HC Deb 10 June 1936 vol 313 cc248-79

5.12 p.m.

Mr. MABANE

I beg to move, in page 10, line 32, to leave out "nine-pence," and to insert "sixpence."

This is not the first time that I have moved a reduction in the Income Tax, and the Chancellor of the Exchequer knows the reason why some of us put down Amendments to reduce the Income Tax. Some of us believe that there are few ways in which the industry and employment of the country can be so well assisted as by a reduction of direct taxation. I do not believe that the Chancellor of the Exchequer dissents from that point of view. While that is the primary reason for doing all that we can to secure a reduction of direct taxation, there is a further point, which is a development of points which were made in the earlier Debates.

In reply to the hon. Member for Colchester (Mr. Lewis) yesterday, the Financial Secretary to the Treasury dealt with the suggestion that had been put forward that the Chancellor of the Exchequer had provided himself with too much revenue, and that there was no need to impose additional taxation, as is imposed in this Clause and also, I think, in Clause 1. My hon. Friend the Member for Colchester suggested that the Estimates of revenue were too low, but, in reply, the Financial Secretary produced a new and somewhat remarkable document. He assured the hon. Member for Colchester that there was no ground for supposing that this year there had been any deliberate under-budgeting, as the phrase goes, and he went on to say that there had been very considerable speculative estimating about the Budget Estimates. He said that not only was there uncertainty in regard to Income Tax, but that there was bound to be uncertainty as to the expenditure side of the account.

I suggest to the Committee that that is a very new and disturbing doctrine. Does the Financial Secretary mean that the Budget has now become little more than a kind of a casual guess on the part of the Treasury, that the taxpayers are presented with Estimates that are not very accurate, and that the taxpayers are expected to pay their taxes on those inaccurate Estimates? What justification has he for saying that the Estimates presented to us on Budget day contain any high degree of uncertainty? I do not think that there should be any substantial uncertainty. Where is the uncertainty on the expenditure side of the Estimates? The Estimates are sifted in detail by the Estimates Committee of the House, and, after the expenditure has been incurred, the Public Accounts Committee examines it in detail, and, if there were any wide variation between the amount estimated and the amount actually expended, they would report such variation to the House and the House would, I am sure, require some explanation of it. If we go through the items on the expenditure side of the Financial Statement, I think we are bound to come to the conclusion that there is no justification for suggesting that there should be any uncertainty in the amount of the expenditure. The amount required for interest on and management of the National Debt is a fixed figure, and there is no reason to suppose that it would vary. The amounts required for the Supply Services are all considered carefully in detail, and there is no reason for any variation there.

On the revenue side there is little more justification for suggesting any large degree of uncertainty. The Chancellor of the Exchequer each year, when he presents his Budget statement, tells the House, from certain sources of information open to the Treasury, that the amount that will be yielded by the Income Tax is almost entirely certain for the year ahead, and Surtax is similarly determined from the same sources of information. Estate Duties, perhaps, represent an amount that may be variable, and the amounts received from Customs and Excise may be variable. Some of us have suggested in the past that the variation in the amount received from Estate Duties could be made smaller if a new and better method of estimating Estate Duties were adopted. I suggest that, if we consider in detail the items on the revenue and expenditure sides of the Financial Statement, there is little justification for the remarkable statement of the Financial Secretary yesterday that from now onwards the House must suppose that the Budget statements submitted to it are liable to a very considerable measure of uncertainty, and that really the Treasury cannot guarantee them as being anything like accurate at all.

If the Financial Secretary meant that new factors might be introduced in the course of the year, and that the variation in expenditure might be clue to the Government having to undertake new obligations during the year, he did not say so. If, indeed, he were to make that suggestion, he would be committing himself to an even more startling doctrine, namely, that the taxpayer should be called upon to pay taxes for Supplementary Estimates which have not yet arisen, to meet liabilities which have not yet come into sight, and which, so far as anyone can see, may never come into sight. It is because some of us feel that in the last few years there has been a tendency for the Treasury to cover itself to such a considerable extent against emergencies which have not arisen, that we feel that we are entitled to protest against increases of taxation until we are told more definitely what the money is wanted for. I do not think that any of those who have put their names to this Amendment would desire to withhold the additional revenue which the Chancellor wants, if they could be convinced that it is really necessary, but we know that in each of the last four years, although the Chancellor has said that the amount which the Income Tax would yield was almost certain, he has been mistaken and the Income Tax yield has been considerably in excess of the estimates. We know that, although some of us have suggested at the beginning of the year that there was likely to be a considerable surplus at the end of the year, and have been told that we were guessing, never- theless the facts have proved that we were right, and this has led some of us to the view that perhaps the Treasury is covering itself a little too much, and that what is now commonly referred to as conservative finance is little more than an attempt on the part of the Treasury to provide itself with more revenue than it need have.

Therefore, I suggest that the Committee is entitled to ask the Chancellor of the Exchequer or the Financial Secretary to tell the House in a little closer detail why it is suggested that this additional revenue is required. I think the Committee is entitled to ask on what basis the estimate of Income Tax is founded. Why should the Chancellor suggest that we are only going to receive £259,000,000 in the current year? The House can only demand this additional explanation by moving to reduce supplies, but I suggest that, as it is upon the Income Tax payers that the demand will fall if in the future additional demands are made, the Income Tax payers are entitled to ask for the fullest possible explanation of the reasons for these substantial variations between the estimates of revenue and expenditure in the last four years and the realised amounts, and also to be informed, on some fuller basis than has been forthcoming in the past, why they should believe that there is likely to be no variation in the future. We know that the whole foundation of our financial structure has altered since 1931. We have gone off the Gold Standard; we are managing our money; we have the Exchange Equalisation Account. It may be that these new conditions make it impossible for the Treasury to estimate so accurately as was possible in the past, but, if that is so, let us be told, and let us know that our financial arrangements in the future are not to be the same as they have been in the past. The House, before granting this additional revenue, is entitled to ask for some satisfaction on the points I have endeavoured to raise.

5.24 p.m.

Earl WINTERTON

I seldom take part in Debates on the Budget, but, in view of the opinions I hold on other matters which are vitally affected by this Amendment, I feel that I must speak against the Amendment and in support of the Government. Hon. Members on both sides of the Committee will admire the care with which the hon. Member for Huddersfield (Mr. Mabane) has studied this question. In these days, when almost everyone is stamped in the same mould, it is refreshing to find someone with individual qualities. The hon. Member has put his case with moderation, and in general I agree with a great deal of the principles that he enunciates, but those principles have to be considered in the light of the situation with which the Committee is faced. I am not sufficient of an expert to speak on the aspect of over-budgeting, but I imagine that the Chancellor of the Exchequer or the Financial Secretary will have a complete answer on that aspect of the question. On the general question I start with the premise, which is common to all of us in the House of Commons except hon. Members on the Labour benches, that an increase in the Income Tax is per se an evil if it can be avoided. We all agree with the hon. Member on that point, but the real question is, can it be avoided in this case; or rather, would the alternative be a greater evil than the increased tax?

In the first place, it is notoriously the fact that this sum is very largely required for what we think, and what the Government think, is a very necessary addition and accretion to our armaments. Let the Committee consider the different methods by which our House of Commons and our Government deal with this question as compared with foreign Governments. On the Continent we see in almost every case increasing armaments and an increasing burden of debt—a most evil and vicious system, which I suggest must lead to an inevitable end. The only way in which Governments can get out of that difficulty—I should be out of order if I pursued it at any length—is by some adventure which will cut the whole Gordian knot. If we are to have increased armaments in this country, it is of the utmost importance that both the direct and the indirect taxpayers should be made to realise that fact. It is a very unpalatable thing to say, and very few people outside the Government say it. I see that my hon. Friend the Member for East Aberdeen (Mr. Boothby) smiles. Does he dissent from that statement?

Mr. BOOTHBY

I do not think we should impose additional taxation merely for the purpose of teaching the taxpayers an elementary lesson in mathematics.

Earl WINTERTON

I am not impressed by my hon. Friend's answer. I do not think he realises that it is the lack of that elementary lesson in mathematics that is causing unrest on the Continent of Europe to-day, in Germany, Italy and elsewhere. Personally, I should like to see the taxpayers of this country realise that lesson in elementary mathematics. But there are other questions to be considered. A few years ago some of us thought that in this country we were getting into a dangerous position owing to the high ratio which direct taxation bore to indirect taxation, and which was constantly increasing. To-day, happily, that ratio has been greatly altered, and it is no longer true to say, as it was seven or eight years ago, that we were in that dangerous position. The most unpopular argument of all, but I believe it is true, is that it is an undoubted fact that the Income Tax paying classes of this country, whether they are paying on incomes of £50,000 or on incomes of £500, are in a far better position so far as their standard of living is concerned than comparable classes in any country in Europe. Anyone who goes out on a Saturday, Sunday or holiday on the road in France, Germany, Italy, Belgium and this country will see that the difference is remarkable in the number of people owning small cars, portable radio sets and so on, mostly small Income Tax payers. I do not want to fall into a trap and be, accused of adopting a Socialist argument; I am merely stating a fact; and I deduce from it that, although an increase in direct taxation is to be avoided if it can be avoided, it is not true to say that the high direct taxation in this country has a prejudicial effect on the standard of living, at any rate of the class of people to whom I am referring. The truth is that the standard of living of all classes in this country is astonishingly high. We hardly ever say so, but it is undoubtedly the case. That brings me to my last argument. If the rentier class—to use what, I believe, is the jargon of the extreme Socialists; the hon. and learned Member for East Bristol (Sir S. Cripps) will correct me if I am wrong—whose name is commonly hissed on public platforms—

Sir STAFFORD CRIPPS

Will the Noble Lord explain to the Committee how it is possible to hiss the word "rentier"?

Earl WINTERTON

I agree that it was an ungrammatical observation; but the rentier class are referred to with every expression of hatred and contempt. At any rate, however, the Income Tax-paying class in this country in particular, in common with others of His Majesty's subjects, do get a return from the high taxation that is paid, in two respects—in internal security, and I hope very shortly in external security as well, because but for the social services I do not believe there would be the internal security that exists at present, and certainly but for the increase in armaments that is required there would not be external security. So far from quarrelling with the system, regrettable as it is that it should be necessary to raise direct taxation, or, for the matter of that, any other form of taxation, let us rather be thankful that we live in a country so fortunately situated as we.

5.31 p.m.

Mr. BOOTHBY

I rather agree with the latter part of my Noble Friend's observations. I am not in principle opposed to a pretty high rate of direct taxation, but I do not think it is necessary to impose an additional 3d. on the Income Tax in order to teach the taxpayers that they cannot have armaments for nothing, if the increase is not necessary, and I am going to attempt to argue that it is not necessary. I do not think my Noble Friend's Continental illustration was a very happy one. He compared the difficulties in this country with those on the Continent. In my opinion, and I think in the opinion of a growing number of people, the troubles on the Continent are due to the fact that for the last year or two years the rentier class have insisted upon a rigid financial orthodoxy, involving the maintenance of the franc and violent deflation, which have driven France to the straits that it is in at present and which, if persisted in, will drive them over the brink to disaster.

Earl WINTERTON

I was not talking so much of the difficulties of France. I was saying that I cannot think of any Continental country where you can see such evidence of prosperity amongst the small direct taxpaying class as you see in this country.

Mr. BOOTHBY

In my judgment that happy state of affairs dates from the moment when this country departed from the Gold Standard, and a similar prosperity will revisit France when she does the same thing as we did. The only reason why I support this Amendment is that I cannot see the necessity for this little additional imposition. It sounds a, small sum, but it is very inconvenient, and it involves immense additional labour and calculation. The Chancellor of the Exchequer will ask whether I would rather have 6d. My answer is, "Yes, if it is necessary." I would rather go up by 6d.every two years, if it has to be done, than 3d.every year. The amount of taxation raised is very considerable in the aggregate, and it is not good enough if it is merely to teach the people of the country mathematics. What we who support the Amendment say is, first of all, that we are really not in a position to estimate clearly what our expenditure on re-armament in the immediate future is going to be. I entirely agree with my Noble Friend that the bigger the expenditure the better. All we can be certain of that it is not going to be very big, and will probably be below the estimates that the Government have given, because it is very difficult to start a policy of re-armament on a big scale. Some of us, including my Noble Friend and myself, think that we started at least two years too late.

Further, there are some of us who hold that, having pursued for 10 years deliberately a policy of disarmament, and having inevitably allowed our armed forces, I should not say to disintegrate but to go to a very low level, if it is necessary to reverse that policy altogether, so far as fresh capital expenditure is concerned, that is to say in the construction of aerodromes and permanent works of all kinds, it would be better, both from the short and the long-term point of view, to put that part of the expenditure, at any rate, upon a capital basis, and to use the advantage we enjoy at present of cheap money to raise money for that side of the expenditure, for the re-conditioning and re-equipment, by way of loan, and simply pay for the recurring expenditure out of revenue. That matter has never really be properly thrashed out. I believe there is a considerable difference of opinion in all parties as to whether, first of all, we should finance any part of our re-armament by way of loan, and, if so, how much and for what. To my mind—and I think there are many who agree with me—that part which involves capital re-equipment should be financed out of capital expenditure only should fall as an annual charge on the taxpayer. It is a discussion that is very relevant on this particular proposal, but this is not the time to thrash it out thoroughly. It will have to be thrashed out sooner or later.

Another reason why I am opposed to this increase in taxation is that, in so far as it has any general effect. it is slightly deflationary, and I do not think that is necessary or desirable. Deflation is deadly. We ought to have learnt that by this time from the experience of every country in the world. The death agonies of France at present are only another example of what deflation can do. We do not want deflation here, and there is certainly no reason for it. The figure of gold reserves in the Issue Department of the Bank of England to-day is £205,000,000, which is really worth £338,000,000 at the present price of gold. You have, over and above that, £100,000,000 of gold belonging to the Exchange Equalisation Fund. There is plenty of basis there for continued credit expansion. We have such revival of prosperity as we have achieved by means of a controlled inflation which was rendered possible by departure from the Gold Standard. In my opinion we ought to continue that policy of controlled inflation, especially as we have ample gold reserves to form a credit basis for that operation. If we do that, I see no reason why, with the benefits which will undoubtedly accrue from the rearmament policy, we should not get a steadily expanding revenue which will more than cover the additional costs of rearmament year by year.

There is another point in defence of the Amendment which carries the argument of the hon. Member for Huddersfield (Mr. Mabane) a stage further. He said the Financial Secretary to the Treasury had recently stated that the profit and loss account of the nation was becoming more speculative, and, that in fact it was more difficult than it used to be to assess revenue and expenditure.

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

I am sure my hon. Friend does not desire to proceed on a false basis.

Mr. BOOTHBY

I am quoting the hon. Member for Huddersfield.

Mr. MORRISON

If the original error was that of the hon. Member for Huddersfield (Mr. Mabane) I am sure my hon. Friend does not wish to perpetuate it. What I said was that there are two sides to the national account. There is not only bound to be some uncertainty in regard to Income Tax, but there is bound to be some uncertainty as to the expenditure side of the account. It is difficult to say that there is more uncertainty than there was in the past.

Mr. MABANE

The Financial Secretary said there was bound to be in this matter a certain element of speculation. My point is that there is no justification for that remark.

Mr. MORRISON

I did not say there was any new element of speculation, but it is a fact that any forecast is a speculation. It is bound to be.

Mr. BOOTHBY

Now I should like to introduce my own opinion and say that in my judgment there is quite definitely completely a new element in regard to this. We have no right to ask for the details, and I do not think the Committee would wish to ask for them, but here comes the Chancellor of the Exchequer imposing additional taxation of £12,000,000 per annum on the direct taxpayer. It is the duty of the Committee, before it sanctions such additional taxation, to make some general inquiries about the condition of the Exchange Equalisation Fund, and in my judgment that is the new element of speculation which undoubtedly exists in regard to the revenue. The House of Commons has handed over to the care of the Chancellor of the Exchequer over £300,000,000 of the taxpayers' money, or the right to borrow that amount, to put it into the fund and run it pretty well as he thinks fit. We do not want to know the details, but the time has come, as the Chancellor asks for additional taxation, when we should have some general information about the state of the fund. What have been, roughly speaking, the jobbing profits on that fund during the last year? We know they have been very considerable, but we are not shown in miscellaneous receipts from time to time how much these profits are. The Chancellor can surely put some of these profits, which we know are very considerable, into miscellaneous receipts for revenue purposes.

The TEMPORARY CHAIRMAN (Mr. Entwistle)

The hon. Member must not go into that point too much. It is not the subject matter of the Debate. He can use it as an illustration but he must not develop it.

Mr. BOOTHBY

This Committee has a duty to be very vigilant about taxation—it is its main duty—and when the Chancellor asks for additional taxation we have a right to make the most searching inquiry as to whether it is vitally necessary, and when there is a large fund about which we know very little except that it is alleged to have made a large profit—it is alleged to hold in Paris over £100,000,000, which belongs to the taxpayer—we are entitled to ask what the Chancellor's opinion is on that particular point, and whether he and the Financial Secretary are satisfied that this additional impost, which will be a great inconvenience to business, is vitally necessary, and, if so, why?

5.44 p.m.

Mr. TINKER

I want to speak directly to the Amendment which, if the Chancellor accedes to it, would mean a reduction of £12,000,000 to the revenue. That is what the Committee has to direct itself to. The hon. Member who spoke last did not come in on the increase of the Tea Duty. I have never heard him raise his voice to ask for an explanation about indirect taxation.

Mr. BOOTHBY

If I had been Chancellor of the Exchequer, I would not have increased the duty.

Mr. TINKER

I wish the hon. Member had been Chancellor of the Exchequer. However, there was no protest made. What concerns me is that, when it is direct taxation, we get protests from the other side. They do not expect any redress this time. It is only to prepare the ground for next time. They say, "If we show the Chancellor what we feel on this matter, he will have regard to what we say when he is considering the next Budget." I urge upon the Chancellor of the Exchequer, if he considers it necessary to ask for additional money for a particular policy, such as armaments, in which he is backed up by Members of his party, to put the burden upon direct taxation—upon Income Tax, Super-tax and Death Duties. There is no reason at, all for all the talk about this sort of thing driving capital out of the country. In a. statement made in March last concerning the distribution of national capital, it was shown that. from 1911 to 1913 85 to 90 per cent, of the national capital was owned by 5 per cent. of the population over 25 years old, and that to-day 80 per cent. of that capital is owned by the same percentage of the population. In spite of the inroads made by direct taxation and Income Tax, the ownership of capital has not shifted very much. These, people are still safe and sound, and there is plenty of money to be got when it is required.

It has been said that no country in the world has a richer people or people who are better looked after than this country. I would advise hon. Members opposite, when talking about the need for armaments, to realise that if, for instance, we were beaten by a foreign Power, the moneyed people would be affected most of all. The poor people would then be on the same footing as the rich. Therefore, it is in their own interests that the rich should say to the Chancellor of the Exchequer, "If you want this money, put another 6d. on us and we will not grumble at all." I trust that the Chancellor of the Exchequer will do that if he requires additional money. I hope that he will not listen to any arguments or blandishments put forward by hon. Gentlemen opposite that, if he has a surplus, it should be given back to the Income Tax payers. If he has any surplus, he should give it back to the indirect taxpayers and not the Income Tax payers.

I have no doubt that if this Amendment could have come on earlier the hon. Gentleman the Member for South Kensington (Sir W. Davison) would have spoken upon it in defence of the Income Tax payer. I have before me "The Income Tax Payer," and there are the names of several Members of Parliament in it, but they have not spoken in this 'Debate. The Chairman of the Income Tax Payers' Society, the hon. Member for South Kensington, says in this issue: While admitting that Mr. Chamberlain's task was an extremely difficult one because of the undoubted necessity of the defences of this country being put without delay into a sound condition, one cannot but regret that some way could not have been found to meet the heavy cost involved by other than increased direct taxation. He admits, on the one hand, that it is necessary to put the armaments of the country into a sounder condition, but suggests that the Chancellor of the Exchequer should find the money somewhere else. It is not fair to use such an argument. If it is admitted that we require certain defences, the people who have the money ought not to cavil about having to pay for those defences.

5.50 p.m.

Sir JOHN WARDLAW-MILNE

I differ in one respect from the hon. Member for Leigh (Mr. Tinker) in that he appears to fear that my right hon. Friend the Chancellor of the Exchequer might give way to the blandishments which have been put forward to-day. I have found my right hon. Friend very difficult to move, and I do not think that the hon. Gentleman need be the least afraid' that we shall move my right hon. Friend unless he himself is completely convinced that his proposal is unnecessary. There is only one aspect of this matter—it has not been specially mentioned—which I want to bring out to-day. I entirely agree with what was said by my hon. Friend the Member for East Aberdeen (Mr. Boothby) regarding the dangers in this country and in other countries which have come about from any form of deflation. If I thought for a moment that there was any move to change the policy which the Government have followed in connection with cheap money and the provision of ample credit for industry for some years past, I should resist it tooth and nail. That would be the greatest danger that could come upon us. I do not share the fear of my hon. Friend the Member for East Aberdeen in that respect, however. I therefore look upon this really as a question of whether the Chancellor of the Exchequer is justified, merely for the purpose of bringing it home to every section of the community that a sacrifice of some kind is required in the peculiar circumstances of to-day, in putting forward this proposal for extra taxation. I cannot myself believe that it is really necessary.

I am bound to say, with the greatest respect for my right hon. Friend and those associated with him at the Treasury, that I cannot forget that, through no fault of his, there was an under-estimate of the returns last year from Income Tax and duties of something like £20,000,000—a very substantial sum. I also cannot forget that the budgeting for the expenditure on armaments this year is something like £50,000,000 more than last year's estimate, and £40,000,000 over last year's actual expenditure. I am a little doubtful whether, in view of the state into which our defences have fallen—we must put it quite plainly—it is even going to be possible economically to spend that amount of new money in this year. These are two reasons why I do not feel that this expenditure is really necessary. There is a third aspect of this expenditure which has not been considered, namely, that the Chancellor of the Exchequer is estimating the service of the National Debt in the present year at £224,000,000. Unless he expects dearer money, which I hope and trust he does not, there is no reason to suppose that the actual expenditure will exceed the £211,500,000 of last year. He has, therefore, some £12,000,000 or more up his sleeve in case his expenditure is greater than he expects. From all these points of view, I cannot really believe that, when we come to this time next year, it will have been found that the extra threepence on Income Tax, the inconvenience of which has been emphasised more than once, was really necessary.

There is one last aspect of the matter I wish to put before the Committee. If it is not absolutely essential, is it really fair to do this sort of thing? Think of what the bulk of the people who will have to pay the money have sacrificed to the State in the last few years. We are apt to forget that from a. large body of people, mainly Income Tax payers, £81,000,000 has been taken by the lowering of interest on Government loans. That has been a definite sacrifice. That is not shown in the rates of Income Tax, but it is a contribution to the expenditure of the State none the less, and has been a very heavy burden upon a great many people who could ill afford to bear it. Some of these people, no doubt, are comprised in the 6,000 odd who have incomes of £10,000 a year, and some may be comprised in the 82,000 people who pay Surtax, but a great many are people who pay small amounts of Income Tax, and a great many, naturally, are investors in War Loan and mainly dependent upon such investments for their total income, being retired people and others of that kind. Therefore it, is very hard, looking at the matter quite apart from any question of party politics, to justify a further demand upon these people of £12,000,000.

The Chancellor of the Exchequer, as I have said, will have something like £12,000,000 up his sleeve, and there is a possibility that his returns will be greater than he expects, judging by last year. The only justification that he has for putting that burden, to some extent at any rate, upon people who have already sacrificed very nobly in the last few years in the interests of the State, is that which the Chancellor of the Exchequer has put before the Committee, that it is necessary that all should realise that sacrifice is required. I find it difficult to resist that plea because perhaps there is something in it; but at the same time it is putting an unnecessary burden at this time upon people who have very nobly supported the State. It might have been better for my right hon. Friend to have waited to see whether he really was going to be in a position to find the £12,000,000 elsewhere.

5.56 p.m.

Mr. H. G. WILLIAMS

I listened with very great interest to the speech of my hon. Friend the Member for Kidderminster (Sir J. Wardlaw-Milne) and to that of my hon. Friend the Member for East Aberdeen (Mr. Boothby), and I think that they are both inclined to be profligate financiers.

Mr. BOOTHBY

We are true prophets too.

Mr. WILLIAMS

I have heard some previous predictions of the hon. Member for East Aberdeen, and I will come to them shortly. The Sinking Fund has been raided theoretically to the limit. There is a chance that Treasury Bills will continue to be sold at cheap rates round about 10s. or 11s. If there is a rise to a quite moderate rate of, say, £2, which will still represent cheap money in the ordinary sense, the whole of that margin will vanish.

Mr. MABANE

The hon. Gentleman the Member for South Croydon (Mr. H. G. Williams) is usually correct, but in this respect he is entirely wrong. It will not have anything like that effect.

Mr. WILLIAMS

Let us look at the position. At the present time there are £600,000,000 or £700,000,000 of Treasury bills in issue, which are sold every Friday on a system of discount. The discount accepted in recent weeks ranged round ten shillings and a few coppers. It could rise from this abnormally low level without anything very startling happening. You have only to look at the records of prices for the period since 1918, and you will find that it ranged nearly as high as £6 less than five years ago. If it rises to £2 that represents an increase of 30s. on some £700,000,000. A little 'arithmetic done with regard to that will show about £10,500,000, which would wipe out the margin now existing between £224,000,000 and the actual cost last year of public interest and management. [Interruption.] I am merely indicating that a rise in Treasury bills will wipe out all that margin. Therefore there is really no margin in the Sinking Fund.

We are, from one point of view, in the middle of a trade boom. We have over half a million more people in employment than has ever been previously placed on record, but we still have a great mass of unemployment. The people in work have never been more prosperous, and it is equally true that there are something like 1,750,000 out of employment. This boom will have, as all booms have, a reaction, and when that reaction comes we shall have stripped the Sinking Fund, or we shall have got our expenditure on a level so high that inevitably we shall be forced to make a new set of cuts or to impose new heavy taxation. I understand that the hon. Member for East Aberdeen (Mr. Boothby) and the hon. Member for Kidderminster (Sir J. Wardlaw-Milne) want to do something now which will increase that risk in the future.

Sir J. WARDLAW-MILNE

I prefaced my remarks by saying, "Provided this cheap money era goes on." I am fortified in that by the statement of the Chancellor of the Exchequer in opening his Budget.

Mr. WILLIAMS

The Chancellor of the Exchequer is not primarily the author of cheap money. We have only to examine economic history to see that a precisely similar state of affairs prevailed about 1895–96. What happens? You have a trade collapse, financial stringency, high cost of money, then a fall in commodity prices, the cost of financing trade very much reduced because the cost of raw materials is reduced, and then a sudden glut of cheap money. That factor is possibly as large as, if not larger than, any factor for which the Chancellor of the Exchequer was responsible. I agree with the hon. Member for Kidderminster that the Chancellor of the Exchequer has under-estimated the yield of his Income Tax. He always does. He knows what a profligate set of associates he has. [HON. MEMBERS: "Oh!"] Certainly, profligate. Have there ever been increases in expenditure comparable to the increases of the last three or four years1 It is profligate expenditure, leading us on to a new disaster. Make no mistake about it. We shall have another piece of trouble ere long because of gross extravagance.

Here we have an Income Tax of 4s. 9d. in the pound. An Income Tax of 4s. 6d. was gross over-taxation of the people of the country. It is all very well for the noble Lord to say that we have bribed the people into being content. I am putting his words into a nasty phrase. How many people have we thrown out of work through our policy of high direct taxation? I have always been convinced that high direct taxation is one of the chief causes of unemployment. It is interesting to look at the records of those years in which reduced taxation has taken place since the end of the War. They have always been followed within 12 months by a marked reduction in unemployment. One cannot say that that is necessarily the cause of the reduced unemployment, but when it happens so frequently there is a substantial weight of economic evidence to prove that a reduction in direct taxation is more likely to stimulate employment than any other proposal that can be made.

Mr. TINKER

We have more in employment to-day and yet there has been no reduction in Income Tax.

Mr. WILLIAMS

I am pointing out that we have 1,700,000 people unemployed. Complacent people who are in good jobs are inclined to forget that fact. It is a most tragic circumstance. We cannot be content with the present situation. It horrifies me that 1,700,000 people will wake up to-morrow morning without having the slightest idea what is their purpose in this workaday life. I am not content to go on supporting a policy of profligacy which continues that state of affairs. I have always preached the doctrine of economy in public expenditure. We have abandoned that policy. Let us be frank about it. All parties have abandoned the policy of economy. We all support Acts of Parliament which impose new charges for the future. The legislation of this Session has hypothecated a great deal of the income of the future and will make it much more difficult to effect necessary economies.

The hon. Member for East Aberdeen says, "Let us have a bit of inflation." I will admit that the hon. Member is consistent. Inflation is like getting drunk and deflation is like getting sober. Reflection is something like the hair of the dog that bit you. The hon. Member said that we need not put up the Income Tax because we can solve the matter by a bit of inflation. He painted a picture of France, which I think was unfortunate. I think it was an unfortunate phrase to use in this House. When a country's passing through the difficulties that France is passing through, we ought not to do or say anything to make matters worse. France has had some inflation. I seem to recollect that France and the countries of the Latin union had a coin which exchanged at 25 and a few centimes to the pound. They altered it and called it 125 francs to the pound. I should have thought that that would have satisfied the hon. Member. It was an increase of 5 to But he is not satisfied. He says that they must have another piece of inflation. My point is, that the 5 to 1 did not solve the problem. Therefore, I am not satisfied with that suggestion. I am not satisfied that our departure from the Gold Standard, which was not a voluntary effort, was altogether a good thing. The hon. Member would have predicted then that it would have been followed by an expansion of prices, but it was not.

Mr. BOOTHBY

No, because world prices fell.

Mr. WILLIAMS

Precisely, and by the fall of world prices we threw hundreds of thousands of people out of work all over the world, and prolonged the world crisis.

Mr. BOOTHBY

Surely the hon. Member does not suggest that our going off the Gold Standard was the cause of the fall of world prices?

Mr. WILLIAMS

Certainly. At any rate, it was one of the reasons for a much deeper depression than would otherwise have been the case. I do not hesitate to say that by departing from the Gold Standard we prolonged the world crisis for over two years by forcing down the prices of raw materials in every primary producing country in the world. The hon. Member has not on this occasion brought in King Charles' head—Montagu Norman. He has forgotten the Bank of England to-day. He wants to inflate by means of a loan—

Sir P. HARRIS

On a point of Order. Shall we be allowed, on this discussion with regard to the Income Tax, to discuss the whole problem of inflation and deflation?

Sir ARTHUR MICHAEL. SAMUEL

The hon. Member for East Aberdeen (Mr. Boothby) dealt specifically with these points, and I suggest that my hon. Friend should be allowed to answer him.

The DEPUTY-CHAIRMAN

I had not the advantage of hearing the hon. Member for East Aberdeen but, judging from what I have heard of the Debate, I conclude that it had been argued that other methods should have been used to raise the revenue and so avoid further taxation, and amongst them inflation was mentioned. I think those who oppose the Government's proposals are entitled to explain why they dislike them.

Mr. WILLIAMS

The hon. Member said that we did not need to increase the Income Tax because we could do what was necessary by other means. He developed the argument and gave illustrations from other countries. He suggested a defence loan, where the increase in our defences involves capital expenditure. Obviously, we cannot rule out that possibility, but I should very much doubt whether we could ever raise one penny in connection with a defence loan for the Air Force, because the material of the Air Force has such a short life, and it always ought to be borne out of revenue, but when we have to build a number of capital ships for the Navy the case might be different.

Mr. BOOTHBY

Or aerodromes?

Mr. WILLIAMS

Or aerodromes, but the other thing is the bigger item. It would not be the first time that this country had done such a thing. Let hon. Members go back to the records of 1887 or 1888 and read the speeches in the debates on the Naval Defence Act. It was then decided to restore our naval strength very largely by means of loans. I remember as a young man reading the speeches of the Liberal Chancellors of the Exchequer, Harcourt, and Asquith, denouncing the financial iniquity of meeting out of loans expenditure which ought to be met out of current revenue. I remember rejoicing when in 1906, Mr. Asquith, in introducing his first Budget, explained that the Liberal Government were abandoning this iniquitous system, and everybody agreed that he was right. The Liberals claimed great credit for that and Conservatives did not deny them that credit. It is sometimes possible to learn from the experiences of the past. On that occasion the Liberals were right and the Conservatives appeared to be wrong. I do not see any reason why, when the Liberals taught us what was right, we should in these days do what is wrong. Only in the most extreme circumstances should we commit ourselves to the policy of a defence loan.

I would suggest that hon. Members should get the financial statement from the Vote Office and see what is the deadweight total of our National Debt. Let them go to the Library and get the financial statement from 1919 and see what has happened. There has been little or no diminution in the dead-weight debt. At any rate, it is trifling, £100,000,000 off some £7,000,000,000 of debt. The economic burden has gone up immensely. There has been no reduction in the National Debt in a real sense. It is an intolerable burden and we ought to make some persistent effort to reduce it. During the last three or four years the Chancellor of the Exchequer has been right in saying: "I will not burden the people unduly. I will give them a chance to recover and suspend the Sinking Fund, except for the chance of there being a surplus or the chance that my debt service happens to be less than I estimate, and then £20,000,000 or £30,000,000 shall be applied to the reduction of the National Debt."

Mr. BOOTHBY

The hon. Member must realise that the National Debt is not entirely a burden. To a large extent it is a transfer from the pockets of the taxpayers into the pockets of the owners of British Government securities. It is not wholly a dead-weight burden.

Mr. WILLIAMS

I agree that to pay it off you collect taxation from the people out of their incomes and then use the money to pay off the National Debt. But do not let the hon. Member run away with the idea that the National Debt is not a burden. Of course, it is a burden. It is all very well to say that we will pass an Act of Parliament to give each one of us a pension of £2 a week, then increase our taxation in order to provide the money, and pretend that it is not a burden. You find out that it is a burden, because you get all sorts of re-distributions and reactions. The man who is trying to build himself up is overtaxed and can make no provision for the future. What is the position of great masses of middle-class men to-day? The day after Christmas they get a demand note for Income Tax. With very great difficulty up to 31st March they pay off the Income Tax. Perhaps they pay it off in driblets, because they cannot pay it at once. A few weeks later they get another demand note. I got one this morning. Again they are faced with the problem how they are to pay it. They come to their summer holidays and they cannot do themselves as well as they would like because of the ceaseless burden of Income Tax. Whole masses of middle-class people, who are not rentier people, are finding themselves in great difficulty to make provision for their families and their old age because of this burden of taxation. One day they will be very angry, and when they become very angry there will be violent changes in the constitution of this House. These people are tolerant, but in the long run they rule this country. They are oppressed and overburdened and would be grateful if' we took a little more care to limit our expenditure and not to impose these burdens upon them.

6.15 p.m.

Mr. CHAMBERLAIN

During the course of the discussion I have been accused of being an immovable person who once he has made up his mind is not going to change. I cannot remember an occasion for such a libel on one who is so yielding by nature as I am. The hon. Member for Kidderminster (Sir J. Wardlaw-Milne) was right when he said that there was one preliminary condition which had to be fulfilled before I could change my mind during the Debate and that was that I must be convinced that I am wrong. That is the stumbling block which has prevented me from accepting Amendments, and it is rather, I am afraid, the situation in regard to the present Amendment. I have listened to the annual Debate on this subject, and to my annual critics who have put up the same views and the same arguments. While they do not show any increase in numbers they retain with great tenacity their views, but I have not found from what they have said this afternoon any such convincing arguments as would urge me to think that I have made a mistake in proposing an increase in the Income Tax of 3d. in the £. The hon. Member for Huddersfield (Mr. Mabane), of course, put his Amendment down before the speech of the Financial Secretary to which he referred, and although his observations this afternoon seemed as though his case was founded on what he described as the remarkable and astonishing statement of the Financial Secretary, as a matter of fact he must have held his views before, because the speech of the Financial Secretary had not been made when he put his Amendment on the Order Paper.

Surely what the Financial Secretary said on the subject of the necessarily speculative element which must always enter into Budget estimates is self-evident. You have only to look at past Budgets. Have you ever found that the estimate of revenue or the estimate of expenditure came out exactly coincident with the figures which were returned to the House? There is always a difference, and there must always be a difference. It is quite easy to show where a difference may arise. Take, for example, the yield of Income Tax. I have on previous occasions explained that the re- turns from Income Tax are made up by three different items. The major part is, of course, the yield of the assessment for the year, but there are two other items, first, the amount of the arrears which are brought forward from the year before, which were due to be paid and were not paid but carried over into the current year, and, secondly, the amounts which are due to be paid in the current year but which are not paid and which are carried forward to the following year. The long experience of Inland Revenue officials enables them to calculate with singular accuracy the amount of the revenue which will be derived from the assessment for the current year, but the amount of the other two items, the amount which is going to be collected from the past year and the amount which is going to slip through collection in the current year, must always be speculative, because they are governed by all sorts of factors which it is impossible to predict. As I have previously explained, the increase in the Income Tax collected during the past year over the estimate was due, if you like to call it so, to a miscalculation as to one or other of these two elements. So much for Income Tax.

Take Estate Duties. There the estimate must necessarily be a matter of guess-work, and although we can introduce a certain amount of stability into the estimate by taking the average over a long period, nevertheless, it is impossible to say with any attempt at accuracy what you are going to get from Estate Duties. Take the Customs Duties. We have had but a comparatively short experience of the duties and I have no doubt that as time goes on and the Board of Customs accumulate further experience they will be able to make a prediction as to the revenue to be expected for a particular year with greater accuracy than is possible to-day, but in the present circumstances we are bound to find that the estimate may not be very close, and that if conditions change during the year we shall have to make considerable alterations in the amount predicted when making our estimate.

The hon. Member for Huddersfield was very shocked to hear that there could be any possible doubt about the amount of expenditure in the current year. He thought it possible to predict with confidence and certainty the expenditure, and could not understand why there should be any speculative estimate in the matter. May I remind him of one thing which bears a very important place in national expenditure, and that is the contribution of the Exchequer towards the relief of the unemployed? How is that to be estimated beforehand? You have to make a guess, an estimate, of the average number who will be unemployed during the year, but conditions may change materially during the 12 months and, in fact, we have frequently found that they do change. Therefore that at once brings in an element of uncertainty into that item of expenditure. Again, there is what must be called a new element to-day, and that is the progress which we are able to make in our Defence programme during the next 12 months.

Last year the Committee will remember Supplementary Estimates were presented amounting to £14,000,000 more than I had anticipated for Defence. The same might happen this year. I do not think it will. As a matter of fact the Government know perfectly well what they are going to do; they are going to do as much as they can and, therefore, we can estimate with a fair amount of confidence how much we shall spend upon the Defence programme. But there again it is possible that unexpected developments may take place which would to some extent vitiate the figures I have put before the House on the subject of our expenditure on Defence. I must correct one error of the hon. Member for East Aberdeen (Mr. Boothby). He suggested that I was concealing from the Committee in the item of miscellaneous revenue sums derived from the profits of the Exchange Equalisation Account.

Mr. BOOTHBY

I am sorry if I conveyed that suggestion. I wanted to say that it would have been possible for the Chancellor of the Exchequer to bring some of those profits into the revenue instead of imposing additional taxation.

Mr. CHAMBERLAIN

I thank the hon. Member for his explanation, but it does not deal with the point. There are no profits on the Exchange Equalisation Account, and there cannot be until it is finally wound up. It may be that at any particular time the Exchange Equalisation Account may show a profit, but to use that profit for the revenue of the country would be financial heterodoxy which I am sure the hon. Member would not desire me to adopt. The real gravamen of the charge against me, and the reason for the Amendment, which I recognise is merely a means of drawing a statement from me on general policy, is that really it was not necessary to impose any fresh taxation at all. I do not think there is any point in distinguishing between direct and indirect taxation in this case. But in considering whether I can convince the Committee that it is absolutely necessary or not, I find myself in some difficulty. It is bound to be to a large extent a matter of opinion. How are we to say whether taxation is necessary or not? It is true that I have said on previous occasions that I wish to avoid taxation when it is possible to do so.

There is a simple means by which you can decide. I could have written up the estimates of what I am proposing to raise by taxation by £15,000,000, and the Budget would at once be balanced on paper; it would be unnecessary to raise taxation. But if that is the sort of thing it is suggested I should have done, I feel that the Committee will support me in the view I have taken that, having made the best estimate I can of what is likely to be the revenue and expenditure for the current year, I should not be justified in raising the Estimates by £15,000,000 in order to avoid the necessity for any fresh taxation. I agreed with what the Financial Secretary said yesterday. I deny in toto the accusation that I have deliberately under-estimated the revenue for the purpose of having something in hand against contingencies. I have taken what I believe to be an optimistic view of revenue, and although there is always an element of doubt in these estimates, and although anybody can guess another figure which may turn out to be more nearly right than my own, nevertheless they have not my responsibilities. I have to take such responsibilities and to estimate to the best of my ability, and I say frankly to the Committee that my estimates are genuine ones—they do not conceal something deliberately kept back or under-estimated for the purpose of having a surplus.

Let us consider some of the suggestions that have been made. The hon. Member for East Aberdeen quarrels with me about the 3d. increase and says it is a very inconvenient amount. I agree that it is inconvenient amount, but although I do not myself make the calculations which are necessary in calculating Income Tax at the source, I doubt very much whether firms will have to add to their staffs in order to deal with the 3d. instead of the 6d. But inconvenient as it may be to have an increase of 3d. in the Income Tax, it would have been still more inconvenient to most of us if the increase had been one of 6d. My hon. Friend said that he would rather have an increase of 6d., but he then added next year, and nothing this year. Of course, we all know how the sinner salves his conscience by saying he will do something next year instead of this year; there is always the possibility that he may be dead before next year. If my hon. Friend searches his conscience very thoroughly, I think he will see that that is really an evasion, and if he had had the courage of his convictions he would have said that he preferred 6d. this year and not next year. Then we should have had protests from many quarters in the House against any such view.

No, I have had in mind the very fact which the hon. Member brought out, namely, that a substantial—what my hon. Friend would call a convenient—increase in the Income Tax would have had a depressing effect upon trade and industry throughout the country, and I was anxious to avoid that if I could. I am bound to say that although the fact that the increase which I had to make was unexpected and did at first produce a natural shock of surprise and disappointment, yet I think one may say that within a few days trade and industry had quite recovered from the shock and went ahead without any shock or any psychological depression due to the additional taxation which I had to impose.

My hon. Friend would desire to meet the expenditure on armaments to a large extent by loans. I do not think this would be a convenient moment for me to enter upon any general discussion, additional to what I said in my Budget statement, on the principles which should govern us in deciding whether future instalments of expenditure upon armaments should be met out of taxation or out of loans, or in what relative proportion they should be met out of those two sources. I would only say that when and if we do come to the time when discussion would be appropriate—when, for example, on some future occasion I had to come before the House and ask its opinion on a proposal to raise by loan the money required for armaments—I do not think it would be found possible to differentiate in the way suggested between capital expenditure and current expenditure on armaments.

Reference to the speeches to which my hon. Friend the Member for South Croydon (Mr. H. G. Williams) alluded in connection with the Naval Defence loan would show how in practice it was found that those items which were thought to be most undeniably of a capital character and most easily distinguishable from items of a current character were, in fact, found to be of a current character themselves. Although it is undoubtedly the intention to suggest that circumstances are of such an exceptional nature that it is really only fair that posterity should bear the burden instead of ourselves, the very easiness of that argument convinces me that it cannot operate in practice, and I think it would be necessary, if we came to consider the matter from the practical point of view, with practical proposals, to find other criteria than anything so simple as that suggested by my hon. Friend.

There is only one other observation on which I wish to comment and that is the remark made by my hon. Friend the Member for Kidderminster (Sir J. Wardlaw-Milne) that if this taxation is not absolutely necessary it is very hard upon a large number of Income Tax payers who have suffered great sacrifice already by reason of the Conversion Loan. I cannot accept that view as being an accurate one. After all, those who depend for their income upon fixed interest know that that fixed interest must vary in different degrees and at different times, but roughly speaking follow the rates of interest of the time. If you invest your money in a security which is not redeemable for a certain number of years, you know that when the time comes at which it is redeemable you will have to accept a different rate of interest; it may be that you will be able to invest your money at a higher rate or at a lower rate of interest, according to the conditions of the time. I do not think it would be proper to describe that as a sacrifice. Nor is it right to speak as though the whole burden occasioned by the conversion operations fell entirely upon the small Income Tax payer. There are many other people who, although they suffered a loss of income by reason of the fact that gilt-edged securities no longer gave the same return, had nevertheless other securities of a different character in their possession which had produced a very considerable increase, and the one thus set off the other.

If we are to take the case of the small Income Tax payer, I would remind my hon. Friend that, at any rate where the small Income Tax payer is a married man, particularly when he has a family, I have made provision in this same Budget to help him. In announcing my proposals for the increase in the allowances for children and the married allowance, I specifically mentioned the fact that many of the small Income Tax payers who derive their income largely from gilt-edged securities had suffered a loss of income which no doubt had occasioned them considerable hardship. Under the provisions of the Budget, taken as a whole, the married people are not going to suffer. I hope my hon. Friend will bear that in mind and will remember, when he speaks of unnecessary taxation, that we have in front of us a rapidly-increasing expenditure, what he and I, and other hon. Members believe to be a very necessary form of expenditure, namely, that on restoring our armaments. He probably would not take the view that in no circumstances should any of this expenditure be borne out of revenue, but would probably agree with me that if not this year at any rate next year taxation would be necessary. If I had said that I would pass over this year, but that taxation would have to be expected in the future, without, of course, being able to specify the amount, that would have been far more calculated to undermine confidence and to make people feel that something was hanging over them, the extent of which they could not measure, than what I have done, which is to provide, at any rate to some extent, the moral justification for borrowing in the future by showing that the taxpayer of to-day is prepared to accept to the limit of his reasonable capacity the burden of the armaments which are for his own security as well as for that of posterity.

6.43 p.m.

Mr. PETHICK-LAWRENCE

In rising to take part in this discussion I feel rather in the position of an outsider who intervenes in a family quarrel. I am inclined to ask, as did the Irishman who saw a scuffle going on in the street, "Is this a private fight or can anybody join in?" However, as this is not simply an annual meeting of the Conservative party but a Debate in this House, I suppose it is open to one rising from these benches to give his views on the subjects which have been before us during the last hour and a half. To a very considerable extent the Debate has been on the merits of payment out of income or borrowing in order to meet expenditure. In connection with that the Debate has turned on the question of inflationary policy, and what happened in the year 1931 has naturally played its part. I do not intend to stray for very long into that field, but I think it is right that I should refer to what happened on that occasion.

I agree with the hon. Member for East Aberdeen (Mr. Boothby) that the prosperity which has partially been restored in the course of the last few years owes its origin to the fact that in 1931 this country was freed from the restraint of the gold basis of its currency. That the prosperity did not show itself earlier was due to the policy of cheese-paring economy which was imposed on the country by the Government and the Bank of England at that time. There was economy not merely in public expenditure but in that of local authorities and private individuals, so that there was a tremendous retrenchment of outlay, which prevented the expansion and recovery which would otherwise have taken place. When a year or two had elapsed the Government abandoned the exaggerated theory of economy which they had been preaching and relaxed the measures which had been pressing down upon opportunities for development. Then the recovery, due to the freedom from the Gold Standard, began to take effect. Therefore, to that extent I agree with the hon. Member for East Aberdeen on that issue, and I agree further with the hon. Member for Kidderminster (Sir J. Wardlaw-Milne) that any attempt to reimpose a deflationary policy on this country would be disastrous.

In support of my view I would give the example of a small but an important country where a monetary policy of avoiding deflation and adopting proper methods of expansion has produced admirable results. I refer to that important Scandinavian country, Sweden, where singularly good results have been achieved from the controlled expansion of public activities. Where I differ from the hon. Member for East Aberdeenshire, and, to a certain extent, from the Mover of the Amendment, is that while I think an expansionist policy on public developments of a reproductive kind can properly be undertaken during a period of depression, an entirely different position arises with regard to the expansion of armaments. Armaments, it seems to me, ought not to be paid for out of borrowed money. I see an immense chasm between borrowing for the expansion of the resources of the country and the development of its reproductive assets, and borrowing to pay for vast armaments and in so far as the hon. Member for East Aberdeen did put forward any suggestion of that kind, I submit that it is a proposition which must be viewed with grave misgiving.

I pass from those general considerations, which I think have properly exercised the minds of most speakers in this Debate, to the particular Amendment before the Committee and the question of whether the rate of Income Tax ought to be increased or not. I wish, if I can, to set at rest once and for all the idea that the party with which I am associated make light of an increase in the Income Tax. I recognise, as I believe the great bulk, if not the whole of this party recognise, that there are large numbers of people to whom Income Tax is a very serious burden. That is particularly true of the smaller people, on whose standard of life even a trivial tax presses with undue severity. What we on, these benches do say and what is, I think, borne out by recent investigations which have attracted a great deal of attention in the Press, is that of the various forms of taxation, direct taxation, such as Income Tax, Super-tax, Surtax and Death Duties, is a less serious evil than indirect taxation which presses on the poorest of the people.

We say that if there must be taxation, if people have to bear these burdens at all, it is more fitting that the taxes should be placed on those who have some margin of health and strength available to meet them rather than upon those who are already below a proper standard of health and efficiency, who must suffer to a greater degree in their standard of life under these burdens, and who cause greater expense to the nation in the recovery of that health which they ought never to have lost. This Amendment is designed to keep Income Tax at the present level of 4s. 6d. instead of allowing it to rise, as the Chancellor proposes, to 4s. 9d. If that were done the Chancellor would be confronted with a loss of £12,000,000. To meet that loss he must either borrow the money—and I have already explained that in our view however desirable borrowing may be for capital development it is undesirable for expenditure on additional armaments—or he must find it in alternative ways I oppose. There is no other way, unless he puts the burden upon the higher ranges of Income Tax and he has decided that that course would be undesirable—

Sir J. WARDLAW-MILNE

If it is necessary to find it at all.

Mr. PETHICK-LAWRENCE

The Chancellor has assured us that he has made his estimate on the basis of this yield and we are bound to accept that assurance. It may be that when it is worked out the result may prove to be different from the Estimate, but I do not think we can ask the right hon. Gentleman to raise his Budget forecast by £12,000,000. He cannot, in order to satisfy hon. Members opposite, recast his figures. For better or worse those who are responsible to him, as he is responsible to us, have given these figures as the estimate of the revenue in certain circumstances. We are hound to accept those figures as being broadly accurate and thus there are only the two alternatives which I have already indicated. Therefore, I come to this point. Much as we realise the hardship of an increase in the Income Tax, we prefer that increase to any other form of taxation which the Committee is likely to adopt. We prefer it to borrowing for armaments and though we do not minimise the sufferings of those, particularly people of humble means, who have to pay Income Tax, we shall not support the Amendment. If it goes to a Division we shall support the Government.

Mr. MABANE

The Chancellor of the Exchequer has dealt with what still seems to me the novel doctrine advanced by the Financial Secretary, and I think the House is indebted to him for having given such a full explanation of the new reasons why budgeting is more loose now than it was in the past. In view of that explanation I ask the leave of the Committee to withdraw the Amendment.

Amendment, by leave, withdrawn.

Clause 13 ordered to stand part of the Bill.