £100,000,000. We laugh at £100,000,000 to-day for we have got a Budget of £800,000,000. The question of Defence looms very largely in the public eye, and. I agree that it may be necessary to incur expenditure for the protection of our people. I know of no land better than the land in which I live and I do not want to decry that land. I do want to say, however, that in my locality we have men who have braved the Seven Seas and who have been torpedoed, and one out of every five is unemployed. While it may be necessary to deal with National Defence and the question of the financial adjustments which will bring in an income to meet the demands of this Empire, it is also necessary that the needs of flesh and blood shall receive the deepest consideration in the Budget. I know of no better way of protecting the nation and avoiding revolution than to see that our people are well clothed and have good food and homes.

I have never before spoken on a Budget, but I mostly get my living by dealing with figures, and I should like to point out to the Chancellor what I consider would have been advisable in regard to the financial position of cities in this country. For the purposes of my argument I am going to disabuse my mind of questions of national defence. I admit that protection must be found, but if it is of primary importance that the nation must be protected and the waterways protected in order to provide safe passage for the food of our people, it is also essential that proper financial methods shall be adopted to give relief to the people who are now distressed. The Budget affords no amelioration of the depressing influences which are at work in our great industrial centres. Everyone must admit that on the Merseyside we have one of the great waterways of the world. Our shipping goes to all the ports of the world; we have the finest mercantile marine to be found in any port; we have the greatest docks; a river with two tides a day; and fine shipbuilding yards. Yet we have men in thousands unemployed and the numbers are getting greater year by year. I am sick and tired of seeing the vast army of men and women standing idle in the streets.

It is time the question of the dole was dealt with and the charity system of assistance ended in a land that is so rich and powerful that it can produce such a Budget as this. Providence has given this nation great wealth. If it only knew how to distribute it to the people we should have a more contented country. Money and Mammon are the only things we hear about. We ought to pay more attention to the living men and women who have helped to make the greatness of this Empire.

Some years ago the Chancellor brought in a, derating system. Now we are told that great profits have been made. I know of one firm, though I will not mention the name, which made about £9,000,000 profit. They have received the benefits of derating. My city has lost through it. There have been higher rentals in my city and the ratepayers have had to pay higher rates. There has been no reduction in the benefits of Berating pro rata to the increase of profits in the businesses enjoying the advantages of de-rating. On the other hand, I see business going out of existence. I say there ought to be equalisation of rating, and I thought the Chancellor would have said that in the case of the depressed areas, at least, some attempt would be made to relieve them of many of their difficulties.

There is, again, the great problem of the able-bodied unemployed. I see the Chancellor smile. It is not often that he does smile, but he smiles at the thought that he has heard that old story before. Let him hear it again. We hear it every day in our great cities, and throughout the industrial areas they are hearing it. In my part of the country we are not blessed with prosperity as are many of the Midland towns and Southern England. Our large shopkeepers and our small shopkeepers and our workers are all feeling the effects of the great depression, simply and solely because those who are managing the finances of the country have not yet learned how to adjust things equitably to the needs of the people. Therefore, I suggest to the Chancellor that if it were possible to introduce a Measure that would relieve the able-bodied unemployed—although it may be only 4 or 5 per cent. in the amount—it would be of great benefit to many of our depressed areas.

In regard to the increase in the Tea Duty, I think it was beneath the dignity of a great Chancellor handling a Budget such as this to come forward with such a petty scheme. I can forgive him for many things he has done—the steps he has taken to deal with those who are evading taxation—but this increase in the Tea Duty affects many homes in the city to which I belong. A bit of bread and butter or margarine, with some tea, is about the only food many people are able to get, and this increase will hit those people hard. The Chancellor would be well advised to withdraw that proposed increase of duty.

There is one pleasant feature in the Chancellor's Budget speech. I hold no brief for men in a large way of business who are able to make things pay, but I am fully aware that unless we have employers of labour there can be no distribution and we can have no work going on. I am pleased to know that £1,000,000 is to be allocated to providing special financial facilities for people in trade who are badly hit. I intervened to-day to ask what the rate interest was to be on the loans which they are to get, but there was no reply. The Chancellor said that the scheme was to apply to the depressed areas. Even though I have been a bit vicious in my attack, may I appeal to the sensitive side of the Chancellor to point out that men in all types of business all up and down the country are feeling the pinch? In my own area there are people in old-established businesses who would be able, if they were given the opportunity, to retain many of the workers whom they have had to discharge recently or can employ only casually. If the Chancellor could extend this scheme to other areas than the special areas or to all areas, his action would be greatly welcomed.

Last, but not least, I want it to be understood that there is no ground for any gibes either from hon. Members below the Gangway or hon. Members opposite in regard to the loyalty of the Members of the Labour party in the matter of protection of their wives and families. It would be well for those who have the wealth to understand that unless the workers are able to co-operate with the employers and there is a good understanding it is not good for the nation. I do not want to see any difficulties in our land. I have no time for the Continental system, I have no time for propaganda which seeks to disrupt our people, but I am anxious that we should have economic conditions which are good for our men, for I feel that the men of Passchendaele, the men who went to Belgium and to France and gave their blood for the freedom of small nations have a right to know that their sons and daughters shall be treated as the children of the wealthy are treated.

9.48 p.m.

Mr. DALTON

It would be an exaggeration, I think, to say that the Chancellor's Budget has created any great enthusiasm either in this House or in the country generally. Indeed, as compared with previous Budget Debates, this opening day has been somewhat lacking in fire and in interest. Perhaps that state of affairs arises from some features of the Budget on which I shall ask leave to comment. On the assumption that the American Debt can be disregarded, and that is an assumption now regularly made year by year, this is, indeed, a balanced Budget, because the Chancellor has shown a surplus of some £3,000,000, but we have been clearly warned that this is the last Budget which is going to be balanced in this Parliament. The Chancellor has given a clear warning that next year he is going to borrow to meet some part of the inevitably increasing cost of armaments for which the Government are providing. I think that is a point which should be clearly apprehended in the country.

In 1931, it will be recalled, the argument was used that we were riding over the rapids of financial ruin because at that time our Budget was unbalanced. I remember that in the later days of that Parliament I argued that that emphasis was misplaced. None the less, when I contrast the prophecies of doom which were then so freely made by Conservative, Liberal and so-called National Labour representatives, based merely upon the fact that our Budget was in part unbalanced, and necessitated borrowing, with the comparative complacency with which the Chancellor has now announced that we are going to have a series of unbalanced Budgets in the years to come, I cannot but believe that there has been some change of attitude towards this question of financial rectitude in the intervening years.

May I say a word upon what seems to be the rather precarious financial structure of the present year and of the next few years? We are looking forward, according to the Chancellor's statement, to borrowing, at any rate, part of the armament expenditure. I wish to quote exactly what the Chancellor said on this point, because there was some dispute as to what he said. The Chancellor said in his Budget speech: It must be anticipated that the annual cost of maintenance of the reorganised forces will in all likelihood substantially exceed the £158,000,000 which was provided for in the original Estimates of this year. It is clear that in each year we must find out of revenue this rising cost of maintenance. Then I omit a few sentences. He goes on: I conclude … that in future years, a part of this emergency expenditure … may properly be met out of loan."—[OFFICIAL REPORT, 21st April, 1936; col. 54, Vol. 311.] He went on to say that he thought in the meantime we should have shown our readiness to bear our proper share of the exceptional burden by utilising our expanding revenue and perhaps by submitting to some fresh sacrifices. I quote those words at some length because my hon. Friend who opened the Debate was challenged by the Chancellor with having misrepresented him, I am sure quite innocently. The conclusion I am seeking to draw from those words which I have quoted is that in the Chancellor's judgment—and this is the first proposition—the next few Budgets will be unbalanced because part of the rising cost of the Defence Forces will be met by borrowing. The second proposition is that very likely—I do not put it higher than that—he may not only borrow part of the expenditure required for the increased armaments provision, but will ask us to make some fresh sacrifices.

Mr. CHAMBERLAIN

The sacrifices to which I was referring were those to which I was asking the country to submit this year. I did not commit myself as to what I shall do in future years. The hon. Member must not misrepresent what I said. I gave no indication of fresh sacrifices after this year.

Mr. DALTON

I am anxious not to misrepresent the right hon. Gentleman and I at once accept what he says as to the intention behind those words. None the less, looking facts in the face, and some facts in particular which I shall now cite I think there is every reason to say that, in the years to come, not only will Budgets be unbalanced by borrowing part of the defence expenditure but there is very great likelihood that taxation will have to be still further increased. To illustrate my reason for saying that, may I refer to what the Chancellor himself said about cheap money? He pointed out that money had indeed been very cheap for some years past, and he stated that one of the consequences of that had been that the Death Duties yield has risen to a record height, owing to the appreciation of Stock Exchange securities, as a direct consequence of cheap money. I submit that if this cheap money cannot be maintained and the present low rates of interest cannot be maintained, two things will happen, one on each side of the Budget. On the one hand, the cost of the National Debt is going sharply to rise, and particularly that of the Floating Debt. At present we have, in round figures, £750,000,000 of Treasury Bills, on which interest is paid at the amazingly low average rate of about one-half of 1 per cent. or about 11s. 6d. per annum per £100. That is a rate which is phenomenally low, and any rise in the short-term rates of interest will be reflected, of course, on this very large aggregate in the total Debt Charge. On the one hand, the Debt Charge will be raised. On the other side of the Budget, one special cause of the increase in the Death Duties will be removed and there will be a corresponding fall in capital values and hence in the yield of those duties. This structure is very precarious, and the dispassionate student of the present financial situation must hold the view that the future has in store not only a series of unbalanced Budgets but the likelihood, in spite of that, of a further increase in taxation. This is, indeed, a very gloomy conclusion for the average taxpayer.

The fundamental reason for the financial situation in which we find ourselves is, as has been put by many hon. Members, the increased expenditure on armaments. I am not desiring to-night to make any digression into the cause of that situation because that has been sufficiently discussed already, but I cannot forbear from quoting a Chinese saying which I heard a little while ago, that The sky is dark with chickens flying home to roost. When we think back—I see the Home Secretary present—to the period when that right hon. Gentleman was Foreign Secretary and when the Disarmament Conference was wearily ploughing its way through those early months, more than 12 months before Herr Hitler had come to power in Germany and embarked upon his enormous and. menacing rearmament programme, setting all his neighbours' teeth on edge, we recall that, during that 12 months, the right hon. Gentleman missed opportunity after opportunity of bringing about some real international agreement for the restriction of armaments or at least for the prevention of their increase. We see some of the chickens flying home to roost to-day.

I leave that question, but before passing from international considerations altogether, I desire to re-emphasise the request made by my hon. Friend who opened the Debate for a clear statement, either to-night by the Financial Secretary or to-morrow by the Chancellor, on the subject of the very disquieting rumours of some impending German loan. I should hope that the disquiet which is felt on this subject will not be regarded as a party monopoly of my hon. Friends. There are very disquieting rumours running about the City. Some of them have come to me from persons not connected with our party at all, rumours that either some long-term loan or some new short-term credit operation is in contemplation as the result of which Germany, whose financial situation has been created largely by her persistence in this enormous rearmament programme, is to be relieved by some financial operation in the City of London from the more serious and pressing consequences of her own action. It is notorious that there is much pro-German sentiment in the City. Political prejudice apart, it would be much more sensible if there were pro-Russian sentiment in the City, both on grounds of our own national security and because the Germans more recently than the Russians have defaulted on their obligations.

However that may be, we are entitled to suspect the City of not viewing credit operations in regard to Germany quite in the same way as persons in political life, whether on that side of the House or on this, would view them. I press as strongly as I can that the Government should make a definite declaration, which shall be read and pondered by the public, not only that they passively do not favour money being lent to Germany at this time but that positively they will take whatever steps may be necessary to stop money being lent to Germany at this time. I think they may have the assurance that even if special legislation be necessary to prevent the proclivities of any would-be moneylender to Germany we on this side of the House will put no obstacle in the way of their getting legislation and that we should strengthen their hand. I hope that we shall have some definite and emphatic reassurance on this subject. Otherwise the day may come when the City of London shall be as an Abyssinian village, and on that day the moneylenders' remorse will be too late.

Our rearmament programme being in plain fact, as everybody knows, largely explained in terms of German rearmament, we should be at the same time competing in armaments against Germany and lending her money to facilitate the progress of just that process which has inflamed opinion in this as in many other European countries.

I turn to the Chancellor's statement about the control of foreign issues. We who have advocated in the past the control of investment and lending are glad to find that the Chancellor is treading, at any rate to some extent, the paths that we would desire him to tread in exercising some control, through the Advisory Committee on Foreign Issues which he has recently set up, under the chairmanship of Lord Kennet; but I think that even more important than the control of foreign issues, or, at any rate, equally important, is the control of home issues, and this brings me to a point which has been raised by previous speakers, notably by my hon. Friend the Member for Morpeth (Mr. R. J. Taylor), about the Special Areas. Surely, if there is a case, as many of us believe there is, and as to some extent the Chancellor has admitted by setting up this Advisory Committee, for the control of investment by the Government, that case is at its height so far as the Special Areas are concerned.

The Chancellor in his Budget speech made a brief reference, which no doubt will be elaborated later on the Bill, to the proposal with regard to the Special Areas Reconstruction Association, Limited. In a sentence, as I understand it, it is proposed that special financial assistance should be given by this means for the setting up of small businesses, and the fact that the businesses are to be small is emphasised, for there is a limit of £10,000 on the advance that may be made to any one concern. Far be it from me to look any gift horse in the mouth so far as the Special Areas are concerned. If any small business is now unable to get finance, and can get it by this means, no one would be happier than those who represent in this House those unhappy areas. But I wish to emphasise that it is not so much a few more small businesses, good though that may be up to a point, that are required in these areas; it is a few large businesses; and, so far as the scheme touches only small businesses, it will supply only a very small impetus where a much larger impetus is needed.

We have in one part of the county of Durham the great new works at Billingham, which have been a centre of employment upon which other parts of Durham and other distressed areas look with envy. In quantitative terms, what is required is the multiplication, not necessarily of firms doing the same work that is done at Billingham, though there is much room for that, in the extraction of oil from coal, but the multiplication of firms of that magnitude in the Special Areas. We want a considerably larger number of big firms, which shall act as magnets for work and for the setting up of economic activity once again. I deeply regret that in the Budget statement there is no evidence that anything else is to be done for the benefit of the Special Areas beyond the stimulation of these admittedly small businesses. My hon. Friend the Member for Morpeth has dealt with that matter so eloquently and cogently that I will leave it there.

The Chancellor, in a passage in his Budget speech, illustrated, by the simile of the filling up of channels and of water flowing from one channel to another, the way in which, in his view, recovery was gradually spreading and, so to speak, soaking through from one section of the community to another. It had soaked through, he said, even to the whisky drinker. For the first time in many years the Spirit Duties had yielded more than was anticipated, and more whisky was being drunk. It may have soaked through thus far, but, so far as the Special Areas are concerned, it is essential that we should continue to repeat what has been said many times before, namely, that all the statistics indicate that no prospect of recovery at all has begun to be shown in any of the Special Areas. In any march of recovery that can be established from figures drawn from the South of England or from other areas of the country, the Special Areas are not participating; they are lagging behind; they are almost at a standstill; and, unless some special action is taken to bring this stagnation to an end, the stagnation will continue and will become cumulatively worse.

On the other hand, I am moved by the fact that the hon. Member for Aylesbury (Mr. M. Beaumont) has returned to the House to make a comment on something he said in a speech which, although I do agree with its arguments, I thought was most interesting, attractive and individual, because he put forward very cogently arguments which generally are not heard in this House, and which it would be very brave—no doubt he has often committed that act of bravery—to enunciate on a public platform in the presence of a democratic audience. He argued that we should reverse the whole trend of social service policy, and that the social services should be drastically cut down in order that taxation might be reduced—

Mr. M. BEAUMONT

And wages increased.

Mr. DALTON

The hon. Gentleman argued that the consequence of discontinuing the social services would be that wages would rise—

Mr. BEAUMONT

I do not want to interrupt the hon. Gentleman, who has paid me a very generous tribute, but the point of my argument was that, if that were done, wages would have to be made to rise, if necessary by legislation. I did not say that they would automatically rise.

Mr. DALTON

I do not want to misrepresent in any way what the hon. Gentleman said, but I pay him the tribute that he gallantly proposed to scrap a large part of the social services. I suppose he has a safe seat. But the point on which I wanted to comment was his statement that at the present time, for the purpose of increased taxation, whether to extend the social services or for any other purpose, in his own words, the money is not there. He told us to-day that the money is not there for such increases of taxation, and he drew the conclusion that direct taxation has been so heavy in the past that there is to-day no means of getting any more from that source. I found that statement so provocative, in an intellectual sense, that I would venture to dwell for a few moments upon some of the figures which are contained in the latest annual report of the Commissioners of Inland Revenue, in the Chancellor's own speech, and in the White Paper submitted by him. I conclude that, so far from the money not being there, the recovery of good fortune and wealth has been most marked in the small minority of the population who are already very rich.

The yield of the Surtax is rapidly rising. As the Chancellor explained to us, the Surtax assessments are two years in arrear under the law, and for the third year in succession, taking the prospective year for which Estimates are being made, an increase is anticipated after a downward movement during the depression, and that in spite of the fertility of mind of the tax-dodger, which no doubt has been seriously depleting the yield of Surtax, even more in proportion to the yield than in the case of Income Tax. I would repeat the offer of my hon. Friend the Member for East Edinburgh (Mr. Pethick-Lawrence) to the Chancellor, of the full support of the Labour party against any rebellious elements behind him in putting these tax-dodgers where he desires to put them. We make him an offer of full and unqualified support on that section of the front.

In spite, however, of the fact that this tax-dodging has become an elaborate fine art, particularly in regard to Surtax, you have this upward movement in the yield of Surtax now again for the third year in succession. You have further, as regards the Death Duties, a continuous upward movement, culminating in a record yield this year, which, as the Chancellor was careful to point out, is not due to the falling in of some freak fortune, as was the case two years ago, when some £29,000,000 accrued on the death of one individual, but is due to a general uprising—[Interruption]. Was it not £29,000,000 Anyhow, it was a very enormous sum.

Not only the Surtax but the Death Duty yields have been rising over the last few years in such a way as to make it clear that far from the money not being there, more and more money is collecting in this particular part of the field in the possession of a comparatively small number of people. It is to those people that the Chancellor should have gone when at the end of his calculations he found himself short of £20,000,000. Instead of going to the general body of Income Tax payers, adding what has been called the ragged threepence, which will almost certainly become the well-clothed 6d. next year, to the standard rate, and this little, mean twopence a pound on tea, he should rather have made additional provision by scaling up the rates both of Surtax and Estate Duties.

May I say one word in praise of the Surtax? I am not fortunate enough to pay it myself, but I am sure I shall be strongly supported by hon. Members who have practical experience of it. The beauty of the Surtax, as distinct from the Income Tax, is that it is individual and not corporate. It is assessed upon individual liability and it can be graded according to individual capacity to pay and it avoids—I commend this argument to those who have complained of the tendency of heavy direct taxation to check enterprise and hinder industry—what the ordinary Income Tax does in so far as it does not fall upon reserves or undistributed profits. Attempts have been made in previous Budget Debates to make special provision for exempting undistributed profits and moneys put to reserve from Income Tax, and those who have listened to and taken part in those Debates are well aware of the intrinsic difficulties of the proposal and of the-very powerful arguments supplied by Treasury officials from year to year to those politicians who for the moment happen to be subject to their influence against it. Given that that is so, there is much to be said for developing the Surtax, which is not subject to those objections.

I should like to suggest that the Chancellor should consider next year whether the Surtax limit should not be brought down from £2,000 a year, at which it has stood for so long, to £1,500 a year, and whether by that means you could not very legitimately bring in a considerable number of additional contributors and a much larger quantity of taxable income. I have made a rough amateur estimate from the Inland Revenue Report and I think that, by lowering the Surtax level as I suggest, you would bring in at least 40,000 more contributors and bring under taxation at least £70,000,000 more of income per year. I should be interested if the hon. Gentleman would tell me, if I put a question down, whether my figures are at all near the truth. I think it is a conservative estimate. I should he glad if on a future occasion the Chancellor, or his successors—for there is a rumour that not only is this the last balanced Budget of this Parliament, but that it is the last Budget that he will present—will take into consideration the possibility, when next they have to raise taxation, of getting it from further developments of the Surtax rather than the traditional treatment of raising the standard rate of Income Tax.

As far as the Death Duties are concerned, it is important to remark that over a long stretch of years the net value of the property passing at death, after you have deducted what is taken in Death Duties, has been steadily rising year by year, and most of all has it been rising in the higher levels of estates. Even making allowance for cheap money and the appreciation of gilt-edged securities, anybody who goes into the figures as published in the Inland Revenue Report will not be able to conceal from himself the fact that the property passing at death continues to increase, even if you allow for what is taken by the Revenue. This has gone on even during the years of depression. It has been different from the Surtax in that respect. These facts effectively dispose of such arguments as those put by the hon. Gentleman the Member for Aylesbury that the money is not there. The money is very much there at the present time, and, given that we have to face the possibility of increased taxation, it is to those sources that the Chancellor of the Exchequer should go.

This Budget has been described by some as a Budget almost of a war character in the sense that it is dominated by the pre-occupation of armaments and fears for national security. In that sense it has a certain grim, dramatic quality about it, but, that apart, it has no dramatic quality at all. It is a dreary Budget compared with the Budgets introduced by the right hon. Gentleman the Member for Epping (Mr. Churchill) or even by Lord Snowden. It lacks life and sources of excitement and interest. It is technically an uninteresting Budget. It presents no new expedients. It does not give any evidence of that originality in fiscal devices which some of the predecessors of the right hon. Gentleman have shown. It holds no hope for the future, and presents a vista of a long series of Budgets, certainly unbalanced, and probably involving increased taxation. It is a Budget which will be deservedly unpopular in the country, we shall do nothing to popularise it and I believe that it will hasten the end of the Government and of its spokesman who has introduced it into this House.

10.24 p.m.

The FINANCIAL SECRETARY to the TREASURY (Mr. W. S. Morrison)

Most of the discussion to-day on the Budget has been marked to some extent by a sort of divergence from the subject-matter which we are supposed to be discussing. Though I have listened attentively to the Debate, I have heard very little of an attempt to impugn the financial structure of the statement made by my right hon. Friend. Indeed the hon. Member for Bishop Auckland (Mr. Dalton) who preceded me, in a great part of his speech seemed to be directing his criticisms to a Budget, but it was not this Budget but the Budget after the next. He suggested that there might be such a change in the general financial condition of the country as to render some of the assumptions which are valid this year invalid in future years. I can assure him, with quiet confidence, that, given that this country has no change of Government and is not involved in a war or any other disaster, he can look forward to the maintenance of those Budgets which my right hon. Friend has been so signally successful in maintaining in the years during which he has directed the finances of the nation.

The hon. Member asked me to deal with what he described as, and what I agree with him is, a rumour about some supposed German loan. I cannot do better than refer him to the answer which I gave to the hon. Member for Stoke-on-Trent (Mr. E. Smith) as recently as the 23rd March. He asked my right hon. Friend: What credits or loans have been given or made to the German Government or to German banks by His Majesty's Government, the Bank of England, or other English banks or banking houses in the last three years; and whether any such further credits are in negotiation or contemplation? A very comprehensive and searching question. I think the hon. Member was present and he will recollect that the answer I gave was as full, comprehensive and categorical as the question in its terms. The answer that I gave was: In December, 1934, the Bank of England granted a credit of £750,000 to the Reichsbank in order to expedite the liquidation of outstanding trade debts to United Kingdom creditors. As my right hon. Friend the Chancellor of the Exchequer informed the House at the time in reply to a question by the hon. Member for East Aberdeen (Mr. Boothby) on 11th December, 1934, this credit was given with his full approval. It has since been repaid. No other credit or loan has been given or made to the German Government or to German banks by His Majesty's Government or the Bank of England in the last three years and no such credit or loan is in negotiation or contemplation. My right hon. Friend is not aware that other English banks or banking houses have in the last three years given or made, or now have under contemplation, any such credits or loans apart from short-term credits for commercial transactions."—[OFFICIAL REPORT, 23rd March, 1936; col. 888, Vol. 310.] That is the position to-day. I welcome on behalf of the Government the promise of hon. Members opposite that if the position should change and my right hon. Friend should deem it necessary to bring in legislation, they will support it. In the meantime, as there is no reason for and no basis of truth in that rumour, we can leave it at that and proceed to deal with the Budget itself.

It was only to be expected that the discussion of the Budget would centre a good deal on foreign affairs, because there is no disguising the fact that it is the problem of defence which gives this Budget its peculiar character. It is with the background of national necessity to improve the defences of the country that the whole of these financial proposals have relevance at all. In order to estimate the work that has been done by my right hon. Friend in meeting this situation with so little sacrifice on the part of the people, it has to be remembered constantly that it is against the background of remedying the great deficiencies in our defences that the whole situation has to be reviewed. It is a very expensive task.

Hon. and right hon. Members opposite wish not so much to criticise the Budget as to make the Budget an opportunity for suggesting that the reason for such a Budget is the foreign policy of the Government, and that the Government are to blame for the necessity for the expenditure in regard to our defences. That is not a view which will be shared very widely in the country. Our people have a sense of realities and remember that the uprising of new governments with new ideas on the Continent of Europe are events quite outside the control of this or any other Government, and realise that the whole international situation is not the result of the will of any one Government in this country but is the result of several other wills existing on the Continent in different forms at the present time. In these circumstances, even if it be as true as it is untrue that the foreign policy of this country has led to the present anxieties, that would be no excuse for any failure of the present Government to make good the deficiencies. That would be as illogical as an attitude recently adopted, as I understand from the newspapers, by certain clergymen who refused to pray for the Government on the ground that they disapproved of the Government's action. It would be equally illogical for the Opposition to refuse the Ways and Means to provide this country with adequate defences because they disapproved of the foreign policy of His Majesty's Government, and alleged that as the cause of the present circumstances.

But all these attacks which have been made on the foreign policy of the Government, criticisms which have urged that we have not stopped the war in Abyssinia, are not really attacks on the Government but attacks on the League of Nations. The policy of His Majesty's Government in this connection has been that of the League of Nations, and it fills me with amazement that we are being denied by the Opposition the Ways and Means we ask for defence, not on the ground that we are a warlike and bellicose Government, which might misuse the means so entrusted to us, but because hon. Members opposite say that we have been too peaceful in the past. The hon. Member far Edinburgh East (Mr. Petbick-Lawrence), who opened the Debate this evening, complained of the chilly air which he said hung over the introduction of this Budget, but nevertheless he was able to impart a certain amount of heat into the atmosphere in the course of his criticism. When he criticised the action of the Government and of the League of Nations in connection with the Abyssinian dispute he led the Committee to believe that if he were in power he would have taken some more strenuous, more definite and perhaps more dangerous course. Indeed, he himself admitted, with that modest understatement which is characteristic of the hon. Member, that it might lead us into a little difficulty; I think the expression he used was a certain amount of difficulty. I would ask the hon. Member to contemplate this possibility, that if he found himself in a certain amount of difficulty it would be vastly increased if, before getting himself into such a position, he had neglected to supply himself and the nation with adequate defences.

The hon. Member asked us to make sure that aggression does not pay. Aggression does pay or may pay only when countries are not defended. If aggression is to be proved futile, it means strong collective security, and collective security does not arise from individual insecurity. In dealing with the matter at this stage, I think there is agreement in all parts of the Committee that we ought to repair the deficiencies in our own defences. Certainly we can regard that, for the purpose of this Parliament, as a concluded question, for the people unmistakably at the last Election gave a mandate to His Majesty's Government to repair those defences. It is upon that assumption that we must proceed, it is upon that assumption that this Budget has been framed, and it is upon that assumption that it must be weighed, assessed, and criticised, if criticised at all.

Several hon. Members have rightly drawn attention to the increases in taxation which this dreadful necessity forces upon us. I do not wish in any way to minimise the great deal of cost which is involved, but at the same time I would ask the House to look at one or two aspects of the silver lining to the cloud. We have frequently been urged to use the credit of the nation and the funds of the public for what have been called works of national importance. When one has asked for particulars of those works, they have generally transpired to be in detail the creation of a dock in one locality or a road joining two other localities, and although these might be very valuable works they have this local peculiarity, that they are bound, in the first instance, to benefit the locality in which they are carried out.

But the securing in time of danger of adequate defences for our own nation is a true work of national importance which every citizen of this land, no matter where he may be situated, no matter what may be his station in life, has an absolutely indivisible right in seeing carried out. That is work of national importance if you like; the greatest work of national importance that can exist is the taking of steps to secure the continued freedom and well-being of this Realm. All other expedients for using the public credit for various purposes of a sectional or local character, important and valuable as those works may be, fade into insignificance when compared with the primary task of seeing that we have in this country adequate defences which will, in the first place, enable us to play our full part in a policy of collective security and will put our country, in the last resort, in a condition, not to be a menace to our neighbours—nobody would bring that up—but to render it, if the worst came to the worst and the idea of force prevailed in the world, a difficult and dangerous enterprise for anyone to attack us.

There has been little substantial criticism of the way in which my right hon. Friend has contrived to meet the requirements of the situation at so small a sacrifice to the people of this country. Hon. Members have, with great good nature, chaffed us about what they call the chilly atmosphere in which this Budget has been presented. I have not been as long in this House as many hon. Members, but I have seen a number of Budgets introduced and I find that they generally fall into two classes. There are those Budgets which are acclaimed, which have in them some sensational feature, which strike the imagination and cause hon. Members to go out of the House with the feeling, "This is a magnificent stroke of financial genius." But those Budgets nearly always seem to share the same fate. On further examination it is generally discovered that behind the roses of rhetoric with which they were introduced, there is a thorn lurking somewhere. Starting as popular Budgets they gradually lose their popularity. There is the other type of Budget which, at the start, faces the nation with some necessity which the nation would like to believe did not exist. Those Budgets on further examination, reveal their merits as means of meeting a situation. I think this Budget belongs to that class which will gain in popularity in the country the better it is known and understood against the background of reality.

When it is realised that we are meeting the requirements of the defence forces at a cost of 3d. on the Income Tax and 2d. on tea, with Income Tax reliefs which reduce the burden of Income Tax to a great many of the poorer married section of the population, I believe that this Budget will gain in popularity. Compare that method of meeting our requirements with some of the defence programmes abroad which proceed, it seems to me, upon the basis of mortgaging the energies of the peoples concerned for years in advance and are founded on expedients of a financial character which are not followed here.

Mr. DALTON

But will be next year.

Mr. MORRISON

The hon. Member is a gloomy prophet. I ask him to remain with his party in opposition and he will find that the situation will not be so serious as he seems to anticipate. When the nation realises that this huge additional expenditure has been met by this country by means of these two small sacrifices, then it will be realised what valuable work has been done in the last five years so to strengthen the financial resources of the nation that this burden is one which it can easily carry without staggering on the road. I ask the Committee to imagine the position if the country were faced with this terrible burden in the conditions which prevailed during 1930 or 1931, when the credit of the nation was at a low ebb, when revenue was shrinking, when trade was declining and all those conditions were present which made it extremely difficult to raise another penny of revenue. Contrast that situation with the present situation. The buoyancy of revenue to-day is such that a great part of this expenditure can be met, not by imposing additional taxation but by trusting to that process of recovery, which has already been so marked, continuing unabated in the years that lie ahead of us.

The right hon. Gentleman the Leader of the Opposition, in a short speech yesterday, drew attention to a circumstance which, in his opinion, ought to be borne in mind by hon. Members on this side of the House when they compared the financial arrangements made this year with those made when his party was in office. That circumstance was the American debt, and the right hon. Gentleman's criticism was to the effect that the American debt was paid when the Labour Opposition was in power and that it was not being paid now, and consequently no comparison of the financial integrity of the two sets of Governments was complete which did not recognise that fact. He forgot to inform the Committee that all the time his Government were paying the debt to America they were receiving from our late Allies and our own Dominions sums in excess of what they were paying out, and that in fact the only Government which ever made a substantial payment of the debt to America without receiving anything from foreign sources was the National Government.

The hon. Member for East Edinburgh drew attention to what he called our lack of using national resources for national purposes. As I have already indicated, I believe we are using national resources for the greatest and most fundamental of all national purposes at the present time, but he has forgotten surely our programme of —100,00,000 for the roads and the help that was given to the railways, amounting to £26,500,000, last September. All this shows that besides carrying this burden of preparing for an increase in armaments, we are able to find public credit and public money for peaceful works of real use to the nation.

Mr. GEORGE GRIFFITHS

It was only a guarantee to the railways.

Mr. MORRISON

But it was a guarantee of the Government's credit. When hon. Members opposite were in power, they gave the railway companies the money, and for the same purpose, and they gave them the money because they had not got the credit. The hon. Member for East Edinburgh also seemed to argue, not on his own authority, but on the authority of his right hon. Friend the Member for Hillsborough (Mr. A. V. Alexander), the thesis that there was no truth in the fact that our Navy needed modernisation at all, or, in other words, was not obsolete. That is a matter on which neither he nor I is an expert, and I do not profess to speak here as one who is an expert. He takes the word of his right hon. Friend, and I take the word of my right hon. Friends who have studied the matter, and we must form our own conclusions accordingly. At the same time, I was a little troubled by the sort of process which he thought obsolescence meant. He seemed to argue that you should make no provision for the repair of our Fleet because it was not yet obsolete. He seemed to regard the Fleet as the famous "one-boss shay," which went on for ever without being repaired and was as good as ever after many years of service until suddenly it vanished altogether.

Mr. PETHICK-LAWRENCE

I have not interrupted the hon. Gentleman in his many misrepresentations of my speech, but he has entirely missed the nature of my point. What I was endeavouring to show was that instead of being repairs and the making good of holes in our defences, and in particular in our Navy, the kind of process which the Government envisaged was a gross programme of expansion. I do not deny that it is possible to argue that the Navy can be brought more up-to-date. What I was aiming at arguing was that there was no peak which was going to be reached when certain definite repairs had been undertaken, and that then it would be all right. I was pointing out that the process of repairing the Navy and enlarging it was a continuous pro- cess that, according to the Government, would not come to some point and then stop, but would go indefinitely forward.

Mr. MORRISON

I am glad of this revised version. What the hon. Member has been saying, as I recollect him, is that the right hon. Gentleman the Member for Hillsborough assured him that there was no truth in the statement that the Fleet was obsolete or required renewing. If I am to take the revised version instead of the authorised, I am glad to find there is less between the hon. Member and myself than I had imagined from his remarks. He said that the Government were taking no steps to limit profits on this occasion. That is not the cast. As has been repeatedly stated, the question of taking advantage of our experience in the War to make sure that excessive profits do not occur on this occasion and that no one shall be in a position to exploit the necessities of the nation, has been carefully considered, and I have described to the House on more than one occasion the views of the Government on this matter.

Then the hon. Member went off at a tangent on the rise in shares. Anyone who has any experience of industrial matters knows that the value of a share is controlled by the supply and demand of the people who deal in them. When the hon. Member talks about intelligent anticipation on the stock and share market, I have no doubt that there were many people who intelligently anticipated that the South Sea Bubble would realise enormous profit, only to be sadly disappointed when the value of the shares was correlated to the actual industry. It has nothing to do with the Government what speculators do, and it has no real bearing on the profits that the companies will make. The fact that someone was prepared to pay a certain price for a certain share is no basis for an assertion that someone is going to be allowed to make excessive profits. I trust the hon. Member will remember also that these are industrial operations which, if they make profits must pay wages and give work. There is a reward in the shape of employment, and, we hope, employment in those areas that require it most.

The right hon. Member for Caithness and Sutherland (Sir A. Sinclair) asked me some questions which I shall try to answer. I cannot answer them all because they were rather lengthy. He asked whether areas outside the Special Areas will receive the benefit of the new scheme mentioned by my right hon. Friend yesterday, this £1,000,000 company. As my right hon. Friend made clear, this scheme is in the nature of an experiment to test out the value of conflicting theories in this matter, and to ascertain whether help can usefully be given along these lines. At the present it is confined to the Special Areas themselves. Then the right hon. Gentleman asked whether the figures which my right hon. Friend gave as regards reliefs to Income Tax payers included the value of a house if the householder owned it. The anwer is in the affirmative. If a householder pays Income Tax on Schedule A, that is taken as part of his income and the total income figures which my right hon. Friend gave took everything of that nature into consideration.

I must close by referring to one other aspect of the Budget which interests hon. Members. The Budget, besides being a statement of the national housekeeping, is interesting to Members because it gives a picture of what is happening outside. It shows to some extent the state of the heart and mind of the nation, and it is that aspect, I often think, which is most interesting to hon. Members of this House. The Budget is a reflection of the conditions outside. Vast as are the sums comprised in revenue and expenditure, they are small in comparison with the sums that are passed from hand to hand outside in wages and the purchases of the people. When we try to see what the lesson of the Budget is in regard to the conditions of the people, I think we can say that the Budget is a remarkable example of the accounts of a country with rising prosperity. That is the important point about the Budget in which I am sure the House is most keenly interested.

This is the fifth Budget that my right hon. Friend has introduced. The first of these started at a time of great depression and confusion in the national finances and was inaugurated at a time that none of us wants to pass through again if we can avoid it. Each of these four Budgets in succession has shown a remarkable, steady and striking advance upon those conditions. This one is a defence Budget and bears an immense increase in expenditure mostly on the rising revenues created by the financial policy of my right hon. Friend. I would ask the House and the country to say that my right hon. Friend, who has been in charge of these financial conditions during a period of great difficulty in the nation's history, has never led it wrong once, and that in meeting this new financial burden he can be trusted to point the right road again.

Mr. M. BEAUMONT

I am extremely 10th to intervene again, but throughout the whole of this Debate there has run an anxiety, on behalf of loyal supporters of the Government who want to back the Budget, about the continued and growing expenditure of this country. We have not had one word from the Financial Secretary on that subject. It is really futile for Members who are supporters of the Government to make these speeches if they are to be treated in this way. May I ask, since it cannot be dealt with to-night, for some assurance that the Chancellor of the Exchequer will deal with that question, if only to tell us that he can pay no attention to it. It will at least do us the courtesy of some notice before the Debates close.

10.59 p.m.

Mr. McGOVERN

I have listened to a portion of this Debate to-day and I also listened yesterday to the Budget speech of the Chancellor, and I recognise that he is distributing a large amount of money from the national revenue, provided under a system that is entitled to expend a certain amount of this revenue in defence of the difficulties of that system, which he as Chancellor represents.

It being Eleven of the Clock, The CHAIRMAN left the Chair to make his Report to the House.

Committee report Progress; to sit again To-morrow.