HC Deb 03 July 1936 vol 314 cc759-824

Order for Third Reading read.

11.7 a.m.


I beg to move, "That the Bill be now read the Third time."

This is the last stage in our considerations of this annual financial Measure, and the procedure of the House in dealing with business of this kind is such that it enables hon. Members on both sides to say the same things as they have said before, whether in praise or in blame. For my own part, I hope the House will pardon me if I am brief. I reflect with some dismay that whereas as a private Member I was comparatively reticent in the House, I now find that in the number of columns spoken I am exceeded by only one right hon. Gentleman opposite. I fear that the number of times I have intervened on this Bill accounts largely for that total.

We are faced now with this Bill, and we have had the opportunity of watching its progress. The House will remember that when my right hon. Friend introduced the Budget hon. Members opposite chaffed us on what they termed its chilly reception. I remember saying, with that confidence which, perhaps, only arises from inexperience, that this was one of those Budgets which would gain in the favourable impression created upon the public the better it became understood, and the more it was realised that it had been set against a certain factor, a certain national necessity. I think when that factor is realised, and when it is realised that my right hon. Friend in meeting the necessities of that factor, has imposed additional taxation only to the extent of 3d. on the Income Tax and 2d. on tea, the favourable opinion which is now held of my right hon. Friend's proposals will be well understood. The fact that he has been able to meet these heavy charges for Defence with such a slight additional burden of taxation presupposes, in the first place, a system of financial strength in the country which is very impressive. It indicates also an abundant power on the part of the people to create wealth and thus revenue by their energies which have now been liberated once confidence has been re-established. Those are the main features which stand out in our financial problems this year.

If this Bill is looked at, as I say it ought to be looked at, as one of that series of remarkable Budgets which my right hon. Friend has presented to the House in recent years, it will he seen that its claims to favour are very high. The heavy charges for Defence this year have compelled my right hon. Friend to limit his remissions of taxation to married persons and those with children in the lower ranges of income. Those remissions have been very gratefully received, and if we consider the Budget as one of a series, even taking into account the additional taxation on tea and on Income Tax, it will be found that since the financial year 1932–33 there have been net remissions of taxation which are estimated to cost the Exchequer £33,000,000 a year. If we carry that further, we find that notwithstanding these net remissions the net actual total yield of tax revenue has increased in that period, from £727,600,000 in 1932–33 to £782,000,000. If we carry it a stage further still and add together the cost of these net tax remissions and the increase in the actual yield of taxation we find a gain of £87,000,000 a year on a total tax revenue of £727,000,000. That is a striking example of the reality and dimensions of our improvement in prosperity.

As I have said, the sole reason why there is no remission of taxation beyond those I have mentioned this year—and indeed it has been necessary to call for slight additional taxation—is the situation familiar to the House of our defences. That situation has rendered it imperative that all citizens of this country should contribute to meet the necessity according to their ability. Our traditions of freedom and order are the heritage of us all, and our enjoyment of those privileges is irrespective of the parties to which we belong or to our position in any monetary scale of evaluation. For that reason my right hon. Friend has resorted, for a small fraction of his additional revenue, this year to tea, which is a beverage universally consumed, and for the same reason—the necessity of spreading the burden as equitably and equally as possible—he has introduced in this year's Bill those Clauses which have given rise to so much discussion in Committee and on Report, namely, the Clauses dealing with legal tax avoidance.

Those were very difficult Clauses for the House to discuss. I confess I found it very difficult indeed to attempt to expound them. They raised problems of the most exacting character for the draftsman. They are naturally expressed in technical and involved language. I say they are naturally so expressed, because the transactions against which they strike are of a highly artificial character, embodied in documents using legal language for the purpose of giving the transaction a different appearance in the eyes of the law from the character which it possesses in truth and in fact. It is natural when moving in that highly artificial world that one should find it difficult to express in the words of nature, the symbols which one desires to insert in the Bill. I trust we have succeeded, and I hope all concerned will take note of the future attitude of this Government towards all those who use the provisions of the law for purposes other than those for which they are designed.

Hon. Members will realise that these proposals have involved my right hon. Friend and myself in a good deal of correspondence, and I should like to take this opportunity of expressing our thanks to those, not only hon. Members of this House, but members of the business community, members of the legal profession, accountants, and others who have written to us with most valuable suggestions for strengthening our provisions against these illegal evasions. I think it shows a widespread feeling on the part of the business community that it is contrary to the public interest that this tax avoidance should be permitted to flourish unchecked. One man's evasion raises another man's standard rate, and Parliament in these Clauses is merely expressing the common morality of the nation and enacting provisions designed to secure that this heavy burden of taxation, especially in these days of difficulty and danger, shall be borne according to a person's capacity to pay and not according to his power to cloak that capacity in legal form so as to make it appear different from what it is. I have been greatly impressed by the support of the tax-paying community for these pro- posals, a support which indicates the existence of a spirit which estimates at its true value the privileges of citizenship and which also evinces a desire for fair play which I hope will long remain one of our characteristics.

My right hon. Friend in these proposals has been sedulous to avoid striking at legitimate trade, financial, or family interests, and his desire to avoid doing that has led perhaps to more complications in the language of the Clauses, complications which could have been avoided by a less scrupulous approach to the problem, but I am sure that it was wise. The secret of our strength in this country depends upon the good will which exists between all classes, and certainly the revenue depends in the last resort on the honesty and good will of the taxpayer. It would be a very shortsighted policy, even from a revenue point of view, which would gain a temporary advantage at the risk of alienating all this loyalty and good will. As it is, we hope that we have shown in these Clauses our desire to co-operate with the taxpayer by making it clear that we are doing our best to make sure that the burden of taxation is equally and fairly borne by all citizens.

Before I pass from this topic there is just one short observation which I should like to make. There are four Clauses in the Bill which deal with this subject. The first one, Clause 18, deals with evasions or avoidances in the foreign sphere, the second with evasions by means of one-man companies, and the third deals with evasions by means of one-man companies when these companies are investment companies. In all these three cases there is no doubt at all that, in the vast majority of these transactions, the motive of tax avoidance stands out clearly, but the last of these Clauses, that dealing with children's settlements, educational trusts, and that category, is in a very different position. Many of these trusts were entered into, not only under the sanction of the law, but even, one might almost say, encouraged by the law, for the purpose of family security, and we have done our best to secure that those who did enter into these trusts with that motive shall not have their position worsened, but at the same time, giving notice that for the future, if a man wishes to make a trust for his children for the purposes of security, in so far as his income is derived from himself it must be taxed income like the income which the ordinary taxpayer devotes to the education and maintenance of his own children.

Now I have said all that I wish to say on these, matters, and I invite the House to consider this Bill in relation to the necessity against which it provides. The Finance Bill is the annual provision which the House makes for the necessities of the country. This year a new necessity, the necessity to repair our defences, which was endorsed by the people at the last election, arises, and this is a burden in bearing which all quarters of the country must share. We differ from hon. Members opposite as to the methods by which the conditions of our people may be improved, and we have our controversies on these subjects. We think our methods are right, because we can point to the results, which we claim are founded upon our policy. Hon. Members opposite have their own explanation of those results, but I am perfectly certain that no hon. Member, no matter where he may sit in this House, will deny that, grave as may be our differences as to method, on this we are united, that we are more likely to achieve our ends under our own free system than if we suffered that system to be overthrown from without. It is in order to preserve our own right, to live our own life, to follow our own ideals of freedom, that we are strengthening our defences. It is for that purpose that my right hon. Friend has presented these proposals, and I now ask the House to give the Bill which embodies them the Third Reading.

11.22 a.m.


It is a very common occurrence that a parent is unable to see the shortcomings of his offspring, and it frequently happens that a maiden aunt, if the Financial Secretary will forgive the parallel, takes a rosier view than do perhaps the neighbours next door. In his commendation of this Bill to the House, he naturally took a different view of its effects and advantages from that which we on this side take. He spoke in rather glowing terms of the tax avoidance Clauses, and he gave a serious warning to people who, in future, should make use of these artificial arrangements for the purpose of tax avoidance. Tax avoiders would have taken the warning a little more seriously had the Chancellor attempted to deal with the very large range of tax avoidance which falls outside the four Clauses of this Bill. I do not wish to deal at any great length with this subject, because we have discussed it fairly fully before, but take Clause 21, which deals with one specific type of trust or settlement. It is an attempt to amend Section 20 of the Act of 1922. That Section permits a seven years' trust, which is used widely for tax avoidance, and it permits of so-called irrevocable trusts, which can be revoked by the intervention of a third party, and which are used largely for tax avoidance. If instead of warning tax avoiders in future the Chancellor had dealt with this type the words of the Financial Secretary would have been more fruitful.

One of the Clauses deals with artificial companies established for the purpose of avoiding Income Tax, but there are still artificial companies untouched by the Chancellor which have been established for the purpose of avoiding Death Duties. By an extraordinary arrangement the property is handed over to the heirs, the income being reserved for the actual owner, and when the owner dies the estate remains the property of the heirs, and does not pass. All that the owner leaves are a certain number of debts owing to the company, which, of course, cannot pay tax. There is a very wide field of tax avoidance with which the Chancellor would have done far better to deal than merely to threaten future tax avoiders. I cannot fail to mention the grossest and most disgraceful of all tax avoidances, and that is Schedule B. Hon. Members opposite are probably more conversant with Schedule B than hon. Members on this side. Schedule B is an alternative method of assessment for the farmer. It enables him to dodge from Schedule D, which is the normal schedule on which profits are assessed, to Schedule B, on which he is assessed on the basis of the annual value of his farm. When one takes into consideration the normal rent of farms and the personal allowances against it, this doubtful method of dodging from Schedule B to Schedule D and back again when it suits the farmer, means that he does not pay sufficient Income Tax to meet the cost of the assessment forms which are sent out.

In passing I would refer to the Road Fund and the raid which the Chancellor has perpetrated. This is not the first time that the Fund has been raided. The "onlie begetter" of that method was the right hon. Gentleman the Member for Epping (Mr. Churchill) but, when he did it, he did it with the Jolly Roger flying; in financial matters he has the courage of his lack of conviction. When the Chancellor of the Exchequer, however, makes the same raids, they are

sicklied o'er with the pale cast of financial orthodoxy, and he explains his presence in the hen-roost by saying that he is re-arranging the eggs for the better convenience of the hens. It would have been better had he called it a raid and left it at that. The Financial Secretary referred to this as the last of a series of remarkable Budgets. We are quite prepared to agree to that. He claimed that there had been remissions of taxation amounting to £33,000,000. That is true, but all those remissions are of Income Tax. Since 1932 there has been an actual increase in indirect taxation, if the present year's Estimates are fulfilled, of £78,000,000. One claim for this Finance Bill which the Financial Secretary could have made is that it sets up a record, for under it indirect taxation will have been raised to a height never previously achieved in the history of the country. We shall raise under this Bill £317,000,000 by indirect taxation.

In the course of our Debates on this subject the Chancellor brushed aside as unimportant the controversy between direct and indirect taxation. [HON. MEMBERS: "Hear, hear!"] That may be the opinion of hon. Members, but it is not our opinion, and, so far as we are concerned, the question of direct and indirect taxation is as much alive as ever it was. Our Income Tax law, which is the most powerful instrument of taxation in the world, is also the most delicate and precise. I would liken Income Tax to a lancet and indirect taxation to a bludgeon, for the effect of indirect taxation is that it falls on the taxpayer in inverse ratio to his income. The lower the income of the taxpayer, the higher the percentage he pays in indirect taxa- tion. That seems to me an utterly unjustifiable result of any system of taxation, and one which must necessarily condemn it. Indirect taxation, falling as it does on the necessities of the people, lowers a standard of living which is already too low and which, according to the best medical evidence, condemns 50 per cent. of the population to actual physical malnutrition. Yet it is this standard that the Chancellor chooses to tax more heavily than it, has ever been taxed before. The right hon. Gentleman is attacked on two flanks. Just as we strongly resent indirect taxation, hon. Gentlemen opposite dislike direct taxation, and I have no doubt that the Chancellor has already found the truth of the epigram of Burke that

To tax and to please, no more than to love and to be wise, is not given to men. In a remarkable maiden speech the hon. Member for Darwen (Mr. S. Russell) put very well the case which is often put in the House that direct taxation at its present level is a serious menace to the financial and industrial stability of the country. He claimed that our present level of direct taxation was definitely impinging upon the capital reserves of the nation and depleting them to an extent that was dangerous. If that were so, it would certainly be true that we had reached the limit of direct taxation and it would admittedly necessitate indirect taxation to make up the revenue, but I am afraid that I cannot find the slightest evidence for such a view. I am willing to admit that our high rate of direct taxation at the present moment does deplete the financial reserves of the country, that it depletes the fund of savings which are seeking investment. I do not think there can be any evidence that that in itself is either harmful or a danger. All evidence goes to show that we have at present, and have had for a considerable time past, not a shortage of savings but, on the contrary, the nation putting too much to savings, and spending too little upon ordinary consumption. For proof of that one has only to look at the Stock Exchange during the past two or three years, and if further evidence he required nothing could be more conclusive than the fact that the Chancellor has been able to borrow £860,000,000 on Treasury Bills at approximately per ½ cent. per annum.

It is ridiculous to suggest that there is a shortage of capital savings when an enormous sum like that is available month after month to the Chancellor of the Exchequer at a practically nominal rate of interest. Had there been reasonable opportunities of investment that vast amount of money would not have been in the market at so low a rate of interest. We are attempting to save a great deal too much, and the country and trade would be a great deal healthier if a considerable amount were spent in what is known as terminal commodities. In our social system, with 60 per cent. of the wealth of the country in the hands of one per cent. of the population, we naturally get great inequalities, on the one hand vast incomes, too great to be spent in any one year, and accumulations of savings too rapid and too large, and at the other end of the social scale widespread malnutrition. The pressure of this free money looking for investment is in itself a menace to industrial stability.

In Clause 6 of the Bill we have just imposed what amounts to a stringent and rigid quota for iron and steel imports. The iron and steel trade has for many years been depressed. Now this rigid quota, with its drastic cutting down of imports—which that Clause implements—has led to a boom in that trade. Millions upon millions of this floating capital, looking for some profitable investment, has been flowing into the steel trade. Reconstruction and re-equipment have taken place at an ever growing rate, and although the industry to-day is working to capacity by the time this reconstruction and re-equipment have been completed, in the course of a year or two, the productive capacity of the industry will be wildly beyond the possibility of any market to consume its products. The result will be that in a year or two the industry will once again have slumped, because there has been no possibility of control of capital equipment owing to the steady pressure of these hundreds of millions of pounds of uninvested money floating about and rushing wherever there is a possible profitable investment.

In so far as our high rate of direct taxation definitely impinges on the too high rate of saving it has two effects. First, it reduces these unnecessary reservoirs, and thus tends to regulate over- production. Then it has another effect. This capital is sterilised while it is uninvested, it is useless, lying idle, so much consuming power kept off the market, and in so far as it is reduced by our high taxation it is put into circulation by Government spending and leads to greater consumption, better trade and greater industrial stability. The great controversy of direct versus indirect taxation is not dead, and the Chancellor will find that it will not die as long as our industrial system produces inequalities so great that upon the one hand the imposition of even 2d. on tea must depress a standard of living already too low in the case of many people, while on the other hand one, two or three per cent. of the people have so much wealth that they are unable to spend their incomes or to invest their surpluses.

11.42 a.m.


I think it would be not out of place if I were to begin by congratulating the Chancellor of the Exchequer, as I do most sincerely, on the way in which he and his team have handled the complicated and difficult questions which have fallen to them in these Budget discussions, which have now been spread over a considerable number of days. When a little charm and sweet reasonableness were required there was always the Attorney-General to furnish it extraordinarily well. On important matters the Chancellor of the Exchequer took a hand, always unruffled and always omniscient. And perpetually there has been the Financial Secretary, taking point after point as though he had nothing to do in his Department except to make himself acquainted with the intricacies of this Bill, and always most impressive, particularly, if I may say so, when he was least convincing. That is an art that I very much envy. For a brief time 20 years ago I was a predecessor of his in the same office, but I never equalled him in that capacity which he has shown that he possesses to a remarkable degree.

I remember, particularly, how he dealt with the proposal to give Income Tax relief in the case of boys who are undergoing definite training as apprentices, and with what an air of sincerity and conviction he made out, impressing the Committee, that if relief were given for training, relief would also have to be given for employment when there was no training, and then, going a little further, for the mere existence of the boy without any employment; whereas, of course, there is a perfectly logical and clear distinction between training, either in a school or as an apprentice, which puts a definite burden on the parent, and no training at all. However, he did it extremely well, and got away with it, as he has done with everything else, and I should like on behalf of my party to congratulate him on the way he has carried things through. I think that is the last thing I shall be able to say in which the whole House will agree with me. I come to points on which we differ. We think the increase of the Tea Duty was a mistake, showing lack of imagination, but that has been debated fairly recently and I am not going over the subject again, except to say that a time when tariffs have upset the balance between direct and indirect taxation seems to us to be not a wise occasion for imposing more indirect taxation than the mounting sum which grows steadily almost year by year.

Turning to another subject, I have read or listened to all that has passed in the House as to the position of the Road Fund. I still cannot succeed in justifying to myself the change in the system, which has existed since 1909, apparently with universal consent and which was, I think, definitely reaffirmed—was it in 1920?—when the Chancellor of the Exchequer was Minister of Transport and when the right hon. Gentleman the Member for West Birmingham (Sir A. Chamberlain) was Chancellor of the Exchequer. It then seemed to be a definite part of our financial system. It seems to me that the change cannot be due, as the Chancellor so definitely suggested the other day, to an access of financial correctitude on the subject of not earmarking taxes for special purposes. There is a good deal to be said for that principle if only it were carried out. In the very week in which the Chancellor was so eloquent on this subject here, the Post Office agreed to the earmarking of three-quarters of the income from the licences of the British Broadcasting Corporation. The cases are parallel, except for that.


It is voluntary to have a wireless set.


You have to pay, just as if you had a car. It is voluntary to have a car and it is voluntary to have a wireless set. The two things are exactly on the same basis. There is a definite relation between the number of motor licences and the needs of the roads, because the more licences you have the more cars there are and the more you ought to spend on the upkeep and maintenance of roads. There is no relationship at all between the number of wireless licences and the service which the British Broadcasting Corporation has to render. If rumour is correct, the Chancellor is going to give consent to the earmarking of a very definite tax, namely, in handing over the proceeds of a tax on cheap meat to the producers of dear meat in the country. It seems to me it is surely better not to pretend to act on principle unless you really have a principle upon which you are acting.

I see no justification whatever for these Road Fund proposals, unless the intention is to make it easier to take into the general revenue money which would otherwise have gone to our road programme. I cannot help thinking that it is a bad time to be doing that, and contemplating doing more of it in the future. There are six counties in England in which the rate for roads and bridges exceeds the rate for education, health and police put together. There are 14 counties in England and Wales in which the estimated rate for roads and bridges exceeds 6s. in the £, running up in some cases to 8s. or 9s. There are nearly 20 authorities, I believe, who have said that they cannot proceed with the five-year plan unless they get more money and more help from the Road Fund for doing it.

In spite of the very valiant attempts, which we all admire, of the Minister of Transport, the figures of deaths and accidents tend constantly to mount. The figure for injured last week, 5,699, has been only twice exceeded since the figures began to be recorded. I believe that the figures for deaths reached a peak in the week before that. As I said in the beginning of the Budget Debates, a tax is not a heavy tax unless it is felt to be heavy tax. A very large number of people took out their motor licences every year and had to pay quite a good deal for them, but they did not mind, because they believed there was a certainty, or at any rate a very considerable proba- bility, that the money was, in some definite way, being earmarked for the roads. Now that has altered, and their feeling about the matter will be altered, too.

A word about Clause 6. What a curious history that had. It was not mentioned, I think, after the Second Reading of the Bill, and then, in Committee, owing to the acuteness of the hon. Member for South Croydon (Mr. H. G. Williams), the Minister was led to quote a phrase from an agreement come to with the British Iron and Steel Federation. He was pounced upon by the Benches above the Gangway and told that having quoted from that document he must lay it, and the whole House got into full cry on the subject of whether we could discuss a Clause which depended upon an agreement which was not before us, and it was suggested that further consideration of the Clause ought to be postponed. From that, the House was saved by the intervention of the Home Secretary who showed us that, having considered the Clause, we could not postpone it. After that, the hue and cry continued, and it was not until quite late that a definite undertaking was given to present a White Paper, which was duly and truly presented.

A longish Debate followed, at the beginning of the week. I will not go over that ground again, but I will just make two points about it. First I would quote a sentence from the right hon. Gentleman the Member for Keighley (Mr. Lees-Smith) which seem very much to the point. He said: What we have practically reached is this: the iron and steel industry is now in very much the same position as a public utility corporation, but we have none of the safeguards that we have in the case of the electrical, or the gas industry or the London transport system. We have now given this industry the right, by a stroke of the pen, to increase the cost structure of the whole of British industry. That is not a right that ought to be given to any group of private individuals."—[OFFICIAL REPORT, 30th June, 1936; col. 313, Vol. 314.] I think that the proposed control by the Import Duties Advisory Committee is an entirely illusory safeguard from the point of view of the public.

I come to my second point. On Tuesday night we at last extorted from the Parliamentary Secretary to the Board of Trade the real facts as to the position of the man who wanted to import steel. He said that the British Iron and Steel Federation would say to that man:

We will put you on the list for what you will get next year."—[OFFICIAL REPORT, 30th June, 1936; col. 362, Vol. 314.] It seems as though it is a question of "This year, next year, some time, never" for such people, unless they stand very well with the powers-that-be in control of the British Iron and Steel Federation.

The last point which I ask the House to consider is this. The Budget makes provision for the increased needs of Defence, of course, but in the present state of mist and uncertainty, and contradictory statements on that matter, we cannot support that provision. I have three very brief points. The first is that we think the House and the nation ought to have fuller information as to the Government's whole policy before they are asked to vote for an instalment of it. It nearly always pays to take the House into confidence, particularly if there is rather bad news to tell it. It is a mistake that we have heard so little about the real intentions and the probable expenditure of the programme to which we are bound. Secondly, we here are not in the least convinced that the Minister for the Co-ordination of Defence touches the real spot. He ought to have been backed up by the Cabinet, and particularly by the Prime Minister, who is the real authority for the Defence Department. I see no signs of it. It seems to me that he ought to be able to say to the Admiralty, for instance, that their great battleship programme must be postponed, and that for the present every effort must be concentrated upon increased strength in the air. That might be a very vital matter. I see no sign that the Admiralty are going to allow the Minister for the Co-ordination of Defence to have any sort of say, still less any interference, with their programme and with the major needs of the country.


The right hon. Gentleman is now discussing Defence, and is going a very long way outside the limits of this Third Reading debate.


I will say no more about that. I thought I was justified in briefly giving our reasons for not supporting the Finance Bill, so far as it relates to those matters.

My last point is that, when we are asked to make a contribution, as we are in this Bill, to the needs of defence, the nation has a right to know what the policy underlying those needs will be. That again is a large subject, on which, I know, I cannot enter this morning, but it seems to me that it will not do for one Minister to talk of reforming the League and of regional pacts, and for the Prime Minister to talk of strengthening the League and making the system of pooled security into a reality. It seems to me that that does not suceed in its purpose, while it puzzles our own people, and particularly puzzles people in foreign countries—


The right hon. Gentleman is getting worse.


That is perfectly true. I had understood, however, that a certain right hon. Member of the House was going to develop this type of subject rather considerably to-day. If that is not so, it is, of course, perfectly right to prevent me from doing it in the minor matter on which I was embarking. I will only say this final word, that we should have been willing to vote for the defence provisions in the Budget if the Government had been prepared to act on the formula, which is so frequently in their mouths, that our armaments are a contribution to pooled security. In the absence of that, our position must he different, and we must, therefore, oppose the Bill.

11.57 a.m.


The hon. Member for Chesterfield (Mr. Benson), in the course of his speech, made a reference to the Financial Secretary's relationship to the Budget, and said that very often people did not appreciate a child as much as its parent did. I think that, if the hon. Member had followed the simile a little further and looked at other nations throughout the world, he would be willing to agree that any of the other countries in the world would be glad, if it could possibly do so, to adopt this child of our Chancellor, for I honestly believe that this is the one country which is leading the way in regard to wise finance.

The question to which I desire to refer is that of farmers' Income Tax. I think that, if the hon. Member for Chesterfield understood the question of farmers' Income Tax as well as he ought to do, he would not have said what he did say this morning. As the hon. Member truly said, the farmer pays his Income Tax either on his profits or on the basis of his rent. I do not know whether the hon. Member has any experience of keeping farming books, but I know, Mr. Speaker, that you have, and perhaps from the point of view of your pedigree herd you would find it better to pay on the basis of the rental of your farm than on the basis of profit and loss; but, from my experience of farming, the profit or loss basis is very much more suitable than the rental basis. I think that very often farmers who are making a loss, and are paying on a rental basis do not appreciate the loss that they are making, because they do not keep books, and that, if they were not allowed to pay on a rental basis, they would automatically keep books and would pay less Income Tax.


The hon. and gallant Gentleman missed the gravamen of my charge. The real indefensibility of Schedule B lies in the fact that it gives the Income Tax payer the choice of two alternative bases, and if he does not choose the basis which is advantageous to himself, he has no one to blame but himself. The hon. and gallant Gentleman cannot, however, persuade me that farmers can keep on living on their losses.


I am not trying to make out that that is the case at all, but it seems to me, from the hon. Member's interruption, that he is not familiar with the return that farmers have to make. It is highly complicated and very difficult, and I can assure the hon. Member sincerely that there are many farmers in this country who would he quite unable to do it. They are, therefore, paying on a rental basis, and in many cases they are paying more Income Tax than they should. When I was farming, which, luckily, I am not doing now, there were times when I not only had no Income Tax to pay on the farm, but was allowed to offset farming losses against other sources of income, and I think that in many cases farmers are being "led up the garden" by being allowed to pay on a rental basis. When the Budget Resolutions were before the House I raised a point about the children's trusts which are dealt with in Clause 21 of the Bill. The Financial Secretary then remarked that some of these matters were very technical and involved. I do not understand technical and involved language, but I should like very sincerely to thank the Chancellor and the Financial Secretary on behalf of many of my friends both in the House and outside, not only North of the Tweed but even among the more generous-minded English, for the manner in which they have met the point that I raised. On the Report stage of the Financial Resolution I said:

I feel very strongly that these irrevocable trusts should be left alone and allowed to stand as they are. By all means let the Chancellor prohibit this kind of thing in the future, but do not let him go back on what people did perfectly legally and honestly and paid for doing."—[OFFICIAL, REPORT, 27th April, 1936; col. 677, Vol. 311.] The Chancellor admitted the justice of my contention, and I desire to offer him my sincere thanks.

12.3 p.m.


The Financial Secretary remarked that probably all that we had to say on the Finance Bill to-day would have been said before. He himself, however, in the short time that he took, managed to avoid repetition fairly well. I have been struck by the commendable brevity of all the speeches this morning, and, if the same practice could be followed in future Debates, we might get on better than we otherwise should. The Debate has lasted only an hour, and we have had four or five speeches, in the course of which hon. Members have put their points very clearly.

The Financial Secretary did not tell us of any remission that had been given during the discussions on the Bill, or, at any rate, I did not hear anything of the kind. He told us about the long discussions that we had had, and one would have expected that there must have been some good in the points that were put before the House by hon. Members in those discussions, and that some kind of remission would have been given by the Chancellor after he had received considered opinions from all quarters of the House. I should like him to tell us, when he comes to wind up this Debate, what effect those discussions have had upon him in regard to giving way on certain matters. I do not myself remember anything that has been given away from the Treasury Bench. The impression I have gained is that, when Amendments have been moved, the Chancellor of the Exchequer, or the Financial Secretary, or the Attorney-General, has said in reply, "We appreciate the point that has been put by the hon. Member, but—"; and when the word "but" was reached, one felt that there was nothing more to come. I think the Chancellor reached his highest point when he was dealing with an Amendment which I moved with the object of trying to get relief for all kinds of education. The right hon. Gentleman spoke for 10 minutes, and up to the ninth minute we wondered whether he was going to give way or not. I said to my colleagues, "I think he is going to give way." He "led us up the garden" wonderfully well, and then, after praising us all that he could, he said that he could not give way on that occasion. He appreciated the points put forward, and was sympathetic towards them, but, in spite of all that, there was nothing for us at all.

We are dealing here with the balance sheet of the nation, and one has to take a very wide view on these matters, but I know, Mr. Speaker, what your Ruling would be in regard to confining our remarks to what is dealt with in the Bill. I intend to stick to the Bill as far as I can.

I want to take the point as to the manner in which this Finance Bill is governed by our foreign policy. The Chancellor of the Exchequer in his broadcast speech just after his financial statement said he was very sorry that he could not give more relief—the necessities of the occasion prevented his doing that—that the requirements of our defence had taken all that he had and he had to call for more, and to ask for an increase of 3d on the Income Tax and 2d. on the Tea Duty. We are driven back to the position that this is largely a Budget of fear, and we have to prepare for something unexpected that may take place. One is, therefore, driven to the position that our foreign policy has largely governed the financial statement. It is also proved that in time of necessity we can find the money required. We have on the income side of the statement £789,000,000, and on the expenditure side £797,000,000, which I think is the highest point we have ever reached in our history. I want to ask if, when we have got over our present difficulties, when we are satisfied that our defences are adequate, the Chancellor will be able to deal with other calls on the nation. If we can find the money when it is required at a time like this, one expects that on some other occasion there will not be any outcry against what we may put forward as the requirements of the nation, as in times of both social and foreign necessity the nation can bear the strain.

In my opinion the people of the country are 100 per cent. against any thought of war. They have voted for the increased money but, if you put the question to them, they would all say they were against war. I believe also that, if you can satisfy them that there is a danger of attack from any aggressor, 90 per cent. of the people would willingly find all the money required. I also believe that 60 to 70 per cent. of our people would willingly agree to contribute, for a force which could be utilised for the purpose of what is called collective security. So, in examining this financial statement in all its aspects, I hold that the Government have rather taken on trust, as it were, the feelings of the nation. I should like them, in a case like this, to be more explicit when they are asking for these moneys. I think the nation is ripe for a more comprehensive statement as to why the money is required. I belong to the trade union movement. Owing to the make-up of that movement all our work is known to the world. We cannot keep anything secret. One feels sometimes that that is not altogether a good thing, but after all, when everyone knows what you are doing, you get the confidence of all your members.

It is the same with the Government. I believe that, if you have good case to put before the people, nothing ought to be hidden. The whole position ought to be put before them. In this big call that is made on them, although it has been accepted by the people, there is still a grave doubt in their minds as to whether it is necessary. Wherever I go there is a feeling against the Tea Duty. If you could convince those who have to pay it that it is urgently necessary for some particular purpose, no one would complain of it, but they feel that there is no need to call for it and that, if the money were required, the Government ought to have gone to some other source. We are not going to oppose the Third Reading. We are commenting on the Bill and putting our points of view in the hope that the Chancellor will take note of what we have to say. We decided on the last occasion not to oppose the Third Reading, but we were taunted from the other side and told we dared not put our resolutions into action and, because of those taunts, we were driven to take a Division. I hope that what we are doing in the way of honest criticism to-day will not be met with jeers and derision. We do not believe that on every occasion when we criticise the Government we are compelled to take a Division. I hope the Chancellor will let us know how far he has acceded to the requests and appeals made from all sides of the House.

12.14 p.m.


I cannot understand why the hon. Member for Chesterfield (Mr. Benson) should want to get any more money out of the unfortunate farmers. They have been struggling through the depression longer than any other section of the community owing to the condition of world prices, over which they have no control whatever. I should think very few, certainly none in the North of Scotland, have made a profit for ten or eleven years, and for the hon. Member to plead with the Chancellor of the Exchequer to tighten up the revenue arrangements in their case is a very harsh suggestion, and I am sure that on reflection he will realise that it is most undesirable. The hon. Member for Chesterfield also referred to the Road Fund. I would like to re-echo the statement of the right hon. Member for North Cornwall (Sir F. Acland) that it is necessary to proceed upon principle. I am entirely in agreement with the principle of having non-earmarked revenue. I think the Chancellor of the Exchequer is perfectly right in transferring the Road Fund to the general revenue, and I support that proposal. I agree with the right hon. Member for North Cornwall that if you have a principle you ought to stick to it, and I should like to see the principle extended, particularly in the case of wheat. Why should that particular revenue be earmarked and distributed amongst those farmers who are fortunately able to grow wheat and wheat alone, while those farmers who are unable to grow wheat are to get no benefit. That revenue, just as much as the Road Fund, belongs to the taxpayers of the country and should go into the general pool, and an equitable payment out should be made to all farmers, whether they grow wheat or oats or anything else. Why not? It is a very reasonable suggestion, I base myself on principle, but in this matter the Chancellor does not do so. He sticks to principle in the case of the Road Fund—


Has the hon. Member's view anything to do with the fact that the farmers in his constituency do not grow wheat?


Of course it has a great deal to do with it. I do in some slight degree share the apprehension of the right hon. Member for North Cornwall that the money spent on the roads may conceivably be cut down as a result of this action by the Chancellor, and I am sure that Members on both sides of the House will be very grateful to the Chancellor for some reassurance on that point. I for one am absolutely convinced that when all is said and done, through money payments or anything else, the fundamental cause of the appalling slaughter on the roads is the fact that the roads are totally inadequate for the amount of traffic they have to bear. The hon. Member for Chesterfield also referred to the dire effects of indirect taxation and to the beneficial effects of direct taxation. We on this side are inclined to disagree with him, as he pointed out. I shall not go at length into the arguments, on which one could talk at length.

With regard to indirect taxation, taking it as a whole has the hon. Member considered the effect of it upon employment, upon wages, and upon the cost of living? With regard to employment and wages, a good deal of the indirect taxation to which he referred is part of the protective system, and I think it quite definitely benefits the workers in many industries. Coming down to the acid test, I would direct the hon. Member's attention to the cost of living index figures. There is no marked increase in the cost of living figures as a result of the indirect taxation imposed. With regard to direct taxation, I disagree with the hon. Member when he says that the more direct taxation you put on the more capital will be available for investment. He spoke of capital as sterilised and said that if you put a bit more on Income Tax capital would tend to become unsterilised.


The hon. Member is misrepresenting me, though I am sure quite unintentionally. I never suggested any increase in direct taxation. What I said was not that more capital would be available, but that if Income Tax was levied on excessive savings more money would be put into circulation by Government spending, and we should get more trade.


Naturally, I accept what the hon. Member now says. I and the hon. Member for Huddersfield (Mr. Mabane) certainly understood him to be advocating an increase in direct taxation. What I am glad to find we agree about is that we must have adequate capital for investment if we are to keep up industrial prosperity, and that if we overdo direct taxation we check the flow of capital into investment. I believe that the present rate of direct taxation, the present increase in Income Tax, is possible only because of cheap money, the existence of which has engendered confidence in the Government and the Government's policy. It is a tremendous relief for anyone who does support the Government to be able to make a speech on an aspect of Government policy where it has been uniformly and consistently successful, where, apart from perhaps some comparatively trivial differences of opinion with regard to the necessity for the extra 3d. on the Income Tax, no one in his heart of hearts, except possibly the hon. Member for West Fife (Mr. Gallacher), can find any fault with the policy of the Chancellor of the Exchequer.

On the question of tax avoidance I was very interested in what the Financial Secretary to the Treasury said as to the future. He said that the attitude of the Treasury in future would be to check any further evasions of taxation. Everyone agrees with that proposal. The hon. and learned Member issued something in the nature of a warning. I want to say that I think there is still a certain amount of confusion, quite genuine confusion, not only in financial circles but generally in the business community, as to what is legitimate and what is not. There has been in the past, and there still remains, one particular thing to consider. In the City of London there is a thing known as "washing"; in other words the transfer of Government securities just before the period of dividend payment from one company to another, an action which deprives the Treasury of a certain amount of revenue. Yet it is absolutely within the law. Many companies do it. Other companies think it is not quite right. There is a complete difference of opinion and confusion on the subject. All this tax evasion has to be dealt with, because the vast majority of people do not evade taxation. The hon. and learned Gentleman the Financial Secretary to the Treasury was perfectly right when he said that tax evasion carried out at the expense of the standard rate of Income Tax was unjust. I do feel that some further clarification of the policy and intentions of the Government in the matter is desirable from that point of view.

I still think that we might have done without the extra 3d. on the Income Tax, and that 9d. is a very inconvenient figure; but I am sure that the fundamental objective that the Chancellor has in mind is the continuance of confidence and of cheap money, and in that I think he is absolutely right. That has been the policy on which he has built up the remarkable prosperity of the country, and it has made his administration at the Treasury one of the most successful that any Chancellor has ever had in this country. It is absolutely right. Provided you do not let booms get out of control I do not see the need for any more slumps, provided always that there is underlying confidence. More and more, economic opinion is coming round to that view, which has been largely the cause of the success of the Chancellor's general policy. You need further a certain amount of expansion, even when the un- employment figures are not abnormally high, of at least three per cent. per annum.

My right hon. Friend the Chancellor of the Exchequer knows as well as anyone the pit into which financial orthodoxy and continuous deflation led us in 1931, and I do not think that he would be the son of his father if he himself was a slave to orthodoxy in the economic field. His policy has brought us perhaps to a higher lever of prosperity in this country than we have ever reached before. More people are gainfully employed to-day at higher wages than ever before in our history, but we still have the distressed areas, shocking slums and inadequate roads, and, in certain centres, malnutrition. These things cannot adequately be dealt with by private enterprise; they can only be dealt with by the Government. It was a pity, in view of the general success of his policy and the magnitude of the figures put into this Bill, that recently a prospectus should have been hawked round the City of London for £1,000,000 under the auspices of the Treasury and the Bank of England to deal with the distressed areas. That is quite inadequate to deal with them. While thanking my right hon. Friend and expressing great gratitude for the remarkable condition of prosperity into which his policy has brought this country, the very confidence engendered by his methods and proposals in this Bill should enable him to continue his good work in areas which have not yet felt the beneficent hand of his financial proposals.

12.27 p.m.


I do not wish to intervene in this debate for the purpose of dealing with the details of the Finance Bill, but I feel that I should not let the speech of the hon. Member for East Aberdeen (Mr. Boothby) pass without a word or two about his confidence in the methods of the Chancellor of the Exchequer and the financial methods of this country in respect of what he calls the truly remarkable development of prosperity. It ought to be put upon record, from this side of the House anyhow, that we entirely reject the complacency of hon. Members when they speak about the prosperity of the country under this government, or, indeed, under any capitalist government whatever. Can the hon. Member speak about prosperity with com- placency and optimism, in the language in which he couched his remarks, when we have the statement made by the greatest authority upon nutrition in this country, that there are more than 20,000,000 people, nearly half the population, who do not get enough to eat. That statement is backed up by authoritative figures. It is confirmed by other authorities and associations in this country. In spite of what the hon. Gentleman calls remarkable prosperity we have the position not only as the result of unemployment, but as the result of the economics of society that huge numbers of people, millions upon millions, live under conditions which do not allow adequate physical nutrition. The result is that we find various strata of society existing, and if you worked out the figures about malnutrition, they would show the direct physical effect of the poverty of the country.




I am about to sit down, as I do not intend to make a speech. I merely thought it desirable to make a reflection of that character, because we cannot allow the statement that this country is living under conditions of great prosperity to go unchallenged. It is not. It is living under conditions in the main, in regard to the great majority of the population, of poverty, insecurity of unemployment. It is poverty which is ingrained irrespective of whether employment is at its peak or not. It is not a problem solely of employment. It is a problem of poverty itself as a result of people not being able, because of the natural economic expansion of the so-called prosperity, to buy enough to justify the claim that we are living under better and improved conditions. The nation may be more prosperous than it was, but that prosperity is not shared, and until it is shared, we cannot share the complacency of the hon. Member.

12.31 p.m.


In accordance with your advice, Mr. Speaker, I wish to introduce a little cut-and-thrust in the Debate in reply to what has been said by the hon. Gentleman the Member for West Islington (Mr. Montague). Of course, there is a lack of prosperity in some degree here. We know that. But let the hon. Gentleman look at any other country in the world. I have been, as I daresay he has, to America and the European continent. Where is there a country in the world where the less fortunate of the people of any country have been gradually lifted to a better state of comfort than is the case in this country? It cannot be done in a hurry. Look at America with millions of destitute people. The laws under which we live are not responsible for the poverty and the lack of nutrition we see around us as the hon. Gentleman would have us believe. I would remind the hon. Gentleman that the natural state of mankind is poverty and misery. [HON. MEMBERS: "No"]. I am not quoting my own words but the words of the great Jeremy Bentham, who explained that the natural and original state of mankind is poverty and misery. The laws of man, so far as one can make them—and we have made them—have helped man to create wealth and capital and thus we have been able to blunt the tooth of poverty and misery and increase the well-being of our fellowmen. Of course there are numbers of people who are unemployed and who are under-nourished. And I fear there always will be, and those of us who have worked in hospitals or have done municipal work in our great cities know this to our sorrow. The hon. Gentleman himself may have done municipal work.

I believe that I shall be in Order in dealing with unemployment figures because the hon. Gentleman opposite spoke of that problem. The result of unemployment appears in Class V of our civil expenditure. I think that the unemployment figures, bad as they are, are misleading. Of the 1,800,000 unemployed, there is an irreducible unemployable minimum, not of unemployed poor but people from other strata who have been sifted from every grade of society, who have drifted down and been precipitated from higher grades to the lowest. They do not only come from the actual working class stratum of the population, their poverty, their unemployment, if not seasonal is not brought about merely by malnutrition, but because, just as you plant a forest and have some trees that are under-nourished and do not grow and prosper, so you have among humanity those who are physically unfit and inefficient and vitally stunted. If you could analyse the unemployment figures by means of minute vital statistics. you would probably find 500,000, or perhaps 1,000,000 poor creatures who could never find work permanently because they were physically inefficient or mentally unfit to fight the battle of life unhelped. Let us not be too pessimistic about the unemployment returns. Let us not be misled.


Does the hon. Baronet dispute the figures of Sir John Orr, that 20,000,000 people in this country do not get enough to eat?


That point is sub-sidiary—


I cannot allow a Debate on that matter. It is outside the question now before the House. I have allowed the hon. Member for Farnham (Sir A. M. Samuel) to reply to the hon. Member for West Islington (Mr. Montague) but I cannot allow the Debate to continue on those lines.


I will not pursue that point, but will merely say that it would not be a bad thing, seeing that under Class V we are voting £162,000,000, if the Treasury one day would dissect the unemployment figures so that we may see what arises from pure trade unemployment and what refers to other causes. I will now come closer to the Finance Bill, but as an excuse to you I would remark in passing, Mr. Speaker, that you advised us to indulge in the cut-and-thrust of debate and therefore you are in some degree responsible if I stray a little out of order.


I must not be accused of inviting hon. Members to be out of order.


As the Chancellor of the Exchequer knows, we did all we could on this side to help him to clarify and strengthen Clauses 18 and 21. He will admit that the discussion helped him to make those Clauses more workable. But there can be no doubt—I do not want it to be thought that I am attacking the draftsman and the right hon. Gentleman's staff, because they do their very best, that Clause 21 is unintelligible, and particularly Sub-section (5). One might as well sit on the paws of the Sphinx and try to solve the riddle that is in the Sphinx's mind as to try to solve the riddle of that Clause. I think there is a remedy that might be applied in the future. Those who draft such financial provisions are not so much in touch with the working of them as are family solicitors and the counsel to whom family solicitors go. When one has to tackle a Clause like Clause 21 and Subsection (5), I think the Treasury might advise its draftsmen to go for help to leading family solicitors, so that they might lend a hand to draft such provisions. They will be the people who will have to administer the Act for the public in every day practice. They would be able to explain the difficulties and the pitfalls and so advise the Government draftsmen how intricate Clauses could be drafted so as to be workable with greater clarity. No greater reproach could be brought upon this House and the Treasury than that at some future time—and I think it will be a near future time—this Clause 21 will have to go to His Majesty's judges to be explained. We tried to thrash out that Clause 21 and if it has to be taken by the public before the judges for explanations as to what it means after we have passed this Bill, we shall, in some degree, have failed in our procedure of legislation.

The hon. Member for Chesterfield (Mr. Benson) raised a subject which is almost as old as time. I have never heard a Debate on the Finance Bill when the grievance about direct and indirect taxation has not been discussed. It is nearly as stale a subject as the attack of the hon. Member for East Aberdeen (Mr. Boothby) upon the Bank of England, and his annually repeated remarks on the Gold Standard. Those subjects always come up in Debates on finance. The hon. Member for Chesterfield passed strictures about the difference in the ratio of indirect and direct taxation. He forgets that there is direct taxation of £433,000,000 out of an expenditure of £799,000,000. None of that direct taxation comes out of the pockets of the poor people.


Where does it go?


I was dealing with its source. Of the £799,000,000 of expenditure, £162,725,000 goes in health, labour and insurance, including old age and widows' pensions; £58,000,000 goes for education and about £45,000,000 for War pensions and civil pensions. It goes for the general benefit and upkeep of the country. The man who receives interest upon the national debt has to thank nobody for that. He provides the interest himself as a direct taxpayer. A married man who has three children and an earned income of less than £430 to £450 a year pays not one penny of Income Tax, the income tax payer finds every penny of the interest on the national debt. Another thing which the hon. Member left out in his criticisms was the fact that not only does the direct taxpayer pay direct taxation but he also pays indirect taxation, and that protective duties are indirect taxes which provide employment. Therefore, when the hon. Member talks about the difference in the ratio per cent. of direct to indirect taxation, he ought not to leave out the fact that the direct taxpayer pays indirect taxation on sugar, tobacco and other things, and bear in mind the effect of the indirect protective taxes on duties. Whatever the direct taxation may be, we must add to that the amount that the direct taxpayer also pays in indirect taxation, while the indirect taxpayer pays little or no direct taxation.

I have little more to say. I think this Finance Bill is fair. I am glad that the Chancellor of the Exchequer has taken steps to stop unworthy dodging of taxation. I had no idea until my right hon. Friend told us, the extent to which some forms of tax evasion had gone. We must do all we can to see that everybody pays his just share of taxation. Clause 18, which deals with the practice of sending money abroad in order to avoid taxation, is very proper. That method of avoiding taxation is wrong, and we ought to support everything possible to stop, it. I congratulate the Chancellor of the Exchequer on the efforts that he is making in that direction, and I hope that Clause 18 will be effective. I had no intention of speaking until I was provoked to it by the other side, but it gives me an opportunity to extend to the Chancellor of the Exchequer my good wishes for the Finance Bill, and I would like to congratulate the Financial Secretary, and thank him for the trouble he has taken in explaining matters.

12.43 p.m.


Although I except your ruling, Mr. Speaker, I heard it with great disappointment, because I had hoped that it might have been possible to follow the hon. Baronet into some of the paths in which he wandered. I will not go further than to say in reply to the hon. Member for East Aberdeen (Mr. Boothby) that I represent one of those parts of the country where the high level of prosperity which he claims has not been attained. I represent a district where we should very much like to get back to the measure of prosperity we had in 1931, before the wonderful financial genius of the Chancellor of the Exchequer dashed us even further into the mire than we previously were. There is no suggestion that anything that this Government has done has so far helped Tyneside or South Wales, and I gather from the letter which the Lord President of the Council has sent to the National Labour candidate for Derby that they have given those districts up. We are told that artificial help cannot solve the problem and that those districts are to rely on natural means. They will probably appreciate the aphorism of the hon. Baronet the Member for Farnham (Sir A. M. Samuel) that the natural state of mankind is poverty and misery.


The hon. Member must not put that aphorism upon me. I have already said that it came from Jeremy Bentham. It is a classical aphorism.


The hon. Baronet quoted it with approval, and almost with enthusiasm. I admire his modesty in confessing that he did not think it out himself, but nevertheless, I understood that he adopted it.

On the Tyneside, in conjunction with the County of Surrey, we have been endeavouring to deal with this matter. We had a moving debate on the subject the other evening in which the hon. Member for Jarrow (Miss Wilkinson) took part. Everyone will agree that the hon. Member made an indictment against the Bill on this issue which was not answered by the representative of the Board of Trade. The speech of the hon. Member for Guildford (Sir J. Jarvis), whose disinterested help to Tyneside everyone will acknowledge, received no reply. I want to ask the Chancellor of the Exchequer to deal with this point in his speech; how is it that after the promises that have been made and after the definite statements of Sir Andrew Duncan last December, the steelworks far Jarrow have not come into existence? Tht statement of the hon. Member for Guildford as to the reasons were plain and emphatic. He attributed the whole difficulty to the arrangements which are enshrined in Clause 6 of this Bill, and to the powerful opposition of those who control the iron and steel industry of this country. He said three conditions were laid down by them before they would allow the Jarrow steelworks to be set up. They were denied by the Government spokesman, but exactly what the conditions are was not stated by the Government.

If it was all imagination, if the gentleman who was sent by the hon. Member for Guildford to the Board of Trade, said something other than the truth I hope we shall be told quite frankly this afternoon. In the eight or nine miles between Newcastle and the sea you have about 1,000,000 people, who for 10 or 12 years have been living in direst poverty. This constant deferring of hope is something which does more than make the heart sick; it makes the soul despair. It is very undesirable that there should be any doubt in the mind of these people as to the reasons why these steelworks, which the hon. Member for Guildford contemplated starting, have been prevented from coming into operation. Two years ago when the hon. Member was High Sheriff of Surrey he asked me to join the Committee which controlled his fund, and I consented, although I said to him that his fund would do more for the political education of Surrey that it would for the relief of distress on Tyneside. Up to the moment my words have been justified. I hope that the Chancellor of the Exchequer will be able to make the position of the Jarrow steelworks under Clause 6 quite clear to the House. The Chancellor of the Exchequer had an unexpected lapse into humour when dealing with the relations between the length of roads, the mileage of new roads and the number of accidents on the roads. He said: The more roads there are and the more cars there are on the roads contribute to accidents, and if you make more roads you make more opportunities for accidents. I ask him to apply that dictum to Clauses 18 to 21 of the Bill. He is endeavouring to control traffic with regard to taxation and he has drafted exceedingly long Clauses. As I listened to hon. and learned Members dealing with them I was reminded of the Dutch proverb, that the fox may lose his hair, but he will not lose his tricks. Any hair which the right hon. Gentleman might take off in this particular matter would not cause them to lose their tricks, and we shall find that they will be able to carry on their evasions perhaps with a little more difficulty, but not without some gain to the legal profession. I only heard in the course of a Debate one justification for the kind of evasion with which the right hon. Gentleman hopes to deal. The Junior Member for Oxford University (Mr. A. Herbert) speaking in the House on 27th April said: I am not in the least ashamed that I have made on a small scale one of the numerous arrangements that are being discussed to-night. … It is true to say that parents who are taking advantage of these arrangements are doing some special thing for their children which they could not afford to do otherwise."—[OFFICIAL REPORT, 27th April, 1936 col. 692, Vol. 311.] The hon. Member started with the usual objection of having to pay for the education of other people's children, but, after all, education is provided out of the taxes and is available for his children as well. If he desires to have some fancy sort of education for his children, there is no objection to his paying for it. As chairman of the Departmental Committee on Private Schools I am sure that many people who go out of their way to pay for their children's education get a far worse article than those people who rely on the education provided by the State, but, still, if the hon. Member desires to gamble on the possibility of finding a school where he can get a better education for his children, there is no objection to his paying for it. The hon. Member was looking for ways of economy, and the only way was in which he proposed to effect—economy was in his Income Tax. The Chancellor of the Exchequer, in my opinion, is perfectly justified in endeavouring to prevent that leak, and I hope he will be more successful than would appear to be likely from the discussion we had on this matter.

I could not follow the speech of the hon. Member for Farnham (Sir A. M. Samuel) when he attempted to deal with the ratio between direct and indirect taxation. Nobody denies that the direct taxpayer also has to pay indirect taxation, but he pays direct taxation only if he has an income. A man, whether he has an income or not, has to pay indirect taxation on every article which he consumes.


What I tried to point out is that the ratio figures are misleading in that they do not include the portion a direct taxpayer pays for indirect taxation. The hon. Member also overlooks the fact that the indirect taxation figures are loaded with the protective duties which, of course, everybody has to pay, and which are put on for the purpose of making employment. Therefore, unless one takes into consideration the portion of indirect taxation paid by the direct taxpayer, plus the protective duties, in view of their improvement of employment, one does not get a proper picture of what the ratios of direct and indirect mean.


I am very much obliged to the hon. Member. One is generally rewarded in this House for giving way and I do not complain of anything the hon. Member said in his intervention. Our objection to indirect taxes is that they tax a man according to what he is compelled to consume. There is a certain minimum which, as my hon. Friend the Member for West Islington (Mr. Montague) pointed out, a large proportion of the people of this country find it difficult to obtain. By the wide range of indirect taxation to-day, practically every one of the main commodities which the people use and consume are taxed. By indirect taxation you tax a man upon the necessities of consumption and not upon his ability to contribute to the State. There is a great passage written by Sydney Smith which the father of the Chancellor of the Exchequer once quoted, I believe nearly 50 years ago, when his views on fiscal matters were different from those held by his son today. In that passage Sydney Smith satirised the condition in which we find ourselves to-day. Perhaps the hon. Baronet the Member for Farnham knows his Sydney Smith by heart as well as he knows Jeremy Bentham. I can only wish he would apply it as effectively as he is willing to apply Jeremy Bentham. The passage reads: Taxes upon every article which enters into the mouth, or covers the back, or is placed under the foot—taxes upon every thing which it is pleasant to see, hear, feel, smell, or taste—taxes upon warmth, light, and locomotion— I see that the Financial Secretary is smiling. The joke must be a good one if it amuses a Scotsman. Does the hon. and learned Gentleman deny that there are taxes on warmth, light and locomotion to-day? Why, when it was thought that by the use of oil people might be able to warm big buildings rather more economically than in another way, the Chancellor of the Exchequer immediately put a tax on oil. There can be no doubt that there is a far heavier tax on locomotion to-day than in the days of Sydney Smith.


I would point out that there is no taxation on coal.


I hope the fact that the hon. and learned Gentleman has managed to discover one exception will not prompt him to remedy the deficiency in some future Budget. Moreover, it may be true that the State does not put a tax on coal, but there is a tax levied by the royalty-owner with which I understood that the Government, during this session, were going to deal. They appear to have overlooked that. The passage continues: Taxes on every thing on earth, and the waters under the earth—on everything that comes from abroad, or is grown at home—taxes on the raw material—taxes on every fresh value that is added to it by the industry of man—taxes on the sauce which pampers man's appetite, and the drug that restores him to health—on the ermine which decorates the judge, and the rope which hangs the criminal—on the poor man's salt, and the rich man's spice—on the brass nails of the coffin, and the ribands of the bride—at bed or board, couchant or levant, we must pay.—The schoolboy whips his taxed top— To-day he has to pay the tax on the whip as well if there is any leather in it. the beardless youth manages his taxed horse"— If his horse comes from the Irish Free State it is taxed to-day— With a taxed bridle, on a taxed road:—and the dying Englishman, pouring his medicine, which has paid 7 per cent. into a spoon that has paid 15 per cent.—flings himself back on his chintz bed, which has paid 22 per cent.—and expires in the arms of an apothecary who has paid a licence of a hundred pounds for the privilege of putting him to death. His whole property is then immediately taxed from 2 to 10 per cent. Besides the probate, large fees are demanded for burying him in the chancel; his virtues are handed clown to posterity on taxed marble; and he is then gathered to his fathers—to be taxed no more. Sydney Smith was a clergyman and he may have been able to make the last statement with assurance, but I would not be too sure in these days that the Chancellor of the Exchequer may not find some means of invading the next world after he has finished with this one. The only thing that is wrong with that quotation to-day is that the percentages are too low. We have got back to the position of over 100 years ago and the ridicule which Sydney Smith poured on the taxation of his day is merited by the taxation of to-day.

I can only say that throughout the country, if the great exporting trades are to revive, there will sooner or later have to be a recognition of the fact that the narrow economic nationalism, which has dominated the policy of this Government, and which is enshrined in this Finance Bill, has to end. We all say that narrow economic nationalism is one of the great dangers of our generation, and each successive year we continue to make the bonds that we impose on trade and industry stronger and more restrictive. Speaking for one of the great exporting districts of the country, I am bound to say that we cannot share either the pleasant outlook of the hon. and learned Gentleman the Financial Secretary or the complacency of the hon. Member for East Aberdeen (Mr. Boothby). We feel in our bones the truth of the doctrines which I have just enunciated, and we can only hope that this Government—or if not this Government, some Government which may speedily succeed it—will realise that it is no good paying lip service to the doctrine of breaking down economic nationalism and steadily pursuing it in your Finance Bills.

1.4 p.m.


The hon. Member for South Shields (Mr. Ede) said that the parent who pays for his child to be educated at a non-State school has no right to complain that he also has to pay taxes for the State schools. He pointed out quite truly that those State schools are open to his children. I do not think such parents do complain, but it is a fact that if a very large number of people in this country did not send their children to public schools and similar schools, taxation and rates would be very much higher than they are.

I would like now to refer to the speech of the hon. Baronet the Member for Farnham (Sir A. M. Samuel). He said—and I am sure he is right—that the Finance Act, 1936, will produce a heavy crop of litigation, and I think it will produce a rich harvest for the practising lawyer, which unfortunately I am not. The hon. Baronet the Member for Farnham pointed to Clauses 19 to 21 as being particularly obscure, and the Financial Secretary to the Treasury admitted that. I take this opportunity of echoing the tribute paid by the right hon. Gentleman the Member for North Cornwall (Sir F. Acland) to the courtesy and skill with which the Chancellor of the Exchequer and the Financial Secretary dealt with the multitudinous points raised during the discussion of these Clauses, although we did not always find their replies very convincing. The hon. Member for Farnham suggested that one way of avoiding abstruseness would be to send the Bill in draft to a family solicitor, but I suggest that the disease is too deep for that remedy. The main fault of Clauses 19 to 21 is that they exhibit the practice of legislation by reference at its worst, and when I say legislation by reference I use the term in its narrowest sense, meaning the method of drafting whereby old Acts are kept alive subject to Amendments contained in the Bill. In these three clauses alone there are 26 separate references to other Acts. When legislation by reference is carried to that extent it is condemned even by Parliamentary draftsmen themselves. That distinguished draftsman, Sir Mackenzie Chalmers, said: Legislation by reference produces a body of law which it is impossible for the courts to construe and for the public to understand, and a Bill drafted by reference is very difficult to amend because legislators cannot follow out its details. Again he said: When previous legislation is incorporated partially and by snippets, or when an old procedure is adapted to a fresh and different subject-matter, difficulties of construction arise and the judges who have to discover what is called 'the intention of the Legislature' get puzzled and use strong language. I have here two examples of the strong language used by judges. Lord Wrenbury referred to the involved and almost unintelligible expression of the law contained in the statutes relating to Income Tax. and added: A taxing statute, particularly one upon which taxation in so large an amount is now collected, ought to be expressed in plain language free from the defects to which I have pointed. The matter demands the early attention of the Legislature. That was in 1915, but nothing has been done. Lord Sumner said in 1921: It is a most wholesome rule that in taxing the subject the Crown must show that clear powers to tax were given by the legislature. Applied to Income Tax, however, this is an ironical proposition. Most of the operative clauses are unintelligible to those who have to pay taxes. Of course, it is easy for judges to criticise. They can criticise us but we are not allowed to criticise them. We are merely permitted to quote them. But I think those words and many other words used by judges about the Finance Acts ought to receive the attention of the Government. Take, for example Subsection (5) of Clause 21 of this Bill. It makes piecemeal Amendments in Section 20 of the 1922 Act. Certain provisions of Clause 21 are to be read into the provisions of Section 20. In the words of the "Law Journal" a week or two ago: Although with time, ingenuity and patience this is possible, yet without such resources the sub-clause is entirely unintelligible. I found in an effort to understand it that the only way was to provide oneself with a number of bottles of different coloured inks, and to copy out the old law in ink of one colour and copy in the provisions of the Bill in ink of different colours. Even a lawyer can only understand these provisions if he has all his textbooks at his elbow. As long ago as 1875 a Select Committee was appointed to go into the question of improving the method of legislation, and they drew attention to this very point in the following words: The practice of legislation by reference seems to be increasing and when carried to excess makes a statute so ambiguous, so obscure and so difficult of comprehension that the judges themselves can hardly assign a meaning to it, and the great mass of people for whom of course it is primarily intended are unable to follow it without legal advice. Such a mode of legislation has been described as a Chinese puzzle, and the only justification for it is the difficulty of getting a Bill through Committee without such references. Since then the position has become worse. Finance Act has been heaped on Finance Act and the result is chaos. I am aware that the Committee on Income Tax Codification have produced a code which, for the time being, does reduce that chaos to order, but they themselves point out that if the present method of legislation by reference continues after that code has been passed into law the evil will recur. They say: We confess that we view with apprehension the prospect of the renewal of this unsatisfactory process, with the constant reproduction of the state of matters which the code seeks to remedy. … It is not within our province or competence to suggest any alteration in the present system of Income Tax legislation which would obviate that result. One way of getting rid of legislation by reference would be to make every Finance Bill a consolidating Bill. You would then repeal every old section which it is desired to amend and re-enact it with the necessary amendments. The obvious objection to this course is that a great deal of the old section which it is not desired to amend would then become subject to discussion and amendment, and Debate would be much prolonged. Another distinguished Parliamentary draftsman who recently retired, Sir William Graham-Harrison, endeavoured to adopt this method, and he describes his experience as follows: From time to time during the later years of my career as a Parliamentary counsel I tried the experiment of doing a little consolidation in amending Bills instead of resorting to legislation by reference. I was invariably disappointed in my hopes. It was the same whether the Bill was in the Lords or in the Commons. A well-trained dog may not go nosing in the cupboard for bones but he cannot resist going for one which is dangled before his eyes. It is no good pointing out to Members of Parliament that the clause which they are attacking or seeking to amend consists, as to nine-tenths, of existing law. Well, what is to be done? I suggest to the Government that when they are considering the report of the Committee on Income Tax codification, they should bring this fundamental matter under review. I ventured in Committee to put forward one tentative suggestion. I suggested that when you are going to amend a long Section of an old Act, and you only want to alter a few words in it, you should print those words which you do not seek to amend in a special type, or underline them, and alter the Standing Orders so as to provide that those parts underlined or printed in special type should not be subject to debate. I know that there are difficulties in that suggestion, and I now put forward an alternative suggestion, which, or something like which, I believe is in force in some of the Dominion Legislatures. It is that you should print your Clause as it stands under the existing system, with all the references to previous legislation in it, and then add another paragraph and say that when the Bill is passed into law, the Act shall be printed as shown in Schedule No. So and so. That Schedule would contain the old law as amended. I put forward these suggestions quite tentatively, and I am sure there are other ways of getting over the difficulty, but I do hope the Government will give this matter their careful consideration.

1.17 p.m.


I would like to draw attention to the fact that an alleged economist came to the House the other night and gave a lecture in one of the rooms. It was a wholesale mass of rubbish, and some of it was collected and dumped here to-day by the hon. Member for Farnham (Sir A. M. Samuel). The Financial Secretary to the Treasury tells us that this Finance Bill expresses the prosperity of this country, and on one occasion, I remember, he said it represented the prosperity and buoyancy of this country. We have a situation where great masses of the people are suffering from malnutrition, where poverty is evident all over the country, where areas are derelict and sinking into decay and death, and the main purpose of the Finance Bill is to prepare the way for the providing of money for big guns, big bombs, and poison gas. Is that an indication of prosperity? That is an indication of the fact that while they are talking of having overcome the crisis of 1931—which arose out of the economic collapse in America in 1929, and not out of any particular wrong-doing on the part of the Labour Government here, as Government speakers are very often inclined to suggest—they are moving forward into a new and deadly crisis and doing nothing to prevent it. What is it that they are continually talking about? The new and terrible crisis that is coming upon us? Are they doing anything to stop it coming upon us? No. All this money is to be spent in intensifying the crisis when it does come upon us. The leaders of the Government tell us that if this crisis comes, if this war breaks upon us, civilisation will be destroyed. Are they trying to deceive the people? The Financial Secretary to the Treasury tells us to-day that we have to spend this money for defence, but how will you defend the country if war is going to destroy civilisation? The only way to defend the country is to spend all the money we can get, not on war materials, but on building up the strength and safety of the people in the country.

Take the question of the Tea Duty, a tax that nobody can justify. Whatever attempt you may make to justify indirect taxation in general, I challenge the Financial Secretary to the Treasury, or the Chancellor of the Exchequer, or anyone else to justify this tax on tea. We have always been told—it is a sort of financial axiom—that taxes are placed upon the shoulders most capable of bearing them, or that people are taxed according to their ability to pay, but this tax on tea is a tax where the poorer the people the more they have to pay. Can anybody justify that, on any principle of taxation? If you go round any of the better-class districts and then go round the working-class districts, and especially the poorer working-class districts, you will find that it is a common thing for those in the better-class districts to buy tea at 5s. a pound. But in the poorer districts, where they have to live from hand to mouth, the tea that is being bought costs 1s. a pound in the great bulk of cases. Now when they buy five pounds of tea at 1s. a pound, they do not get five times as much tea as the man who buys one pound of tea at 5s. As a matter of fact, they get less tea than he is getting in his one pound, and out of the one pound of tea you will make far more tea than you will make out of the mess that is obtained from this inferior tea costing 1s. a pound. But when the poor man has paid 5s. for his tea, he has paid 10d. a pound tax, and the man who pays 5s. a pound pays only 2d. a pound tax. Can you justify that? This tax ought never to have been put on. It should be taken off, quite apart from the principle of indirect taxation. What is it we want to defend? Is it profits, or property, or people?




Very well. The Financial Secretary says that we all enjoy a common heritage of freedom, and that is what you want to defend. What freedom have the masses of the people in the derelict areas? What freedom have those who are suffering from malnutrition? The freedom they have is the freedom to starve or die. They have not the freedom of the right to a job. The Chairman of the Conservative Association in Leeds went on a visit to certain slums in Leeds and made a speech in which he said that he was ashamed of his country and ashamed of this and of that, but he did not say that he was ashamed of his profits—

Mr. DEPUTY-SPEAKER (Sir Dennis Herbert)

The hon. Member is going too far in developing that argument on the Third Reading of this Bill.


The Financial Secretary said that they were putting a tax on tea and making the poorest of the poor pay according to their ability to pay. The poorer they are the more they pay—


I did not say that.


No, the Financial Secretary did not say that, but he said that they were making everybody pay, including the poorest of the poor, and I added that the poorer they are the more they have to pay. The poorest of the poor have to pay because we all enjoy a common heritage and freedom, according to the Financial Secretary. The Chairman of the Conservative Association at Leeds, however, said that his pigs were better fed and better cared for than many of the people whose homes he had visited. Is that the common heritage for which we have to pay? We want to see money spent in defending the people from the ravishes of malnutrition—


That is just the kind of argument which the hon. Member must not amplify in this discussion.


The Financial Secretary said that the Budget was mainly concerned with Defence, but he sees Defence one way and I see it in another. If we are to defend the people of the country—and the Financial Secretary says that the main burden of the Budget is for that purpose—the surest way is by collective security and the maintenance of peace. If we have them, we can lessen the amount of money spent on armaments, and the less we spend on armaments the more we can afford to spend on real Defence. I want to see the people of this country get a common heritage based on the right to work and live.


The hon. Member must bear in mind that on the Third Reading of a Bill the debate is strictly confined to what is in the Bill, and therefore the hon. Members alternative methods which are not in the Bill cannot be discussed.


I have been trying to make a particular point, and I am sorry if I have gone against the Rules of Procedure. The Financial Secretary said that the main part of the Bill was concerned with Defence, but he did not outline the character of the Defence. I have simply been trying to show that if the Bill is concerned with Defence and with what he calls the heritage of freedom, it ought to take a certain character in the days that lie ahead. The money is to be spent on Defence, arid I contend that if there is to be a common heritage of freedom the last way in which to get it is to spend the money that is obtained through the Finance Bill in the building up of guns, bombs and poison gas instead of building up strong men, healthy mothers and happy children.

1.30 p.m.


Will you, Sir, allow me to make one observation on the speech of the hon. Member for West Fife (Mr. Gallacher)? I cannot reconcile what he has just said with his former discerning opinions about Germany. He asked what the Government were going to do about this problem. I am entitled to wonder what he would do. He has given us his answer on previous occasions. He wants a "peace encirclement of Germany"—and this bears immediately on the question of Defence with which this Bill is concerned. Does this "peace encirclement of Germany" mean an encirclement that rejects the use of force and its apparatus?


On a point of Order. May I ask what there is in this Bill that deals with Defence?


I was waiting until the hon. Member had gone a little further in order to make sure that my suspicion was correct that he was out of order.


I hoped that I would be granted the latitude that the hon. Member for West Fife had had. The hon. Member for Leigh (Mr. Tinker), asked those of us who normally support the Government not to taunt him. If he were here now I would not taunt him or His Majesty's Opposition by "jeers" or "derision"—to use his own language. I would say, however, that the Financial Secretary to the Treasury and the Chancellor of the Exchequer must have been considerably encouraged by the mildness of any relevant criticism that had been offered about the Finance Bill. I hope that these observations of mine, tendered in the best part, will not cause the Opposition to attempt a Division, which might not on this occasion be very successful. I represent an area different from that represented by the hon. Member for South Shields (Mr. Ede). It may be that with your permission, Sir, I shall be able a little later to say something which will draw a contrast between what he said and the story I am able to tell.

My attention was caught by a phrase which the Financial Secretary used when he referred to the "secret of our success." In the course of this Debate I have been trying to analyse what is the secret of a success which is recognised everywhere abroad, though it may not be recognised by His Majesty's Opposition. I suggest that our domestic and industrial success is primarily due to five Finance Bills, unspectacular but generally invulnerable, based, let us not forget, on the grim contractions that were practised in 1931 by Lord Snowden. The consequences of this success are perceptible throughout the country. It is a truism that the criterion of the soundness of a country's finance is the condition of employment throughout the country, because employment is to the vast majority of our people the chief element in their condition. It is no less axiomatic that misery and lowered morale follow prolonged unemployment. Yet that unemployment is throughout the country, with one or two limited exceptions, steadily declining. I do not always support the Government, but it would be churlish and biggoted not to offer the Chancellor of the Exchequer and his lieutenant the Financial Secretary the thanks that are directly due to their successful administration.

Our recovery over the last three or four years has been accompanied until this year by a succession of reliefs. They have helped to lighten the vehicle as its speed has grown. But I see this paradox in the proposals of the Finance Bill this year. When our progress at last seems assured we have to assume a fresh burden. I am not going to deny the necessity of new expenditure on a vast scale; indeed, any discussion of that question would clearly, in view of the ruling of the Chair, be irrelevant; but I respectfully renew the regret that was to-day expressed by the hon. Member for East Aberdeen (Mr. Boothby) and was expressed by myself in the Debate on the Financial Resolutions, that the Chancellor of the Exchequer has not been able to risk a deficit this year by avoiding increased taxation. If such a deficit had resulted from what we are doing this year, our unchecked recovery would have enabled us to meet it and to eliminate it next year; and if no such deficit were the result we should at least have had the satisfaction of knowing that Parliament had promoted, and not retarded, our remarkable progress. In the absence of any great European disturbance which muddled foreign policies on the part of Great Britain might bring daily and inexorably nearer, it is quite clear that that improvement will be maintained and promoted. May I say with great respect, and in parentheses, that I only wish the Chancellor's foreign vision was comparable with his actuarial ability.

The domestic improvement, of which the Chancellor of the Exchequer, if I may be allowed to say so, is the main architect, is absolutely beyond any dispute. It is perfectly relevant to the Finance Bill to say that within measurable time, if nothing retards our steady progress, unemployment will be down to one half—no less than that—of the figure at which it stood in 1931 when the Chancellor of the Exchequer assumed office. All the time there is a fact which is not sufficiently stressed, that we are seeing new records being registered in the figures of employment, and I do venture, with great sincerity, to extend to the Chancellor of the Exchequer the gratitude which is felt in industry. In representing, or helping to represent, the City of Leeds I am, perhaps, well able to assess that improvement. I recognise that I do not represent one of those areas which are still grievously hit—the areas which are primarily interested in cotton, coal and shipping—but Leeds, like the great City of Birmingham which the Chancellor of the Exchequer represents, is concerned with and interested in a tremendous variety of industries. In Leeds there are no less than 100, and it spontaneously reflects any depression or improvement which the country as a whole experiences. I should like to remind the House of the unemployment situation in 1931. In Leeds in the Summer of that year there were no fewer than 42,000 unemployed, or 23.6 per cent. To-day that figure has shrunk to nearly 18,000, or almost exactly 10 per cent. In my own constituency, thanks primarily to what the Chancellor of the Exchequer has done—and those who have assisted him in the Government—whereas the number of unemployed in the summer of 1931 was approximately 10,000, it has to-day shrunk to about 3,000, and is daily, weekly and monthly still shrinking. That is an experience not peculiar to my own constituency or to Leeds as a whole. I have no doubt that the Chancellor of the Exchequer himself might have a still more exciting story to tell about Birmingham. In domestic and industrial matters his financial policy has enabled us, who support the Government, without shame to look our constituents in the face.

1.40 p.m.


As there seems to be no desire to prolong this discussion I rise now to wind up the debate from these Benches. I think anyone who has been present throughout the whole of this discussion will bear me out in the view that there is considerable difference in the interest which the financial provisions of the year excite on their entry into this House and on their exit. Perhaps there is no one occasion in the whole year which brings a fuller attendance of Members, who fill the whole of the Floor and spread over into the Galleries, than Budget Day, and perhaps there has never been a greater expression of lack of interest than has been witnessed during part of the Debate to-day, when I think that, apart from two Ministers, there was not a single Member sitting on the Government side of the House. The Bill will now go to another place, where its progress will be still less adventurous, because no changes can very well be made by the Members in the other Chamber.

I should like to say a word or two regarding the conduct of the Bill through the House by the Chancellor of the Exchequer and his very able assistant the Financial Secretary. We always look to the Chancellor for a lucid exposition of any Bill with which he is concerned, and not only for a lucid exposition of it, but for the courtesy of attending during the discussion and listening attentively to what is said from all sides of the House. I think it is right that I should add my tribute to what has been said by other Members in thanking the Chancellor for a continuance of that habit of his, a practice which I think is very much needed in this House. I should like to extend that compliment also, with one possible exception, to which I shall make reference later, to his practice both in his Budget statement, and in his speech on the Second Reading of the Finance Bill, of expounding to us all the changes which this Bill is making. I think, too, that he has been true to himself in being somewhat unyielding in his attitude towards Amendments proposed by this side, perhaps more than usually unyielding, because I do remember cases in which he has given some concessions in response to a reasonable presentation of arguments. In this Bill, as far as I can recollect, there are only two concessions, very small ones, which he has made. One was on the Road Fund, where he consented to put in explanatory words which we thought to be necessary, but which simply stated a position which, I understand, he himself considered it was not really necessary to substantiate. The other was on Clause 6, to which I shall make a reference later.

In the financial provisions which it secures for the benefit of the Exchequer I think this Budget is a landmark in the Budgets of the country. For the first time outside the War years, and the years immediately following, we reach a, figure of no less than £800,000,000, or thereabouts, in the financial provision made for the year. We have only to go back the short space of 40 years to see what an enormous increase this vast sum represents. I have before me the figures of the Financial Statement for the year 1896. I wonder whether the House appreciates that, in that year, the total provision in the Finance Bill, including the gross amount of the Post Office, did not run to £100,000,000. The provision made to-day is therefore eight times what it was 40 years ago. In particular, the amount provided by Customs and Excise, which this year is £207,000,000, was only £20,700,000 in that year. To-day's figure is therefore no less than 10 times the receipts which were anticipated from Customs 40 years ago.

With regard to Income Tax, my mind carries me back to the time before I took any interest in the finances of the country. I was quite a child, and I remember my grandfather complaining to me of the amount of money which Mr. Gladstone was taking. He said he refused to vote for Mr. Gladstone at the next election because Mr. Gladstone had put the Income Tax up to 5d. in the £. He thought that was an outrage, and he refused to support the party of Mr. Gladstone in the forthcoming election. Though this Budget is a landmark because of its high level, it is not unlikely, if the attitude of the Government continues along the lines adumbrated by the Chancellor in some of his speeches, that it will be looked back upon in years to come as a comfortable low figure to which it is hoped this country will before long return. I very much fear that this will be the case and I am now avoiding that to which the Chancellor objected when I spoke on the Second Reading. If expenditure on armaments is allowed to rise and the other proposals of the Government are allowed to continue, this £800,000,000 mark will, I am afraid, never be seen again. It will be looked back to with the feeling of how good it was when the total for the year had not risen to £800,000,000.

In that connection, I would remind the House that, during the passage of the Bill, the Financial Secretary stated in reply to a question—and there is no reason to think that his reply was not the considered opinion of the Government—that since the Road Fund is to take a different shape, there will no longer be separated from the main expenditure and receipt items the self-balancing account of the Road Fund. Therefore there will be some £25,000,000 added to both sides of the ordinary revenue and expenditure account of the State. If the Chancellor does not agree with that view, perhaps he will make a statement when the time comes; but that was the statement of the Financial Secretary after he had had time to consider the details of the matter. That makes the total of this Budget £825,000,000 a year, and we may yet have a very much higher amount.

Now I come to the provisions of the Bill, and to the matter which has been the subject of a great deal of discussion, the tea tax. The Chancellor of the Exchequer has said that, after all, the effect of this tax can only be a few shillings per head of the population, and what are a few shillings to the incomes of the poorer families? It sounds, prima facie, a very good argument, and it also sounds a fairly good argument to say: "I think it right to put on a tea tax at the same time that I put up the Income Tax. It is only fair that there should be 50–50, or some proportion, between the increase which I put on the poorer classes and the increase which I put on the more wealthy classes." That representation leaves entirely out of account the fact that day after day we are putting on small items of indirect taxation. Every few days, some Order is presented to us. It is said to be a small thing, but I would remind the Chancellor of the adage that it is the last straw that breaks the camel's back. It is now acknowledged that a large proportion of our population is undernourished. It is no answer to say that the burden which we are imposing is only a few shillings more. The only way to judge of the burden is to recognise that it brings in £3,500,000. The burden is, therefore, an additional £3,500,000 on the top of all the other additions that are being made, not openly, in budgets, and by way of increases in indirect taxation.

Brigadier-General Sir HENRY CROFT

Is it not a fact that some Members of the hon. Gentleman's party said at the time of the General Election that when my right hon. Friend the Member for Epping (Mr. Churchill) reduced the Tea Duty by a more substantial amount, the relief was not worth having?


I cannot put my mind back to that, and even if it were so it has very little to do with what I am saying. This new burden of indirect taxation is created under the Government's Tariff policy, of which the hon. and gallant Gentleman who has just interrupted is such a pillar of illumination. In the old days, there were practically no taxes upon the food of the people, except a few revenue taxes, of which the Tea Duty was one, whereas to-day this tax has not to be taken alone, but in conjunction with the whole range of taxation which it has been the definite policy of this Government to impose. It has been said that the taxation of the motoring classes by no means all falls upon the poor. That is true, but the hon. Member for Farnham (Sir A. M. Samuel) argued that because the motoring classes also pay some of the indirect taxes, the balance was thereby largely equalised. The fact remains that every investigation has shown that in the earlier ranges of income, the taxation of this country is regressive. The lower the income is, the higher is the proportion of it, as my hon. Friend the Member for Chesterfield (Mr. Benson) said, that is paid in taxation, and I maintain that that is entirely unjustifiable. Whatever may be the excuse for putting a certain amount of taxation upon all classes of the people, I do not think it justifies the putting on of that particular kind of tax, which presses most heavily upon the poorest of the whole population.

I come now to Clause 6, with regard to which, I think, the Chancellor was lacking somewhat in his usual frankness with the House. I do not charge him, of course, with deliberately concealing anything from the House, but I do think he ought to have realised, if not at the time when he made his Budget speech, certainly at the time when he was moving the Second Reading of the Finance Bill, that Clause 6 contained certain new principles which ought to have been laid before the House. It was not until we reached the Committee Stage, when some of us were proposing to put questions as to the precise meaning of the rather obscure phrases of the Clause, and when the hon. Member for South Croydon (Mr. H. G. Williams) himself told a great part of the story, that we really found out what lay at the bottom of the proposals of Clause 6.

What were the principles that were new? In the first place, I think the whole system of double-deck tariffs, apart from Empire preference, was a new principle about which we ought to have been told in the earlier stages of the Bill; and, in the second place, I think that the very wide powers which were being given by Clause 6 to a private body of employers, the Federation of Iron and Steel Trades, ought to have been explained. I am bound to say that, when the question did come up, and when a clear and insistent demand was made for a White Paper, we got full information, and I thank the Government for supplying that full information; but, when we got the full information, there were very grave misgivings about what we were doing and about the consequences which might result. Those misgivings existed, not only on these benches and on the benches of the Liberal Opposition, but, I think, in all parts of the House; and in particular there seemed to remain—I speak as one knowing very little of the circumstances of the case—certain points with regard to the question of Jarrow, and the possibility of Jarrow getting its steelworks, that needed some further elucidation. I think it is rather unfortunate, and shows the undesirability of the discussion having to be postponed until the Report stage, that that mystery was not cleared up.

I say quite frankly that I am not accusing the Chancellor of any deliberate intention to conceal anything from the House, but, had he thought it proper to call our attention to this new departure at an earlier stage of the Finance Bill, we might have had a full discussion on the matter during the Committee stage of the Bill, and possibly some of the difficulties might have been cleared up when we came to the second discussion on the Report stage. As it was, that did not happen, and an uncomfortable impression has been left on a large section of the House. I am not sure whether the Chancellor himself was present when the matter was raised the other day, but, if not, no doubt his colleagues will have informed him of what took place, and I think he will realise that there is something still to be cleared up with regard to that matter. I hope that either he himself or whatever Department is really responsible—probably the Board of Trade—will have this matter very carefully looked into, because we certainly do not want any injustice to be perpetrated on a town like Jarrow, which has already suffered great misfortunes, in consequence of some very great power which is given by Clause 6 of the Bill to a body which is not a public corporation, to influence what is done in certain parts of the country. In that connection I would like to make one reference to the slight concession that we received. I am glad that we put forward the proposal that any changes necessitated by the Government's policy under Clause 6 should come to this House for an affirmative Resolution. As the Clause was originally drawn, an affirmative Resolution was only to be required in the event of the duty being raised, but we proposed, and I thank the Government for accepting the proposal, that there should be the opportunity for a discussion in the House on an affirmative Resolution whether the duty is being put up or put down.

I pass from Clause 6 to the Clauses relating to Income Tax, and I want to repeat here again, so that there may be no misunderstanding of our attitude with regard to taxes on income, that we have never liked extra taxation, and are certainly not in favour of such a slogan as "Soak the rich" or anything of that kind; but we recognise, and probably the country as a whole recognises, and has come more and more to recognise during the last few decades, that the fairest taxation method of all is to tax people according to their capacity to pay. The capacity to pay, certainly in the case of people above a certain range of income, can best be measured by the actual amount of their income or by the amount of estate that is left at death, and therefore it is right that a large part of the provision of finance for the revenues of the country should be made by a careful and considered system of direct taxation. That is why we give our support to the proposals of the Chancellor with regard to these various matters of tax avoidance.

I do not want to enter into a discussion, which at one time became heated, as to the distinction between avoidance and evasion, but the real point is that the Income Tax laws are framed so as to deal fairly with different sections of Income Tax payers, and it is expected by the country that people who have incomes of a certain figure should pay their tax according to certain principles. When anyone, by means of dodging, endeavours to get out of a liability that would naturally and properly fall on his shoulders, he imposes heavier burden on others and it is our business to prevent him from taking advantage of such methods, and therefore, when the Chancellor came before us with proposals designed to that end, we gave those proposals our quite honest and, I think, valuable support. I do not complain of his having found it necessary to make certain Amendments so that the burden should not be unfairly imposed, I do not even complain of his taking one step at a time, but I urge upon him not to allow such action as he has taken this year to make him complacent with other forms of avoidance which undoubtedly still escape his net. I hope he will continue to keep his eyes open, and will not be afraid of going further next year than he has gone this year.

Now I come to the Clause relating to the Road Fund. I should like to put forward once more the view of myself and the party behind me, and others in the House, that we are entirely sceptical of the Chancellor's statement that this is going to make no difference to the amount of money that will be spent on new roads and bridges. We believe that the purpose of this change is to make a difference, and we are not going to be told with credulity that that is not the case. The Chancellor is really saying, "You have a money box into which you put money from time to time with a view to using it for a certain purpose. I come to you from time to time and ask for the key so that I may take a certain amount out of it. Grudgingly you agree to it. What I am proposing now is to break the money box altogether and to give you what money I like for the purpose for which your money box was designed." To pretend that that makes no difference at all in the matter of finding the money for the roads seems to be a misuse of words. We are in favour of the money box. We are in favour of the money being there when it is required for the roads, and we do not believe that as much money will be available under the new proposals as before this procedure was suggested. Further, we believe that there ought to be a definite and specific relationship between the number of motor cars on the roads and the money that is being spent on the roads. That was the principle underlying the old Road Fund idea, and that principle is being ended by these proposals. A number of my hon. Friends and others have quoted the Chancellor's remarks about the more roads the larger the number of accidents. I believe that was intended as a joke, but the fact remains that it has given a false impression that money spent on the roads is not only unnecessary but is actually adding to the danger of the roads. I take entirely the opposite view. I believe it is our business to build roads and bridges, partly for the purpose of encouraging transport and promoting prosperity, but also for the purpose of adding to the safety of the population.

It is impossible to discuss what underlies the Bill without going into the matter of Defence and foreign affairs. Obviously at this stage that is out of order, but we should be wrong to part with the Bill without continuing to register our opposition to the whole policy of the Government which has resulted in this enormous increase of expenditure. Foreign policy has dominated this Session of Parliament. I do not believe in peace time, certainly in modern times, there has ever been a Session which has been so completely dominated by the international outlook as this. It has affected the position of Ministers and has been a constant topic of discussion in the Lobbies and corridors of the House, and the whole question of the stability of our finance, not only in relation to this Budget but in the years that are to come, rests upon the international policy which the Government are pursuing. When the Budget was first introduced my hon. Friends and I took exception to considerable parts of it. The progress of the Bill through the House has not modified our objections. In some ways it has increased them as we have seen more clearly than we did at the beginning the implications of it. We are not proposing to divide against the Bill because we recognise that, if we succeeded in defeating it, the result would be to disorganise the finances of the country. It is only the most exceptional circumstances that necessitate the Opposition dividing on the Third Reading of the Finance Bill. But that in no way modifies the criticisms that we have made of many of its provisions and the policy which underlies the necessities which have prompted the Chancellor to bring in a Budget of this kind.

2.14 p.m.

The CHANCELLOR of the EXCHEQUER (Mr. Chamberlain)

The hon. Gentleman at the beginning of his observations effectively contrasted the excitement and interest which always attend the opening of a Budget statement with the quietude and indifference of the termination of the proceedings upon the Finance Bill. I do not think there is anything very unnatural in a contrast of that kind, because the natural curiosity about a statement which is probably going to affect one's pocket in one way or another is sufficient to account for the large attendance and the atmosphere of interest previous to the opening of the Budget statement. At the same time there are Budgets, and Budgets. There are more and less controversial Finance Bills, and the fact that the discussion to-day has always been in the region of the lower temperatures in the scale is an indication that this must be ranked among the less controversial measures of its kind.

My hon. and learned Friend the Financial Secretary and myself have been the happy recipients of more than one gracious compliment this afternoon, both on account of the policy which is embodied in the Bill, and on account of the manner in which we have conducted the discussion. I should like to offer my very sincere acknowledgments to those who have been so good as to recognise the efforts we have made to carry on these discussions in an atmosphere of reasonableness and courtesy. I must say that our task has been rendered very much easier by the fact that that has been the general rule observed throughout the House. We have already made acknowledgment, but I would repeat the acknowledgment to numerous members amongst the supporters of the Government who have made suggestions with a view to improving some of the provisions in the Bill, and I must pay my tribute also to the Opposition, who have given us no reason to complain of their unfairness or lack of sincerity in the criticisms that they have made. In reference to the concluding words of the hon. Member who has just spoken, let me say that I do not think I have taunted members of the Opposition for not dividing against the Third Reading of a Finance Bill, and I certainly should not think of doing so now.


Some of the right hon. Gentleman's supporters taunted us.


An Opposition is not bound to divide against every Measure to which it directs its criticism; it does not lose dignity or influence by not always insisting on a Division. I was particularly pleased to-day to have a compliment paid to my hon. Friend the Financial Secretary, who has appeared before the House in this capacity for the first time this year, but has shown himself in every way worthy of the high traditions which have been established by his predecessors. I would also like to give my thanks to my hon. and learned Friend the Attorney-General, who has been invaluable in helping to make clear the undoubtedly involved and somewhat obscure phraseology of some of the Clauses dealing with technical matters.

My hon. Friend the Member for Twickenham (Mr. Keeling) has repeated a complaint which has frequently been heard in this House about legislation by reference. He has recognised that the difficulty of the alternative plan, namely, to repeat the words of a Section to which reference has been made, is a disadvantage, for it throws open to discussion, and if necessary to amendment, a whole series of provisions which it is not intended to alter at all. That has frequently prevented Members of past Governments, to whatever party they belonged, from adopting that particular way of dealing with matters which are generally referred to as legislation by reference. My hon. Friend has suggested that we could get over that difficulty by amendments of the Standing Orders. All I say about that is that I offer my compliments to my hon. Friend for his ingenuity in making this constructive suggestion, and although it is not one which can be carried any further in the discussion of a Finance Bill, he might make his representation in the proper quarters, because if it could be adopted and there was no difficulty in the way it might get us over a trouble which every Government and every Opposition have experienced in the past.

There are certain salient features about this Finance Bill, and I should like to devote most of my brief remarks to some observations on them. First of all I would refer to another matter which does not come under those heads, but has been mentioned both by the hon. Member who has just spoken and also by the hon. Member for South Shields (Mr. Ede). I mean the Clause which deals with the iron and steel tariff. The hon. Member said that I had been guilty of some lack of frankness about that Clause. He can only have had in mind my statement on the Second Reading of the Bill, because in the discussion of the Clause in Committee and on Report the Clause was left to the Board of Trade, in whose Department the matter primarily lies. But if I was guilty of any lack of frankness, it was not intentional on my part. I candidly state now that it did not enter my mind on the earlier stages of the Bill that the Clause would give rise to so much discussion and controversy. I do not think that now I have very much more to say than was said in the discussion of the Clause and in the very full statement made by the Parliamentary Secretary to the Board of Trade.

But I would make this observation: When the right hon. Member for North Cornwall (Sir F. Acland) said that we had put the iron and steel industry in the same position as a public utility company, but without the safeguards which are attached to such a company, I think he used an altogether false analogy. The iron and steel industry is not in a position of monopoly. It has to face competition from abroad, both in the home and foreign market. It has the protection of the tariff, but that is not the same thing as prohibition, and it has always to be remembered that if it were to pursue uneconomic methods which would have the effect of raising costs, it would undoubtedly feel the results in increased competition from other countries. There is no question about it that the steel industry has been placed in an entirely new and more satisfactory condition by the imposition of a, tariff. In 1932 the production of steel was about 438,000 tons a month. It has been over 900,000 tons a month every month this year, and sometimes considerably over that figure. When the hon. Member for South Shields (Mr. Ede) says he wishes we were back in the spacious days of 1931, if he is thinking of the steel industry I can assure him that the steel industry in those days was not in the position of considering setting up new works anywhere, but was considering how much longer it could carry on the old works.


I did not make that remark in connection with the steel industry, but in connection with the export trades of my own particular constituency. There are no steel works there.


But in the last part of his speech the hon. Member said that steel works ought to be erected at Jarrow, and he quarrelled with hon. Members on this side for saying that prosperity had come to the country, and added that for his part in South Shields they wished they were back to the spacious days of 1931. I do not know what it was that the hon. Member and his friends enjoyed so much in 1931, but if we were back in those days there would be no question of erecting new steel works at Jarrow or anywhere else. We have no power to force the steel industry or any other industry to set up new factories in any part of the country. We can try to create conditions which may lead to new factories being started, and we can, if other things are equal, represent to those who are running the industry that, in the national interests, it would be better that they should go to one part of the country rather than to another. But if they tell us that they have gone into this question and can find no economic justification for setting up steelworks in a particular part of the country, it would be no remedy if we were to say to them, "Unless you do that, we will take off the tariff." The only result would be to reduce the steel industry to the same sort of condition in which we found it in 1931.

That was a digression to some extent, because it seems to me that the main features of the Finance Bill are, as I said before, four in number. First of all, there is the increase in taxation amounting to £15,500,000, of which £12,000,000 is allotted to direct taxation—Income Tax—and £3,500,000 to indirect taxation, in the Tea Duty. The second feature is the increase in the marriage and children's allowances, which is the only increase in allowances or remission of taxation provided for in this Budget and which, as the House knows, is a further development of a deliberate policy in the direction of such relief being given in this form to those who have to carry the burden of family responsibility. Thirdly, there is the question of tax avoidance, which gave rise to a good deal of the discussion which took place in Committee. Lastly, there is the new provision with regard to the way in which the Road Fund is in future to be constituted.

On the first point, the increase of taxation is imposed in consequence of the Defence programme of the Government. While we are told by hon. and right hon. Gentlemen opposite that we ought to have provided more detailed and more specific information of what we have in mind in future, I do not understand them to challenge the broad principle that the money is to be spent in improving the present condition of our Defences, and that that matter is both vital and urgent. On the specific point about not taking the country into the confidence of the Government, as to which hon. Members again criticised us, I really do not think that it is a reasonable criticism. We have been perfectly straightforward in this matter. We have said that our programme is not one which can be completed in a single year, but that it must have relation to what other countries are doing, and that it is one that is bound to undergo change as the years go by, partly owing to changed conditions and partly owing to advances in military and naval strategic and techni- cal science, and also owing to mechanical inventions.

There was one other doubtful feature and that was, at what rate it would be found physically possible to put this programme into operation. In those circumstances it would have been deliberately misleading the people of this country if we had attempted to say, "Here is a table showing specifically what we propose to do in each of so many years and how much money we are to spend upon it." We should have been justifiably open to criticism, as certainly would have been the case, if our figures had proved to be wrong, and we should have been reproached for having led the people of this country to suppose that we were going or not going to spend large sums in a particular year, and that anticipation might have been altogether falsified by the events. We have given definite and certain information. I would remind the House—and I make this observation partly in view of the remark of the hon. Member for West Leeds (Mr. V. Adams) in the course of a speech which contained many agreeable observations—that the hon. Member said that he regretted that the Chancellor of the Exchequer had not risked a deficit upon this Budget. I was astonished to hear that, because I took very serious risks of a deficit upon this Budget, and from what has happened since under the general acceleration of our Defence programme, even since the statement about the Budget was made, it is already made practically certain that there will be a deficit on this Budget, and the only question is what that deficit will be.


That is a serious point. Are we to understand that we are shortly to have additional Supplementary Estimates covering all that expenditure?


Oh, yes. Certainly there will be additional Supplementary Estimates covering the additional expenditure. With regard to the position of taxation to which I felt bound to ask the House to assent, that is additional taxation which represents a fraction of the additional expenditure which we are occurring this year upon our Defences. The explanation of that, of course, is the rate at which the Revenue is expanding without any increase of taxation at all, so that whereas I have to compare the Estimates this year amounting to something over £54,000,000 greater than the corresponding Estimates of last year for Defence, I have only to provide £15,500,000 out of new taxation, £5,000,000 being provided out of the Road Fund.

Opposition has naturally been directed from the opposite benches against the proposal to increase the Tea Duty. We should not have known whether we were standing on our heads or our heels if the Opposition had not proposed the removal of that amount. I am bound to say that although I expected it, I cannot feel that there is any great force in the arguments produced in support of that point of view. The only logical point of view would be that people below a certain standard—and it would put it very much higher than it stands at present—should pay nothing whatever towards the expenses of the country for the provision of Defences from which they as well as other people were to receive benefit. I do not believe that that is the right conception nor the one which would be accepted as right by the very people themselves. Since I introduced this Budget the people of this country, generally speaking, have not thought that to be an unfair proposal. They have accepted the general principle of this increased burden.

The hon. Member for Chesterfield (Mr. Benson) has said that he objects strongly to indirect taxation. He told again the old story that indirect taxation had been enormously increased since the Import Duties were introduced in 1932. I always understood that the hon. Member and his friends would never rest satisfied until the breakfast table of the working man had been freed by duties on champagne, motor cars and works of art. In replying to an observation by the hon. Member for East Aberdeen (Mr. Boothby) the hon. Member said that he did not wish to increase direct taxation. I am wondering what the hon. Member would do if he were in my place. If he does not wish to increase direct taxation, and he strongly objects to all forms of indirect taxation, and we have to find money somehow, what course would he adopt?


The hon. Member for East Aberdeen (Mr. Boothby) accused me of saying that an increase in Income Tax was good in itself. I did not say that.


Then we are to understand from the hon. Member that the £70,000,000 increase should be added to direct taxation? If so, then we know where we are. I will not spend time in speculating what would happen if I had to get another £70,000,000 out of the Income Tax and Sur-tax payers. Hon. Members opposite will surely agree that we should soon dry up the sources of our revenue if we raised direct taxation as high as that. It would be interesting to know whether the hon. Member and the party opposite would agree to the proposition for a repeal of tariffs altogether. Would the hon. Member be in favour of repealing tariffs altogether and removing protection from our home industries?


indicated assent.


Then when the hon. Member goes to his constituents and tells them that, which perhaps they have not hitherto realised, I hope that he will not keep anything back from them, but will point out the consequences which would fall upon them in Chesterfield if that were to take place, and we removed the protection from our home industries.

I think I may say, generally speaking, that the moderate increase in taxation in this Finance Bill has been received with resignation, if not with enthusiasm. The little help that I have given to married persons has been received with general approval, and no reference has been made to it this afternoon. Therefore, I think I may assume that hon. Members opposite agree with us in that connection. They will also agree with us in the general proposition that it was time that tax avoidance was dealt with by the Chancellor of the Exchequer. The only criticism which was made by the hon. Member for East Edinburgh (Mr. Pethick-Lawrence), and it had been made previously by the hon. Member for Chesterfield, was that we had not gone far enough, that we had left untouched a great body of tax avoidance which was still going on, and he hoped we would tackle it on some future occasion. It is all a matter of degree. We must realise that legislation of this kind, the laying down of fresh regulations and interfering with the ordinary course of business, is not a desirable thing in itself, but we may be driven to do that if we find that unless we put a stop to this sort of thing we are losing a substantial amount of revenue, which ultimately must be made up by those who do not know how to adopt methods of this kind.

The answer to hon. Members opposite who asked why we have not gone further, is that we have covered in this legislation all the principal known forms of tax avoidance which are of any serious importance. It is true—I have never pretended otherwise—that there are other methods of tax avoidance which are still left untouched by this legislation, but hitherto they have not been sufficiently extensive or sufficiently subversive of the revenue as to make it essential that they should be tackled. What we have said is that if new methods were discovered in the future, they would have to be subject to the same sort of treatment that we have given to certain forms of tax avoidance in this Finance Bill. I have added a special warning on the question of retrospective legislation, and I was a little sorry to hear the hon. Member for Chesterfield make an observation which seemed to indicate that the taxpayer need not take that warning too seriously. I meant it seriously.

I had been appealed to by some of my hon. Friends to make an Amendment in the Bill, the effect of which would be to remove from the operation of the Clause cases where Income Tax assessment would have to be reopened, on the ground that retrospective legislation ought to be avoided, and I felt that in giving way to those representations and in making that concession I was perhaps inviting people to think that this principle of avoiding retrospective legislation was sacrosanct and that in future anybody would be safe in adopting these new methods of tax avoidance up to the point when legislation was introduced. That might become a direct encouragement of new methods of tax avoidance, and therefore I give the warning that people who indulge in practices of that kind must not consider that because this time we have not passed retrospective legislation we shall be debarred from doing so in any future legislation. Let me say a few words on the question of the Road Fund. I never said that the proposed alteration would make no difference. What I have said is that I thought that when you embark upon the gigantic expenditure which will be necessitated by the defence programme, it seemed too monstrous that the Government should not have it in their power to survey all the sources of revenue and to make up their minds in the light of the information when they had to spend a great deal of money on a particular service, whether that should or should not make any difference to the amount they should spend upon other kinds of service. In doing that we are not singling out the Road Fund or the expenditure upon roads for specially disadvantageous treatment. All we are doing is putting the expenditure upon roads in exactly the same position as expenditure upon any other public service. I cannot understand why hon. and right hon. Members opposite seem to have a special affection for expenditure upon roads. Why do they think that it is more important than expenditure upon the social services or expenditure to prevent malnutrition in the future?

Surely the people of this country through their representatives in this House ought to have the fullest possible opportunity of surveying the whole field and directing whatever resources it is necessary to raise into the channels where they think it is most advisable to direct them. I do not say that the proposal will not make a difference. It may mean more or it may mean less, but it will only make a difference according to the views of this House at the time. The right hon. Member for North Cornwall said that I defended the proposed change in regard to the Road Fund on the ground of principle, and while he was not altogether disposed to quarrel with the change, he said that if you are going to have a principle you should stick to it. In this respect he had an ally in the hon. Member for East Aberdeen who referred to the wheat subsidy. The hon. Member has taken a special interest in that matter. It was an experiment and we were not certain as to how it would work out, but it has worked out successfully.

The hon. Member for West Islington (Mr. Montague) made a somewhat heated complaint of the hon. Member for East Aberdeen for saying that this country was enjoying a considerable measure of prosperity, a greater amount of prosperity than at any time for the last few years. It aroused the hon. Member for West Islington to make a protest, because he said there were 20,000,000 people in this country who could not get enough to nourish themselves properly. My hon. Friend the Member for East Aberdeen was comparing the present state of the country with its state in the past. He was not defining what is an absolute state of prosperity, but he was considering whether the country had increased or decreased in prosperity in consequence of the administration of the National Government. Without accepting any particular figure, and still more without accepting the implication that malnutrition is solely due to the fact that people have not sufficient money to pay for the right food, I still say that whatever the number may be who are suffering from malnutrition through poverty, it cannot be nearly as great as it was in 1931.

We have in front of us a period of time during which we shall be spending large sums of money in making this country safe, and putting ourselves in a position to fulfil our obligations to the League of Nations. It is fortunate that this new liability has come upon us at a time when we are far better able to bear it than we were only a few short years ago. Unless anything should happen to upset or undermine confidence, which has been at the base of this improvement, I believe, in spite of the fact that this gigantic multiplication of our Budgets has taken place, that there is no reason why the country should not be able to support it with a constantly rising standard of comfort and health; that is, as long as we keep confidence. I cannot believe for a moment that this rising expenditure on armaments is going on indefinitely. We have great arrears to make up, and to make up in a short time, and during that short time we must face altogether exceptional, abnormal and phenomenal rates of expenditure. Having once put that behind us, and having reached whatever standard we may consider necessary, while, undoubtedly, the cost of maintenance will be substantially higher than before, I still believe that we shall find that this country has at its disposal sufficient resources to continue its upward march of progress. I have long thought, ever since I was at the Ministry of Health, that we have a great deal to learn about the health of our people. We cannot get rid of poverty altogether. The first thing we have to do is to satisfy ourselves as to what is the proper diet for persons living under the conditions they are to-day, and having really arrived at some conviction on that point, there are very many ways in which, I believe, we can improve the health of the people, although we are not able, as we would all desire, to raise their remuneration to a height at which it would permanently increase their comfort. These are matters which lie in front of us, and they must depend on the commercial prosperity of the country. Without that we cannot meet the demands for fresh social services any more than we can the expenditure on armaments. I believe that by a continuance of the policy which we have been pursuing for the last few years which has so immensely raised the position of the country, we shall be able to provide resources necessary to meet all reasonable demands in the future.

2.54 p.m.


I only desire to thank the Chancellor of the Exchequer for the relief he has given to farmers in the Bill in Clauses 11 and 12, in respect of relief from the burden of taxation for implements and vehicles which are used on the farms. It is often said that Acts of Parliament are so drawn that they are almost unintelligible to the ordinary man, but that is not so in this case. These Clauses are perfectly clear, and we know that farming implements will not be regarded as trailers when they are attached to tractors or motor vehicles, and that motor vehicles when used on the farm will not be liable to the tax which they pay when they are going along the roads. The need for relief in both those cases has been pressed upon me by my constituents, and I would like to thank my right hon. Friend for this relief which is substantial in itself and which also re- moves a sense of grievance which has been felt by those I represent.


I apologise for coming to the House so late, but circumstances over which I had no control prevented me from coming before, and the Debate has ended earlier than most expected. I wish to draw attention briefly to a matter of principle. The other day I put down a Question to the Chancellor of the Exchequer which was transferred to the Minister of Health. The question was to draw attention to the amount of money that is paid by the taxpayers under the system of block grants to certain areas which draw more because of their conditions than other areas in the country. The fact remains that a large amount of taxpayers' money under this Bill is sent to South Wales, and I have received an enormous mass of correspondence which shows that that money is spent under a system of maladministration, I want to ask the Chancellor of the Exchequer whether, in the interests of the taxpayers—


The hon. Member might have given notice to the South Wales Members that he was going to do this.


I gave notice. I want to ask the Chancellor of the Exchequer whether he could not possibly see that the Treasury supervises and audits the expenditure of this money.


That is not a question which arises on the Third Reading of the Finance Bill.

Question put, and agreed to.

Bill read the Third time, and passed.

The remaining Orders were read, and postponed.

Resolved, "That this House do now adjourn."—[Captain Margesson.]

Adjourned accordingly at Three Minutes before Three o Clock, until Monday next, 6th July.