FINANCE BILL.

HC Deb 20 May 1936 vol 312 cc1211-334

Order for Second Reading read.

Motion made, and Question proposed, "That the Bill be now read a Second time."

3.50 p.m.

Mr. LEES-SMITH

I beg to move, to leave out from "That" to the end of the Question, and to add instead thereof: this House declines to assent to the Second Reading of a Bill which, while not containing sound financial provisions for meeting out of income the huge undisclosed expenditure upon national armaments to which the country has been committed, nevertheless imposes additional burdens upon the poorest section of the community, fails to remove the unjust tax upon cooperative societies, deprives the Road Fund of its statutory revenues, and raises general taxation to a level unprecedented in time of peace. The Second Reading of the Finance Bill gives us an opportunity of registering our second thoughts upon the Budget, and the main conclusion which, I think, impresses itself on everybody's mind is that the importance of this Budget is not so much in anything that it contains for the existing year as in the prospect that it contains for the years that are to come. I have endeavoured to obtain the most authoritative information possible as to what is the prospect for the general trade, employment, and industry of the country for the years immediately in front of us, because on that the Budget must largely depend. The only detailed attempt at an official forecast of trade and industry in the next few years has been by the Unemployment Insurance Statutory Committee. That is the official forecast on which the finances of the Insurance Fund have been based. Therefore, I shall take their general forecast as the basis, at any rate, of the first observations that I wish to make.

The Unemployment Insurance Statutory Committee broadly give this picture. They are of the opinion that at the present time world trade is moving in a cycle of about eight years, and they consider that the peak, the uppermost level, was reached about the middle of 1929, and from then onwards for three or four years there was a general depression throughout the world. The downward slope reached its lowest depth towards the end of 1932 and the beginning of 1933, and actually in January, 1933, unemployment reached the highest level it has ever had in this country. Then their view is that from the beginning of 1933 it began to go up, and that it would continue to go up till about 1937, so that now, in their view, we are very nearly at the peak. That is the warning which they give to those who control the Insurance Fund. In their view, after 1937 we must make preparations for the curve to go downward for a certain industrial depression, not only here, but all over the world, which they do not follow to its close, because their figures end in 1940. The figures are so precise and so important that I would venture to read their actual estimate year by year. In 1933 the percentage of unemployment was 19.8; in 1934, 16.6; in 1935, 15.3; in 1936, the present year, they expect it to be about 15.0; in 1937, when the cycle of depression will have set in, 16.5; in 1938, 17.5; in 1939, 19.0, and in 1940, 21.0 per cent. Of course, this statistical forecast has been supported in one's actual experience by the fact that during the last three or four years, since 1933, there has been an increase of industrial output, a diminution of unemployment, and an increase of retail trade, of savings bank deposits, and of all kinds of semi-luxury expenditure.

Those are the broad figures of the Committee, and the first important fact which can be deduced from them is that they subject to the cold light of judicial examination the claim of the Chancellor of the Exchequer, made in the peroration of his Budget speech, that all the industrial recovery of the last three or four years was due to the National Government. What this Unemployment Insurance Statutory Committee say is that, as a matter of fact, the recovery did not begin until the Government had been in office for nearly a year and half, that unemployment reached its very depth in 1933, that then, when it began to go upward, it began to go upward all over the world, and that the reason for the fact behind the Chancellor's peroration is simply that the Government happened to have the good fortune to come into office a little before the general world recovery began. This is verified by the experience of other countries. There has been the same recovery of a limited character, owing to world forces, in other countries which have followed exactly the opposite Budget and financial policy to that of the National Government. Take the United States of America. There are very few financiers who, I should think, are more unlike each other than the Chancellor of the Exchequer and President Roosevelt, but I have here the "Ministry of Labour Gazette" for January, 1936, which makes a comparison of the industrial recovery in the United States and in this country, beginning from March, 1933, just about the time when President Roosevelt came into office, and carrying it down to October of last year. Broadly, the position is that in this country since that time there has been a reduction of unemployment of about 30 per cent., or exactly the same percentage as in the United States, so that owing to the fact that there are world forces responsible, we get the same results under Governments pursuing entirely opposite policies.

Sir WALDRON SMITHERS

Will the right hon. Gentleman say what have been the American budget deficits?

Mr. LEES-SMITH

I am not going to be led away from the point that I am now examining—the claim of the Chancellor of the Exchequer that the industrial recovery in this country, so far as it has gone, has been due to the National Government. If the hon. Member wants to hear about Budget deficits, he will hear a good deal about them from me in a few minutes. There is another set of figures which compare other countries with this country under the National Government and which have been quoted once or twice in this House. They are the figures of the Information Department of the League of Nations at Geneva, not the League of Nations Union but the League of Nations itself. The Information Department made an estimate of the recovery of the 23 leading countries of the world, taking 1929 as the basis, and broadly the result is of very great interest, quite apart from any controversy here.

The broad result is this: There has been world recovery in the last three or four years, and those countries which have abandoned the Gold Standard have taken the full benefits of the recovery, whereas the countries which have main- tained the Gold Standard have received little or no advantage out of it. Actually the four countries at the bottom of this list are Gold Standard countries, and the country right at the bottom is France. So far as Great Britain is concerned, it has not done particularly well or particularly bad. It comes out number 10. If the Chancellor claims that Great Britain's position in the first half of this list is due to the policy of the National Government, I would point out that the four countries in Europe which are under Socialistic administration are in front of us. The fact is that the main reason why we are in the first half is that, as in the case of a great many other countries, we are no longer tied to the Gold Standard, but have abandoned the Gold Standard, which as a matter of fact the National Government came into office to maintain and which it abandoned against its will only because it was incapable of doing anything else.

I make these observations because the Chancellor in his Budget speech entered into an examination of the causes of such recovery as there has been. I have read his Budget speech. He never mentioned that there had been a general recovery; he never mentioned that we had abandoned the Gold Standard. He ignored all that. He simply said there were two main reasons—cheap money and tariffs, and that was all. Let us examine those causes. So far as cheap money is concerned, the truth is that cheap money is the result of industrial depression; it is due to the fact that capital cannot find profitable openings in ordinary industry. The Conversion Loan, which the National Government regard as almost the main achievement of their period of office, I have never regarded as a wonderful feat. It was a very obvious one. All that the Government did was to capitalise the results of depression at its lowest point, which it reached during their period of office.

Then we come to tariffs. I do not think we are yet in a position to make any estimate of what the consequences of the tariff policy will eventually be. How can you make an estimate when your tariff is introduced just at the moment when you remove the immense incubus of the Gold Standard, and when you introduce it at practically the beginning of a world recovery? No; the test of the tariff will probably come three or four years hence. Then we shall see whether the tariff will help you, and particularly we shall see whether the tariff will maintain the export trades in which the main unemployment of the country is concentrated to-day, those export trades which during the last four years, since the tariff has been introduced, have not shown the resilience which might have been anticipated when the incubus of the Gold Standard was removed and a bonus of practically over 30 per cent. was given to them—trades which since last autumn have been sagging badly, so that the adverse balance of trade is growing every month.

I would like at this point to say something about a. question which was discussed a good deal during the Budget Debates last year but has not been mentioned hitherto. I think it is generally agreed that if you want to increase your trade the line of least resistance and the quickest method would be to get the export trade to something near the level of 1929. But we are not likely to do that until some kind of stabilisation of currencies has been secured. Of course up to the present the main difficulty in the way of securing a stabilisation of currencies has been the precarious future of the franc. I notice that Mr. Cordell Hull said on 7th March that the United States had been ready for stabilisation for two years, and he rather suggested that he would welcome any proposal from this country to discuss the matter. The difficulty, of course, has been France. But the French may have recourse to devaluation at any time now, and if that does come about what has hitherto been the chief obstacle in the way of stabilisation will no longer be there. I quite understand that there are other obstacles. There is the general precarious state of Europe, and the fact that Germany is considering devaluation as well. I know that other factors have entered since last year, and I do not press the Chancellor of the Exchequer for a statement. But I suggest that a statement might at some time be useful to the whole of Europe, particularly a statement that if the French do make up their minds to undertake devaluation they will do so with the sympathy and with perhaps some co-operation of this country. That statement would have a great effect in maintaining the confidence of the French people, on which the final results of devaluation will depend.

Now I would like to consider the future which is revealed between the lines of the Chancellor's Budget statement. The Unemployment Insurance Statutory Committee warned the Unemployment Fund, and therefore warned the Chancellor, that we cannot anticipate that the trade of this country is going to remain at the peak permanently. They predict that there will be a turn even next year. As a matter of fact their predictions are supported by a good deal of other investigations. There was, for example, an article by Sir George Schuster, late Finance Member of the Government of India, which was published in the "Nineteenth Century'' magazine last November. He pointed out that industrial recovery and industrial depression are very largely bound up with the condition of the building trade. The Chancellor himself has pointed that out in previous years. The Registrar-General made a very careful estimate that we should require about 1,700,000 houses by 1941. There has been such an impetus in house building—a record last year—

HON. MEMBERS

Hear, hear !

Mr. LEES-SMITH

I know. Sir George Schuster recognises that, but he recognises that you had better not calculate that it is going to last, and that is the point. He points out that probably by 1937 or so there will be a sharp recession in the building trade. He calculates that probably there will not be more than one-quarter of the amount of work now being done. The whole subject was discussed by leaders in the building society movement in the Building Society Institute a fortnight ago, and they did not make any substantial alteration of these calculations. Therefore I say again that the warning of the Unemployment Insurance Statutory Committee, that we cannot expect these conditions permanently to last, is reinforced.

Let me look at the Chancellor's Budget speech in the light of these possibilities. I noticed during the Debate that the Chancellor always interrupted anyone who suggested that in his speech he had said there would be any increase of taxation in future years. Of course he did not say so, and of course if a Chancellor has given himself power to borrow undisclosed sums of money there never need be any increase of taxation. But I do suggest that, quite apart from any further increase which may be due to the armaments programme, the right hon. Gentleman will very probably find that even the present rate of revenue, without increased armaments, cannot be maintained at the present rate of taxation. As a matter of fact the Treasury in all probability is passing through what we may call its fat years, and if the lean years come the Chancellor, in order to obtain the present revenue, will have to increase taxation above the present level.

I am bound to say that if I were a Member of Parliament supporting the Chancellor, and if I had any very great affection for the existing economic order, I would regard the Chancellor's Budget speech with the greatest apprehension. He has done everything he can by way of small devices to bring in revenue—taxes on the necessities of life, raiding the Road Fund, and so forth. There are certain facts which are perfectly obvious, however. One is that practically all forms of direct taxation are now nearing the point of diminishing returns, and they do not make the same response to increased rates as they did before. What makes me more apprehensive is that the Chancellor of the Exchequer is now forced to embark upon a series of loans in future which, from the financial point of view, are of the most unsound and most indefensible type—loans for wasting assets such as aeroplanes, which have a life of only four or five years. Every canon of sound finance with which he so bitterly assailed the Administration of 1929 now lies broken in his own hands.

What would certainly alarm me still more if I were one of his supporters, reading between the lines of his speech, is that he practically said he has no alternative, and was bound to have recourse to loans because he could not raise taxation any further without the danger of crippling industry. What was the comfort he gave to the House? It was that these really very formidable prospects will soon come to an end, because the position in which he could not balance the Budget without loans was going to reach a peak and then it was coming down. What right has he to say that? The whole contention is that the armaments which we are discussing are based upon the armaments of other countries; they will come down only if other armaments come down. What right has the Chancellor to say that he will, in a few years, bring down the armaments of Signor Mussolini or Herr Hitler, who, up to the present, have always met the National Government with nothing but humiliations?

This Finance Bill is being discussed very quietly, but I think that in a few years hence it will be regarded as a landmark, because it is the first time the Chancellor has ever said that he has no choice but to borrow; in fact, the control of his Budget, the question whether he will borrow or not, is now dependent on forces the control of which has passed out of his own hands. The prospect is formidable, and I come finally to ask, where is the responsibility? We are entering upon a series of armaments Budgets, and the ultimate responsibility lies in the fact that the Government have not secured a reduction in European armaments during the last four or five years when there was some prospect of doing so. I notice that when that was said several times during the Budget Debate the Chancellor of the Exchequer always brushed it aside and said that we were all talking from the same brief. I think that the right hon. Gentleman has underestimated the nature of our criticism, and therefore I will conclude by summarising what is our criticism of this feature of Government policy which has led to our present very difficult and even dangerous situation.

Looking at the Disarmament Conference, nothing seemed more striking than the proposals which we were willing to make at the end compared with those which we were willing to make at the beginning. At the end of the conference we offered Herr Hitler an army whose home strength would be equal to that of any other European country, and an air force whose strength would quickly become equal to that of any other European country. We offered France an international inspection of armaments so that secret armaments might not be built up, and we practically offered, if the Disarmament Convention were signed, to give them guarantees of execution, which was generally taken to mean that we would put behind them sanctions of a military nature. Why did we not make some such suggestion at the beginning? There has been only one successful Disarmament Conference since the close of the War, and that was the Washington Conference. Why did that succeed, and what was the only point on which it did succeed? It succeeded because Mr. Hughes, the Secretary of State, put forward, on the very first afternoon before the diplomatic speeches were finished, the enormous proposal that no further battleships should be built by any nation in the world for another 20 years.

The Government had just as good a chance in 1932 as Mr. Hughes had. It has been said that there is a contrast between this Government's position now and our position in 1931. The contrast is that the National Government had a far greater chance of influencing the armaments of Europe when they came into power than we had of influencing the world slump when we came into power. France was in a very moderate mood, and Germany was under Dr. Bruening, a very moderate politician. Both countries wanted to come to terms, and if we had put forward then some such proposals as we put forward later, there was a prospect that terms could have been finally arranged. I was not in the House at the time, but I read the papers. It is no use saying that other countries would not have accepted, for there was nothing for them to accept. Month after month went by, and nothing went from this country when the present Home Secretary was the Foreign Secretary. There were other proposals, such as the Hoover proposals, the Paul-Boncour proposals, the Roosevelt proposals, and the Herriot proposals but no proposals from this country. I have read a statement issued by the National Government for General Election purposes called "Working for peace," and it verifies what I have said. The National Government put forward no disarmament programme at all until after the first 13 months, by which time they were in the humiliating position of having to offer to the threats of Herr Hitler twice as much as they had offered to the reasonable demands of Dr. Bruening.

This Budget is a foreign-policy Budget; it is the result of the foreign policy of the National Government. I remember the late Prime Minister, now the Lord President of the Council, asking that the National Government should be judged by its results. We do judge it by its results. The results to-day are that after five years of National Government we are faced with an indefinite period of unbalanced Budgets, and there is more talk and more peril of another European war than ever at any time since the last War came to an end.

4.26 p.m.

Mr. LAMBERT

The right hon. Gentleman has made a powerful party speech which was admirable from his point of view. I would say to him that confidence is a great asset. The country has confidence in this Government, and it had less confidence in the Government of which the right hon. Gentleman was a Member. Therefore, I shall go on supporting the National Government for that very reason. The right hon. Gentleman referred to a pamphlet in which the Government claimed that they were working for peace. I am glad that we have a Government in power that has kept us out of war. That is the great contribution that this Government has made, but I will not go into any party polemics on this matter. The right hon. Gentleman quoted the opinion of the Statutory Committee on unemployment as to the future course of employment. I am inclined to ask, hat do they know about it? They are making prophecies. I remember when I was a very young Member being told of Grattan, the great Irish politician, saying, "You cannot argue with a prophet; you can only differ from him." That is what I feel about the Statutory Committee. If they brought forward the means test regulations, I should think more of them. [HON. MEMBERS: "It not their job."] It is the same class of thing, anyway.

I am in a financial being [...], being brought up, as I was, under Gladstone and Michael Hicks-Beach. We have a Budget of £800,000,000. How the country stands it, I really do not know. All our old conceptions have go le. Hon. Gentlemen opposite, who are great exponents of economy, advocate expenditure on all sides, so I cannot turn to the Socialist benches for support for economic principles. The Chancellor of the Exchequer has, in my judgment, done a very great deal to bring about financial confidence in the country. The whole of the industrial community has confidence in the Chancellor and his administration. We have had the abandonment of the Gold Standard. We were forced to it. There was no greater adherent of the Gold Standard than Lord Snowden, but that has gone, and I hope that we shall not make a fetish of the Gold Standard again. My right hon. Friend brought in the policy of cheap money. That has been of great advantage, and I hope he will continue with it, because dear money simply benefits the rentier class, while cheap money benefits the working class, and I have always tried to benefit the people who work rather than those who do not work.

My right hon. Friend is faced with greater expenditure due to European circumstances. The right hon. Gentleman opposite spoke of European armaments. Well, there they are, and they are growing, but no Government can have done more than this Government to reduce armaments, no Government could have been more peaceful in its intentions and no Government could have set a better example. I regret this tremendous expenditure on armaments. It is wholly wasteful, and, of course, great armaments do not lead to peace. But the country has to face the situation. We have to face the fact that this country must be put in a state of defence. No sacrifice is too great to defend this country, and I am sure that hon. Members opposite would vote for any taxation to make sure that no invader should set foot on British soil. Of course, they make their speeches, but they are patriotic, and I am certain they would support the country in such an extremity. I regret that the Defence Estimates are so large. There is a sum of £158,000,000 for them in the Budget, and £20,000,000 has to be found for Supplementary Estimates. When I first came into the House the total Budget was not £178,000,000.

Of course, we shall feel the effects of this expenditure. Let no one make any mistake about that. I have no doubt that the party opposite will make political capital out of it. We cannot spend this enormous amount on armaments without reducing the standard of living in the country, but it is better to have some standard of life than to have some foreign country imposing a standard of life on us. Imports were up in the first four months of this year by £30,000,000, while exports were up by only £5,000,000. I wish the export trade were more prosperous, but that it is not so is not entirely our fault. I hope that the Chancellor of the Exchequer will see that the money spent on the defence forces is well and economically spent, and that we get full value for it. I do not think we are doing so at the moment. I say—and I have had a good deal of experience—that if you let the Departments have their head there will be no end to their expenditure. I was at the Admiralty, when we went into the last War. Treasury control was practically abolished, and, of course, the Department opened its mouth pretty wide—naturally so—and I am afraid that to-day the Departments are opening their mouths very wide.

I would shrink from nothing in order to defend this country, but I do want to see that the money which the taxpayer provides is truly and economically spent. I should not object to a Geddes Committee being set up to look into the spending Departments. I should like to pare away some of the excrescences. I know my old Department at the Admiralty. It is going ahead with expenditure. I observe that larger sums are wanted for Singapore, a project which I have always opposed—but that will come up later on the Navy Estimates.

I want to put to my right hon. Friend this very short argument on the food problem. It is all very well to talk about the Army, the Navy and the Air Force, but we must have food in this country. Agriculture at the moment is treated as a kind of poor relation. Charity is doled out to it. We do not want charity; we want fair play. We have these experiments which came from the party opposite—the marketing boards and such like; and the day before yesterday there was some coal organisation Bill. I ask the Chancellor of the Exchequer and the Government to get as far away as they can from these Socialistic projects. It will be far better for them to do so. The Chancellor has had to find large sums of money for the marketing experiments. Is that to be wondered at, when you try to build up agriculture from the top? That is what you are doing to-day. The Financial Secretary was good enough to send me the other day the figures of the subsidies we provide for agriculture and in respect of beet sugar, cattle and milk. The subsidies amount to something like £8,000,000 a year. [Interrup- tion.] We will test it. Under the British Sugar Subsidy Act, 1935–36, the amount of subsidy is £2,286,000; under the Cattle (Emergency Provisions) Act, £3,969,000; under the Milk Boards Act, 1,873,000; light horse breeding grants, £55,000 and field drainage £9,000. They come to £8,192,000. There can be no mistake about those figures. They were supplied by the Financial Secretary to the Treasury. There are also the wheat deficiency payments, amounting to £5,850,000, but that sum does not come out of the Exchequer. If my right hon. Friend questions my figures, he will have to question the accuracy of his own Department.

My point is that agriculturists have to bear the brunt of what the Government do in a number of directions. The Government make coal agreements for the benefit of the constituents of hon. Members opposite. And foodstuffs are to come in free. The Government make agreements with Denmark and with Argentina in order to export more coal, but we agriculturists have to bear the brunt. I have said to my right hon. Friend over and over again that it would be infinitely better for him to put a straightforward tariff on agricultural products than to have all these subsidies by which he is now endeavouring to bolster up these rather dubious experiments. In the case of Ireland we have a coal and cattle agreement—some arrangement by which coal is to be exported to Ireland and store cattle are to come in here. The agriculturist has to bear the brunt. The Dominions, too, must have free entry into our market.

I say that agriculture cannot bear all these burdens. Agriculture has to meet competition from all countries. It does not matter what wages are paid abroad or what are the conditions of work there, agriculture here must compete with them, and because agriculture cannot compete it is offered some kind of subsidy which hon. Members opposite call a "dole." We do not want those doles. We want to be treated exactly the same as other industries. Why not? Take the coal industry. The coal industry is regulated. If it were not, the price of coal would go down and thousands of miners would be thrown out of work. I want the representatives of the coal industry on the benches opposite to join with us agri- culturists. The agricultural workers in my constituency are just as valuable to the country as are the coal miners. Let us join together—instead of letting the coal industry try to get all and leaving to the agriculturists very little indeed. No industry has been served so badly as the agricultural industry. Look at the Tithe Bill. I am not going to argue it now.

Then, again, we are burdened with fixed wages. They are not too high, in fact they are not high enough, and, indeed, we shall not be able to keep people on the land unless higher wages are paid. I have always been an advocate of higher wages, and have never been able to understand why the agricultural labourer, who is a skilled man, should not have equal pay with other skilled men. Then there is the question of depreciated currencies. That is a matter within the Chancellor's own domain. Will he take no action in connection with the depreciated currencies of Australia, Denmark and Argentina? What adds fuel to the fire of the agriculturists is that while they are denied the benefit of a tariff which would bring in a revenue and which would strengthen the Exchequer, their farming necessities are taxed. They are taxed in this Budget. I have a list of them here.

The agricultural necessities which are taxed make a very considerable list. I had no idea there were so many of them. First I will take manures. Superphosphate of lime pays 10s. a ton tax. Why should we have to pay a tax on what we have to use to produce food, while other industries have the benefit of tariffs? What reason is there for it? Nitrate of soda has a duty of 20 per cent, arid compound fertilisers bear a duty of £4 a ton. Then there is the list of farm implements and machinery. Baskets pay 30 per cent. duty; churns, used for the conveyance of milk, 15 per cent. ad valorem in this Budget; hay and grass mowers, mowing machines, 15 per cent. duty; ploughs and other implements of that kind, 15 per cent.; wire 33⅓ per cent.; sacks 20 per cent.; horse shoes 33⅓ per cent.; forks, shovels, spades and scythes, 15 per cent. I ask the House, in fairness to us agriculturists, Why should we be taxed on things we have to use, and have free imports of the products we have to sell?

Mr. LOGAN

Why do you support that party?

Mr. LAMBERT

Because your party would serve us very much worse. We did not get very much sympathy from the. Socialist party when they were in office. The Chancellor of the Exchequer is making great efforts and raising large sums of money for defence, but I would remind him that our food supply is a very important part of defence. It sometimes escapes recognition that we were near starvation during the War. We imported last year nearly £375,000,000 worth of drink and tobacco. During the War we were able to pay for those commodities with our accumulated investments, which we sold to America and elsewhere. Suppose that by any unfortunate chance there should be another war; do hon. Members think that we should be able to borrow in America again? That is a serious state of affairs for us to contemplate. We might be able to borrow, but not so freely as we did.

Therefore let the Chancellor not neglect home agriculture. Let us try to increase the productivity of our own land. I am certain that that would be right from the point of view of defence. We are often told to rely upon the Dominions, but they are not philanthropists. They will get what they can for their produce, and we should have to pay a great deal more if we were entirely dependent upon oversea produce. I appeal to the Chancellor of the Exchequer to get rid of the subsidies for agriculture. He will strengthen his Budget in so doing. Let him put on a tariff sufficient to enable the home producer to pay reasonable wages to the labourer. I can see no reason why that should not be done. I was brought up in the Free Trade school, and I wish we could do away with tariffs altogether. As we must have them—and I see no way out of that position, because we have increased the consuming power of the population of this country by great Government expenditure on war services, armaments and social services—I ask my right hon. Friend to use them against countries that penalise our exports. I should not be afraid to use them against the Dominions. I should say to the Dominions: "If you will give us Free Trade within the Empire, well and good, but if you insist upon taxing our manufactured articles, we must put a tax upon Dominion products." I press this upon the Chancellor; I have done it before, and I will continue to do it as long as my constituents give me their confidence, in order that agriculture has a fair chance in this country in future.

4.49 p.m.

Major OWEN

I am afraid I am not capable of following my right hon. Friend the Member for South Molton (Mr. Lambert) in the many directions in which he has taken us this afternoon. In one respect in particular I cannot follow him at all. He said that during recent years the consuming power of the people had been so increased that it was the duty of the Government to impose taxation. I cannot imagine that to be a free trade argument, or even a tariff argument, that will stand water for one minute. I want to call attention to what many of us consider a very serious matter, the relationship between direct and indirect taxation. There has been no official estimate of the incidence of taxation since the report of the Committee on National Debt and Taxation, in 1927, generally known as the Colwyn Committee. The House will recall that that committee calculated the burden of taxation upon persons at different levels. The standard taxpayer was taken as a married man with three children under the age of 16, who was not a total abstainer from drink, tobacco or public entertainments. The figures which that committee gave are extremely interesting. A person with an income of £100 a year had to pay 11.9 per cent. of that income in taxation, for the year 1925–26. The amount paid by others, or taken from them by direct or indirect taxation, varied, curiously enough, among 100 persons enjoying incomes from £100 to £500; the amount taken gradually decreased. The person who had an earned income of £500 a year paid only 6.2 per cent. He was the most fortunate individual at that time. In 1931, I believe, that position was very considerably altered and has never been readjusted.

To-day we are completely in the dark as to what proportion individuals earning a low income have to pay out of that income towards taxation. The total taxation revenue in 1925–26 was £684,544,000. That had risen last year to £713,200,000. Indirect taxation rose from £228,047,000 in 1925–26, to £303,360,000 last year, an increase of £65,253,000. The Estimates for 1936–37 show a further increase of £14,225,000, so that since 1925–26 there has been a total increase in indirect taxation, that is Customs and Excise Duties, amounting to £79,478,000. The yield from Income Tax in 1929–30, the year immediately before the slump, was only £700,000 more than it was last year, but for the same period the revenue from indirect taxation has risen by nearly £56,000,000, largely due, of course, to the imposition of protective tariffs in 1932.

Mr. MABANE

Would the hon. and gallant Gentleman give the figure for the Income Tax?

Major OWEN

I am just coming to it. By the imposition of an additional 3d. upon the standard rate this year, the estimated yield from Income Tax in 1936–37 will be £21,600,000 more than in 1929–30.

Mr. MABANE

Has the hon. and gallant Member the Income Tax figure for 1925–26?

Major OWEN

That has nothing to do with my argument. I have tried to give as few figures as I could.

Mr. MABANE

I am trying to follow the hon. and gallant Gentleman's argument.

Major OWEN

I want the point to be made clear that by the addition of 3d. on the Income Tax in the current year, the yield from income taxation is estimated to be £21,600,000 more than in 1929–30, but the House should mark that the estimated revenue from indirect taxes will be much greater, and will be £70,000,000 more than in 1929–30. During the period under consideration, Customs Duties have expanded rapidly and continuously, and we have, as a result, a great disparity in the proportion of revenue derived from direct and indirect taxation. The tendency in recent years to increase the ratio of indirect taxation to direct taxation must have a harmful and injurious effect upon the less wealthy section of the community, because a large part of the yield from Customs and Excise Duty is obtained from duties upon articles of popular consumption. A much larger share of a poor man's income than of a rich man's income goes into those duties. That is why we feel that the extra 2d. upon the pound of tea in this Finance Bill is unjust and unfair, as it lays a proportionately heavier burden on the shoulders of those least able to bear it.

The duties which are paid in overwhelming proportion by the poor have increased substantially in the last few years. Since 1929–30, the protective duties have increased from £12,572,000 to £47,174,000 in 1935–36. The Estimate for 1936–37 is £49,300,000. We have no hesitation, on this side of the House, in saying that the present system of taxation is inequitable, and is growing more so because of the increase in the taxation which tends to raise the poor man's cost of living. We have frequently been told by hon. Members on the opposite side that all the prophecies of Free Traders with regard to protective tariffs have been falsified, because there has been, they say, no increase in the cost of living, and articles upon which there are protective duties are no dearer. If hon. and right hon. Gentlemen who say that will examine the figure given by the Ministry of Labour Gazette they will find that while on the 1st April, 1935, the cost of living was 39 per cent. above the July, 1914, level, on 1st April, 1936, the cost of living was 44 per cent. above that level. In one year the cost of living has risen by five points. In food alone there was an increase of seven points for that one year.

Side by side with that enormous increase in the national taxation, the burden of local rates continues to increase, and the total dead weight of the National Debt remains at almost its highest point. No provision is made in the Bill for the reduction, to any substantial amount, of the National Debt, and at this moment it stands at the enormous figure of £7,796,000,000. No provision is made in the Bill for paying off our indebtedness to the United States. How can any Chancellor, in these circumstances, claim that he has opened a sound Budget, and that the finances of the country are on a satisfactory basis? Yet we find that in these conditions the country is called upon to face an enormous expenditure on armaments. The Government, so far, have not seen fit to disclose to the House what the amount of that expenditure is going to be, but we know that last year the amount that we spent on the Fighting Services was £23,000,000 more than in 1933–4. This year the amount taken out of revenue is to be further increased by £41,000,000.

My right hon. Friend opposite referred to the expenditure on the Navy pre-war, when the danger of a European war was imminent. The total expenditure on armaments in the years before the War was not greater than the amount that will in all probability be spent on the Navy this year. Last year we spent over £60,000,000 on the Navy, and yet the Prime Minister and other Members of the Government, at the time of the General Election, told the country that the Navy was not capable of defending the people of this country. There is one question that no Member of the Government has answered, and I think it is only right and fair that we in this House should ask that question and demand an answer. If these sums of money—over £100,000,000 a year for more than 10 years —spent on the armed forces, have failed to produce an efficient Navy, upon whose shoulders does the responsibility rest? The responsibility rests upon the shoulders of Members of this Government. They should have seen that that money was efficiently spent. When £60,000,000 was being spent on the Navy, with no new ships building, they should have seen that the older ships at any rate were brought into a state of efficiency.

In contrast with the huge sums of money that are provided for in this year's financial policy—the expenditure on armaments, we know, is a huge one—in other directions the Chancellor has been extremely niggardly. There is no new provision for the Special Areas other than the paltry provision of £1,000,000 for the establishment of a Special Areas Reconstruction Association. A further point of criticism which we on this side desire emphatically to press is the abolition of the Road Fund and its entire absorption by the Treasury, at a time when the urgent need for expenditure on the roads is greater than ever. What is going to happen in the near future?

The Chancellor said the other day that the extra expenditure on the roads had rendered the roads more unsafe. I wish I could take him round my county and show him a few of the roads there, which, because the money that was paid for the purpose of improving the roads was only given in a niggardly fashion, it has not been possible to improve. I understand that at the present moment 17 county councils will not be able to co-operate in the five-year road plan, because they have not the funds. And yet the Chancellor said that the Road Fund had an adequate amount of money last year, and took £5,250,000 from it. I notice, too, that in this Finance Bill there is no provision of funds for the administration of the new regulations of the Unemployment Assistance Board. I think the House has a right to ask what is going to happen to those regulations. Are they of such vital importance to the safety of the Government that they dare not reveal them? At least we know that no money has been provided in this Finance Bill for the purpose of administering these regulations when they are brought into operation.

We on this side of the House would like to congratulate the Chancellor of the Exchequer on closing up some of the leakages in Income Tax, but there are still many other means of evasion. If he would care, I should be able to bring to his notice at least one method of evasion which I think it is the duty of the Chancellor of the Exchequer and his experts to take in hand. A book has recently been published, entitled "The Saving of Income Tax, Surtax and Death Duties." I will not mention the name of the author, but that book gives plain examples where the evasion of Income Tax, Surtax and Death Duties can be carried out without breaking the law.

I think that all Members of the House must be aware that local authorities in their constituencies are finding the burden of the interest on loans extremely heavy. They were compelled to undertake these loans at a time when the rates of interest were high. The Chancellor boasts to-day that money is cheap, that rates of interest are low, but these local authorities are unable to take advantage of the present low rates of interest. I see that Clause 26 of the Bill deals with a somewhat similar matter. I do not know how much this would cost, but a short time ago I was given an estimate that to redeem these loans at the present time would probably cost the Treasury £5,000,000. It may be more. If that be so, it would certainly be worth while for the Chancellor to consider putting this into operation. Even if the cost were 210,000.000, it would so help local authorities, and would so relieve the burden of rates, that it would really be productive expenditure. I do not want to say anything beyond what leas been said already by the right hon. Gentleman the Member for Keighley (Mr. Lees-Smith) with regard to the stabilisation of exchange, but everybody in the House knows that we cannot hope to restore our export trade until the exchanges have been stabilised, and it might be worth the Chancellor's while to consider whether this country could not take the initiative in that direction. We are, after all, the centre of the financial world, and we are the people most likely to benefit by it.

5.9 p.m.

Sir ALAN ANDERSON

I suppose it is inherent in our system that, even if we agree in the main on any subject, we should appear to differ. With such an enormous range of topics as is brought before us by the Finance Bill, it would go hard if we could not find some topic on which we actually differ. We have just listened to speeches from two Liberals sitting on opposite sides of the House, both good Free Traders. The one has told the Chancellor that he should impose sufficient tariffs to protect all the farmers in the country, regardless, apparently, of the consequent rise in the cost of food; and the other has said that the Chancellor has already gone much too far in indirect taxation. Between them the Chancellor is steering, to my mind, the safer course. In foreign affairs one notices the same wide difference of advice. In various recent Debates we have heard hon. Gentlemen in both sections of the House opposite agreeing that we must press forward in our bellicose action against a strongly 'armed nation, though we ourselves are unarmed; and we have had from the right hon. Gentleman the Member for Bow and Bromley (Mr. Lansbury) the advice that force was no argument at all to the human mind, and that we should abjure its use entirely. Between those sections again our Government has steered a course which has not involved us in war—to my mind an enormous asset.

This afternon the right hon. Gentleman the Member for Keighley (Mr. Lees-Smith), in moving his Amendment, found little to praise in the Government's action, but he recognised that the result had been prosperous. He ascribed that result to luck. "Lucky Government," he said, "born in a happy hour." In a primitive state of society, almost everything that occurs is put down to luck or the act of God, bat, when we learn more about the sequence of cause and effect, luck sinks into an inferior position. What is the cause of the success of this Government? They have enjoyed confidence and credit; and why? To my mind that was not luck. The Government had courage. They took very unpleasant action, which involved them in unpopularity, and they reaped the reward that generally; follows courage. The action that they took was not particuarly novel; it might have been described as an almost commonplace adherence to old rules; but it was a right action. They established credit, and the result followed. Lucky Government!

The right hon. Gentleman the Member for Keighley spoke about our export trade. He thought that our stability and prosperity could not be persistent unless we could regain and restore our export trade. I largely share his view. I hope—I very nearly believe—that the time is quite close when the world will be ready to join hands and step forward once more in a combined effort. What could we have done Let us look at what another great country has done when faced with the same difficulties. When President Roosevelt was facing the electors he, being a democrat and an advocate of low tariffs, exposed the mistakes that his predecessors had made in shutting out the bade of the world, and he said, "Export trade is essential for our farmers. We must get world trade moving again." When he ascended the Presidential chair he found such a terrible state of affairs in the United States that again he spoke quite frankly to the world and said in effect "Export trade is very important but first things come first. We are in such a mess inside the United States that we must put that right first and then get on to the export trade." Within the last few months the United States has been pushing forward in making trade treaties with various countries, and let us hope that before long our system of trade treaties and theirs may lead to the great advantage of common action.

Have we not followed almost exactly the same course by a different road? We have proved in the last few years what a tremendous advance we can make in the home market, even if the export trade is rather stagnant. But we want export trade. We called together the British Dominions and we established relations with them which have stabilised and improved our trade. We have called into that group various other friendly nations and our trade with them has been stabilised and established, and now let us hope that we can march forward and extend the area of healthy trade and stable currency. I agree with the right hon. Gentleman that stable relations between currencies is of the most tremendous importance to the world, to trade and to peace.

This is my first Budget Debate and the size of the public accounts is so great that, if I approach the details, I feel that I am looking at the bricks of some great building and that I shall lose all sense of its magnificence or otherwise, so I stand back and look at it from afar off, and even go abroad and look at it through the eyes of the foreigner. Looking at it from abroad one sees magnificent stability and progress. The whole world is marvelling at the manner in which this country has regained her confidence, brought her people back into work and is helping other nations which have joined with her to restore a reasonable measure of prosperity throughout the world. I feel grateful to the Government for having brought this about, and I feel great sympathy for them in the terrible disappointment that has come upon them and all of us this year in having to spend vast sums of money on armaments.

In the details of the Budget there are only two about which I would say anything. One is the Road Fund. I think it is quite right that a great new industry like the road industry should pay its money into the public purse and get what it needs out of the public purse. I entirely agree with what the Chancellor has done. The other detail, of such size that it can scarcely be called a detail, is the Income Tax. To what tax does every Chancellor of the Exchequer turn? Every Chancellor who is thirsty dips into the inexhaustible well of the Income Tax. One is filled with admiration for the patriotism of the Income Tax payer, but I beg my right hon. Friend, and any prospective Chancellors of the Exchequer who happen to he in the House, to remember that the very fact that they rely upon the Income Tax in each successive crisis is the greatest reason for bringing it down when the crisis abates. I have taken part year after year in visits to succeeding Chancellors of the Exchequer by the Association of Chambers of Commerce, and that has always been our chief item of advice, that he could give great advantage to the trade of the country by reducing that enormous tax.

But I beg him to remember also that matters of depreciation and obsolescence, which are a relatively small concern when direct taxation is low, become oppressive and unfair when the tax reaches a high figure. Any building that has lasted for more than 35 years is regarded as an immortal building on which one gets no allowance for depreciation. That is wholly unfair. The State in these times of high direct taxation has become a partner in industry and should bear the burden as well as the sweets of partnership. In 40 or 50 years a hotel is out of date and has to be rebuilt. Is it not possible that the complaints that we hear of our hotels being rather behind the times—I do not agree that the complaints are entirely justified, because I am a hotel keeper—are in part clue to the fact that a hotel proprietor is forced to regard his building as immortal? In regard to machinery, too, it appears to me that the allowances should be progressively revised to help industry to order new plant. We are living in times of rapid change, and the general feeling of industry is that the speed of progress is not represented in these allowances.

These are small comments to make after the general expressions of praise and congratulation that I have offered. The people in my constituency will certainly support the right hon. Gentleman with the fullest confidence and sympathy in the great task that he has before him. I am sure all of us sympathise with the comparatively small experiment that is being made in the Special Areas. The great problem for the future which is pressing on all our minds is defence, and I can imagine no burden on which the Chancellor will receive more universal support. I cannot believe that anyone in the House or in the country can have the least doubt that we must do what is necessary to provide our fighting services with men and material and everything they need. I entirely dissent from the view that we have heard, that to spend money in that way is to spend it on a wasting asset. We are spending it in maintaining the position of the. greatest democratic free country in the world and that is not a wasting asset.

Mr. A. V. ALEXANDER

Perhaps the hon. Gentleman could get the City to do as they did in Elizabethan times and give the country the new ships of the line that are required.

5.26 p.m.

Mr. BENSON

My right hon. Friend the Member for Keighley (Mr. Lees-Smith) referred to this as probably the last balanced Budget for some years. He referred also to a very disturbing factor which has appeared in our public accounts, the lack of resilience of the public revenue. Despite the very considerable increase in trade, Income Tax has not expanded as it might have done. When we come to examine Surtax we find that there is a definite decrease in the year following that in which Income Tax has been increased. The reason for this contraction is unquestionably the vast amount of evasion that is taking place owing to the very large extension of such matters as one-man companies, and particularly the formation of trusts. The Bill makes one small amendment of the Finance Act, 1922, but it is only one small one. It deals with settlements that are specifically made in favour of children. Why are not other settlements dealt with also? Section 20 of the Finance Act, 1922, was, I think, the first attempt to deal with these tax-dodging settlements, and it deals with a number of types of settlement in Section 20 (1) (a) (b) and (c). In this year's Bill the Chancellor has chosen to deal with paragraph (c) and to some extent to try to stop up the holes that have developed there. But the evasions practised by dodging paragraphs (a) and (b) are just as indefensible. They are practised for exactly the same purpose, to dodge tax. Why should they be favoured and why should educational trusts alone be chosen to be dealt with? One might just as well expect the Home Secretary to intro- duce a Bill making burglary illegal only if the burglar uses a jemmy and not if he uses a drill.

I want to deal fully with paragraphs (a) and (b). The particular form of trust with which the Chancellor of the Exchequer has chosen to deal happens to be the form of trust which the small taxpayer has adopted. The various other forms of trusts which have been largely adopted by the Surtax payer, the Chancellor of the Exchequer still allows to continue without any attempt to interfere with them. Why? I will take the question of the trust mentioned in Sub-section (1, a) the irrevocable trust. In Sub-section (1, a) of the Finance Act, 1922, an attempt was made to prevent the evasion of Surtax and Income Tax in a settlement where the settler can obtain the beneficial enjoyment of the money that he has settled without the consent of any other person. That particular form of trust has presented no difficulty to the tax dodger. He merely puts in his trust deed a clause stating that he cannot revoke the trust save by the consent of some other person. What has been the result? The tax-dodging method of merely altering your trust so that you had to obtain the consent of a third person not your wife before you could revoke it, has been so simple to construct that I wish to read the judgment of Mr. Justice Finlay in the case of the Commissioners of Inland Revenue v. Firth. A gentleman named Firth constructed a trust in which in order to revoke it he had to ask for the consent of his chartered accountant or any other person. This is Mr. Justice Finlay's judgment: The Attorney-General's argument was that this was really a method whereby the efficacy of the Statute could be destroyed because he said that although it was true that a chartered accountant was specifically mentioned none the less the power of revocation could be exercised provided the consent of any person whatsoever was obtained, because the gentleman in question might go from one person to another person until he got somebody to sign He had only to go down the street; asking his various neighbours whether they would consent to the revocation of this trust and it was all right— All I can say is fiat that is what I think is the result of the Statute. It is that obvious and easy form of evasion which the Chancellor of the Exchequer proposes to leave untouched. Why? Will he explain to us or will he ask the Financial Secretary to explain, if he is to reply, why the particular form of trust which settles money upon a child is immoral and must be stopped and that the particular form of trust which enables the taxpayer to dodge taxation if he puts in a clause that it is irrevocable save on the consent of a third party may be allowed?

The Chancellor of the Exchequer may say that he has chosen the educational trust because of the very large number of cases. He himself mentioned that these trust deeds were hawked from door to door, but what about the seven years trusts? Those are being advocated and pushed just as widely as the educational trust. In fact there is scarcely a society or a charity or any organisation that depends upon subscriptions that does not print a form of trust which is perfectly valid against Income Tax and Surtax and distribute it broadcast to their supporters. Yet this particular form of trust does not only apply to societies or organisations; it has an infinite number of applications and is regarded by the Chancellor of the Exchequer as something which is legitimate and may be allowed.

Mr. MABANE

Hear, hear.

Mr. BENSON

The hon. Gentleman says "hear, hear." If his opinion is that any form of tax-dodging instrument which is effective is allowable, why on earth do we have any Income Tax at all?

Mr. MABANE

As the hon. Gentleman has challenged me I say that it is a good provision, because it enables charities to get subscriptions which otherwise they would not get.

Mr. BENSON

I can only refer the hon. Gentleman to the speech which was made by the right hon. Gentleman the Member for Hillhead (Sir R. Horne) when he introduced the Finance Bill of 1922 on this particular case of charities. The right hon. Gentleman pointed out that if a man wanted to give money to charity, he should give it out of the money that was left to his income after he had paid the tax and should not try to gain a reputation for being charitable and open-hearted at the expense of the Inland Revenue. The present position is that if a man forms a trust to pay to any charity for a period which must exceed six years a sum of money, he can set that sum against his income. The result is that in some cases for every 8s. which he himself sacrifices, lie deflects 12s. from the Exchequer into the charity.

Mr. MADAN E

Hear, hear !

Mr. BENSON

The hon. Gentleman defends that, and in that case I have nothing more to say to him. But it does not apply only to charities. It is being used by the Duke of Westminster to pay his servants' wages. The Duke of Westminster has entered into a trust, a seven-years' trust with his servants, pays their wages under the trust and sets the whole of the payments against his income and thereby reduces his Income Tax. One hears rumours that the Duke of Westminster is an extremely wealthy man. If he is paying the maximum rate of Surtax, the Chancellor of the Exchequer is paying 12s. of his wages out of every pound he pays, and the Chancellor of the Exchequer is quite content to go on doing it. The Chancellor of the Exchequer smiles. Surely it is a serious matter that wealthy men should be entitled to deflect revenue from the Exchequer to their own purposes. If some wretched tax collector embezzled 5s. the Chancellor of the Exchequer or his Department would try to send him to gaol, but if a wealthy duke deflects vast sums from the Exchequer the Chancellor of the Exchequer does nothing about it. Did I hear the right hon. Gentleman say that he would do something about it?

The CHANCELLOR of the EXCHEQUER (Mr. Chamberlain)

I said why a Jew?

Mr. BENSON

A Jew, good gracious no, I never mentioned the word "Jew."

Mr. CHAMBERLAIN

I thought you said "a wealthy Jew."

Mr. BENSON

No, a wealthy duke. I am taking the case of the Duke of Westminster, because that was a particular case which the Board of Inland Revenue fought and the right hon. Gentleman will find the report of it in the last report of the Board of Inland Revenue. They spent a very considerable amount of money in the law courts to try to upset this particular settlement and failed, and it was held to be good. Why does not the Chancellor of the Exchequer upset it in the Finance Bill to-day? That is another question to which I should like an answer.

There is another way in which these seven years trusts can be used. They can be used not merely by private individuals and charities but for any form of society or organisation. The party of the right hon. Gentleman contains a very large number of Surtax payers, who regard the Conservative party as a kind of insurance against us. I should very much like to know how much of the funds of the Conservative Central Office is found by the seven year tax-dodging trust and how much money is deflected from the Exchequer into the pockets of the Conservative Central Office. I do not ask the Chancellor of the Exchequer to give a reply to that question. The Chancellor of the Exchequer does not propose to amend this particular form of trust any more than he proposes to amend the so-called irrevocable trust. He knows that these things are going on. In some cases he spends money to try to upset a particular trust that comes before the notice of his officials, but he does nothing in the Finance Bill. He is allowing the Duke of Westminster to pay his servants' wages out of money that ought to go into the Treasury. He is allowing tens of thousands of pounds to be deflected by these particular trusts. He is dealing with the educational trust and why does he not deal with the others? The Chancellor of the Exchequer in refusing to deal with them pretty well puts himself into the position of an accessory after the fact.

The method adopted either in the Finance Act of 1922 or in the present Finance Bill for dealing with trusts is bound to be ineffective. The Chancellor of the Exchequer is tackling the problem of trusts—always assuming that he wants to tackle it seriously—from the wrong end. The method hitherto adopted has been as follows: Admit the general validity of all trusts for the purpose of avoiding tax and then specify individual cases which shall be invalid for tax avoidance. What is the result? The Chancellor of the Exchequer offers almost a complete field to the tax dodger. He says, "You must not take this or that particular form of trust, but any other form of trust you like to devise is legitimate." The result is that the Board of Inland Revenue, when it can goad the Chancellor of the Exchequer into dealing with the matter, is years behind the times, and the revenue millions upon millions of pounds short. The real way of tackling this business is to tackle it from the other end and to say that any trust of any shape or form shall be invalid for tax-dodging purposes, and then make exceptions to that general rule. You will find that it is far more difficult to make evasions of tax when trusts as a general rule are invalid and only trusts for certain specific purposes may be set against income. That is the way to deal with it.

In Clause 17 (9) the Chancellor of the Exchequer excepts the irrevocable trusts now in existence. Why? These trusts have been made for the purpose of evasion. Why should they be excluded? What did the right hon. Gentleman say in the Debate on the Financial Resolutions? Suppose we have an irrevocable trust, under which the taxpayer makes over a certain proportion of his capital to trustees with instructions to them to hold the security in trust for the child, but until the child becomes of age prying the income over to the parent for the purpose of maintaining the child. Is that a case which any hon. Member would wish to defend? Apparently the answer is. Yes, if you are the Chancellor of the Exchequer. He went on: After all, the only thing that has happened in that case is that the parent is not out of pocket in any way. He has merely discharged the natural obligation of a parent without incurring liability to Income Tax on that part of income."—[OFFICIAL REPORT, 27th April, 1936; col. 686, Vol. 311.] Those are the words of the Chancellor of the Exchequer less than a month ago. This is the second time in three days that the Government have run away from their own Bill and have had to swallow their own words. Why should this particular form of irrevocable trust be omitted from the operations of this Clause? Was it any less immoral three months ago to create an irrevocable trust for the purpose of dodging Income Tax and Surtax than it is to-day? Why should these people be rewarded simply and solely because they have been more avid than others; because they have been more anxious to dodge and got in first?

It is not a question of retrospective legislation. The whole of the Clause is designed to prevent various forms of trusts which are in existence. The Chancellor of the Exchequer merely singles out one particular form of trust and gives it validity. Surely, he must realise how utterly undignified it is for him to have to swallow his own words. We have generally regarded the Chancellor of the Exchequer as the strong man of the Conservative party, We have generally regarded him as a fighter, but on this occasion he has allowed his own tax-dodging backwoodsmen to force him to swallow his own words. If he has not 'any sense of his own dignity, I think the House is entitled to ask him to have some care for the public revenue.

5.49 p.m.

Marquess of TITCHFIELD

My right hon. Friend the Chancellor of the Exchequer gave a very apt simile for his Budget last year. He talked about "Bleak House" and "Great Expectations." Perhaps I might describe the present Budget in these words—they are not so apt as my right hon. Friend's words, but I think they are apt enough—that we pilgrims are progressing from the "slough of despond" into which we were. thrown by hon. Members opposite, and are now advancing to "Castle Courageous." The criticisms levelled at my right hon. Friend by hon. and right hon. Members opposite are the usual ones, that we are not spending enough money on our social services. I hope that my right hon. Friend will take no notice whatever of that sort of criticism. He knows as well as I do and as well as anybody on this side of the House that if we had doubled, trebled or even multiplied by 10 times the amount of money that we are going to spend on the social services we should not even then make hon. Members opposite content. In the old days Members of this House used to bribe the electors with their own money. That was indefensible enough, but hon. and right hon. Members opposite are doing something even worse than that, because they auction votes to-day at the expense of the general taxpayer.

I have listened with great interest to all the speeches made to-day and to most of the speeches made on the Budget Resolutions, and it seems to me that the Debate has been more of a Foreign Office Debate than a Debate on finance. The gravamen of the charge that hon. and right hon. Members opposite have made against the Government has been that if we had not muddled our foreign affairs we should not now be putting a small additional amount on the Income Tax and two pence extra on tea. If hon. Members had been in power the Government would not merely be putting threepence On the Income Tax and twopence on tea, but we should be putting about 10s. on the Income Tax and we should be seeing every conceivable thing taxed as well. The hon. Member for East Edinburgh (Mr. Pethick-Lawrence) said, during the Debate on the Budget Resolutions, that we had muddled our foreign policy and that we should have taken sterner measures against Signor Mussolini, "even," he added, "if it got us into difficulties." The hon. Member is no doubt a great leader of the people, but hon. Members who set themselves up as great leaders of the people should really be more explicit in their words. By "difficulties" the hon. Member meant war, and he cannot get away from it. I sometimes read, as hon. Members on this side of the House do occasionally read, that publication called the "Daily Herald." The "Daily Herald" is not always a very tactful paper, and it sometimes lets the cat out of the bag.

Mr. BUCHANAN

Who owns that paper?

Marquess of TITCHFIELD

It is the official mouthpiece of the Labour party. Therefore, when I read a leading article in the "Daily Herald" I read it with the greatest respect. As I have said, the "Daily Herald" is apt to be tactless, and on 13th May I found that it let the cat out of the bag, when it said: To the Mussolini challenge there is only one answer. It is, to apply rigorously not only existing sanctions but the whole of the sanctions required by the League. That statement can be construed as nothing but war. I do not know whether my hon. Friend the Member for East Edinburgh has ever taken part in a war. He seems to look on war very lightly. He seems to think that you can start a war on a certain date and finish it on a certain date. It is true that you can start a war on a certain date, but no man living on this earth could ever say, once you have started a war blazing in Europe, when that war is going to cease. [Laughter.] One hon. Member opposite laughs, and I do not wonder. If hon. Members opposite had been in power I am absolutely convinced that we should have been fighting Italy, Japan and Germany, and fighting them by ourselves. Hon. Members opposite know perfectly well, although they may laugh, that we have not adequate forces with which to fight anybody at the present time. War is not a game; it is the most ghastly thing on earth.

There is a section of people in this country, and I think we can include the Labour party in that section, who would have us do what they call "a reasonable amount of aggression." What on earth does "a reasonable amount of aggression" mean? Does it mean, for instance, that if we are going to fight the Italians we shall have to fight them with one-half of our Navy, or with one-fourth of our Navy, or does it mean that if we are going to fight the Italian Navy, the French Navy will fight them on Monday, Wednesday and Friday and we shall fight them on Tuesday, Thursday and Saturday? I should thing that hon. Members opposite, although they are so terribly gullible, will not be taken in by facile phrases such as "a reasonable amount of aggression." The truth is that the League of Nations at the present time will not fight as one man, and we have to be very careful to see that we are not pushed in to do the dirty work of everybody else. It is only fair to say that if we have to go out to fight in the front line our men must be equipped with the finest armaments that British engineering can turn out.

There are some of us in this House who are still of military age and who can well remember the year 1914. We fought for months and months in the front line, ill equipped except for our wonderful rifle fire, against the best equipped and the bravest army the world has ever seen. We are determined, at any rate on this side of the House, that what happened in 1914 shall never occur again. Hon. Members opposite are no doubt very devout people. When next Christmas comes along they will go to their chapels and churches and will sing, out of tune but with great gusto: Hark the Norman Angells sing, Peace, by war, to men we bring. I am one of those people who believe that if we are to have peace in Europe we must have a redress of grievances all round. We must get Germany- into the League of Nations on equal terms, and if we can do that then, even now, at this late hour, the League of Nations may become perhaps the greatest boon and blessing that has ever been brought to mankind.

Hon. Members opposite have criticised the Budget from almost every point of view. The right hon. Member for Keighley (Mr. Lees-Smith) said that England has got sucked into—I think that is the right word—a happy trade cycle, and that is why conditions are better to-day than previously. That is not true. It is true that the country is passing through a better trade cycle; but the Chancellor of the Exchequer has created that happy cycle. You are not sucked into better trade cycles so easily as all that. I wish we could get sucked into such delicious things so easily. But that is not the point. The point is that the Chancellor of the Exchequer himself has created this happy cycle, and that is why unemployment has gone down, why everything in this country is getting better and why the world is getting more prosperous. Really these criticisms come very ill from hon. Members opposite. I would ask them to cast their minds back to the years 1929 and 1930. I know they do not like it very much, but they must agree that poverty and misery went up amongst the working classes every week that they were in power. We can say that as the weeks go by more men are going back into employment and more money is being earned every day in this country.

I made a humble suggestion a few days ago to the Chancellor of the Exchequer for a new tax; and I suggested lipstick and face powder. I understand that this tax is imposed in America and France and that large sums of money are derived from it. I do not believe that the ladies in this country are any less decorative than the ladies in America or in France, and large sums of money would be got from such a tax. It would be a good tax, paid on a voluntary basis and would hit no class of persons. T would ask the Chancellor of the Exchequer to look into the matter.

Before I sit down I want to say a few words on the rather remarkable speech made by my hon. Friend the Member for Aylesbury (Mr. M. Beaumont). His conception of a happy country is my conception of a happy country; it is the negation of Socialist policy. As good Conservatives he and I want everybody to be happy and above all to be free. We have been trying a kind of semi-Socialist policy for so long that I do not know how we are going to make the country free, but I should like to see Income Tax enormously reduced, if it is possible, and, what is equally important, a 100 per cent. membership in the trade unions of the country. But the trade unions must be non-politically minded. What would be the result of that? The result would be greater wages than you have at the present moment and a higher standard of living all round. If we could only get higher wages we should get greater prosperity all round. I would like to see wages double or treble what they are now, and I should like to see all the working men of this country absolutely independent of all sorts of insurances. I should like to see my fellow people able to retire at the age of 65.

The PRIME MINISTER (Mr. Baldwin)

I wish I could.

Marquess of TITCHFIELD

My right hon. Friend the Prime Minister wishes that he could retire, but may I tell him this, and I am sure I am voicing the views of the vast majority of those in the National Government, that we are not going to allow him to retire at the age of 65, because he has got to lead us for a long time yet. One further point. Hon. Members opposite say that we do not spend enough on the social services of this country. My conception of a good social service is money well spent for the well-being of the people of the country. Surely one of the most valuable things for the well-being of the people is for them to know that they can sleep and live safely. My conception of the purposes of our defence measures is not for oppression, but that they are to defend something for which we can all fight, regardless of party, our great democratic institutions. Hon. Members opposite would spend nothing on defence. We are spending a great deal on our defence forces, and I for one claim that whether it is the Army, Navy or the Air Force, hon. Members opposite if they had their way would scrap one of the most valuable of our social services. That is all I am going to say, but I should like to congratulate the Chancellor of the Exchequer on his Budget. Although it is riot quite one which we should like to have, yet, in the circumstances, it is as good a Budget as we can possibly get.

6.10 p.m.

Mr. BARNES

The Noble Lord complained that hon. Members on this side laughed at some of his remarks. May I say—and am voicing the opinion of every hon. Member on these benches—that we think the Noble Lord does not intervene often enough in our debates, and if he enlightens the dreariness of some of our discussions I hope he will not consider our merriment discourteous to himself or to his remarks.

Marquess of TITCHFIELD

I can assure the hon. Member that I never thought that.

Mr. BARNES

But I am afraid that we cannot join the Noble Lord in his eulogy of the Chancellor of the Exchequer on the production of the Budget and the Finance Bill. I consider that the favourable comments on the Budget have been grossly exaggerated. I have had the privilege of listening to 10 Budgets and 10 Finance Bills, and not even excepting the emergency Budgets of 1931 I consider that this is the grimmest Budget we have had in the post-war period. It is the worst Budget, because at a period of normal and expanding revenue from existing taxes we are compelled to impose new and additional taxation to meet the requirements of the Chancellor of the Exchequer. If the circumstances of 1931, which did not arise from the internal conditions of this country, were to be repeated in the forthcoming year I suggest that with taxation standing at the level it does in this Budget the plight of this country will be worse than it was in the summer of 1931. The Chancellor of the Exchequer claims that the Budget is based on two main items of policy. He claims that the Government's policy has inaugurated a period of cheap money and, secondly, that the introduction of tariffs has restored and improved our industrial position. No views expressed from this side of the House would, of course, shake the complacency of hon. Members opposite, but one has only to turn to the chairmen of the great private banking institutions of this country to obtain a complete refutation of the Chancellor's contention. Mr. Goodenough, Chairman of Barclays Bank, said this in dealing with the question of cheap money: The easy money conditions which have existed for the greater part of the last few years have been accentuated through inactivity in trade and industry, and the lack of opportunity for the employment of funds. Favourable opportunities have therefore been created for the conversion to lower rates of interest of many old outstanding loans. I venture to suggest that the cheapness of money, which has been favourable to the Government in the conversion of loans and the reduction of interest charges, arises mainly from stagnant trade conditions and not from expanding industrial prosperity. That brings out the very important point that despite the factors which have been to the advantage of the Government, although to the disadvantage of the commerce of the country, the Government have confronted us with abnormal expenditure such as is mirrored in the Budget.

Turning now to the question of the improvement in the economic and commercial position of the country, nobody wishes to deny that there has been some improvement. From whatever angle the problems may be viewed and whatever may be the causes from which they arise, everybody should be thankful for any improvement in the industrial conditions of the country, because it must mean a mitigation of the hardship which many persons suffer. I would like to remind the Chancellor and the House that what happened in this country in the spring of 1930 happened also in a previous period, the spring of 1920, and the point I am now about to make clearly proves that the industrial recovery is not in any way due to the policy or influence of the Government. In the spring of 1930 there was a collapse in the prices of primary commodities which caused widespread economic dislocation. It was accentuated in our case by the financial policy pursued by the City of London. It struck us at a time when for a year or two we had been passing through a period of steady progress, and the suddenness of those two calamities—the collapse in world prices and the wrong financial policy of the City of London in overseas lending—brought us into a sudden crisis, which, of course, was turned to the disadvantage of the Government in power.

All that we have witnessed, in my view, has been a partial recovery in primary commodity prices, which have increased by about 45 per cent., in the Chancellor's own words, during the last three or four years. Those commodities are wheat, maize, sugar, bacon, tea, copper, iron, lead, silver, tin, cotton, hides, linseed, rubber and wool, and surely no one in this House can contend that the policy of the British Government could have any direct effect on the prices of primary commodities of that character, which are always determined more by world conditions than by the conditions prevailing in our own country. think an examination of that position explodes completely the suggestion that our partial recovery has been due to the policy of the Government, if they claim that cheap money and tariffs have been the stimulating factors. Cheap money arises from a bad condition of trade, and the recovery in world trade is due more to the improvement in primary commodity prices than to the operation of tariffs in this country.

If we proceed to a further examination of the Chancellor's policy and compare these figures of alleged recovery with a more normal period than the zero position of 1932, again the Government do not emerge in a very satisfactory or encouraging light. The Chancellor claims that between 1932, when the Government took office, and this Budget, an adverse balance of trade of £104,000,000 has been converted into a favourable balance of trade amounting to £37,000,000. That claim ignores certain factors. If one takes a more sensible and fair course, and makes a comparison with the position that prevailed in 1928–29, before the commencement of the second deflation period, one has a more normal period of comparison so far as British industry is concerned. Taking the factors that affect the balance of trade, it will be found that in 1928–29 the earnings of British shipping were £130,000,000, whereas in 1935 they were only £75,000,000, a decrease of £55,000,000. Taking the income from overseas investments, in 1928–29 it was £250,000,000 and in 1935 it was only 2185,000,000, a decrease of £65,000,000. The income from miscellaneous receipts was £100,000,000 in 1928 and £38,000,000 in 1935, a decrease of £62,000,000. In the income from those three overseas sources there was a decline of £182,000,000 in 1935 compared with 1928. Consequently, it is useless to argue that as a result of having the National Government for four or five years we have in any way got back to normal prosperity. In fact, it appears to me that all that has happened has been that the Government have simply cut their coat according to their cloth, and that there has not been any important advance.

Mr. ANNESLEY SOMERVILLE

Are not the three factors to which the hon. Member has just referred external ones which are out of the power of the Government to deal with?

Mr. BARNES

Not at all. The policy of the Government in this country should take into consideration the total revenue and trade of the country. If the Government pursue a policy which does not facilitate the restoration of world trade, upon which these incomes, which play an important part in our internal economy, depend, one is not justified in ignoring those factors when an attempt is made to convey to the public that we have entered into a period of prosperity. The only point I am making is that statements such as that which the Chancellor made in introducing his Budget, and which hon. Members to-night have supported, are misleading the country. They are producing a state of criminal complacency and the country is not facing the hard facts of the situation. It is when we ignore factors of this character and are hit by a crisis which arises from world conditions—as was the case in 1930—that the country is in a correspondingly weak and panicky situation. I think it is desirable that hon. Members on these benches should endeavour to take the gilt out of the Budget by stating the facts on the Floor of the House.

If we turn to the export position of the country, we find that in 1932 the value of exports was £275,000,000, whereas in 1935 it was £329,000,000. Here I admit an improvement of £54,000,000 in the export trade as a result of four years of so-called National government, but that leaves out of account entirely the improvement in the prices of primary commodities to which I have referred. These commodities come into this country as raw materials, they pass into the costs of production and the increased prices are reflected in the value of our subsequent exports. The figure of £329,000,000 over which the Chancellor gloats, is, as a matter of fact, £246,000,000 below the value of our exports in 1928–29.

I would like now to deal with the problem of employment, and to refer to a phase of that problem which I feel has too little consideration in this House. The Chancellor claimed that from 1932 to 1935 1,250,000 additional persons were absorbed into employment in this country. If one takes the average through the whole year, there was an increase of 1,023,000 persons, so that the Chancellor's statement represents an exaggeration of 225,000 persons. That, however, is not the most material point involved. The point I would like to stress is the steady and persistent decline in employment in the primary productive trades and an equally steady and persistent expansion of employment in what I might describe as the spending trades of the country. The period for which accurate statistics are available is from 1923 to 1935, but even if one takes the figures of insured persons for the years which the Chancellor has mentioned—1932–1935—I think I can prove that this process has continued. In coal-mining, cotton, woollens, shipbuilding and repairs, engineering and iron and steel, the great primary trades of this country, there has been since 1923 a decline of 839,340 persons. If one takes the two other groups of trades, distributive employment and employment in entertainments, sports, hotels and general recreational services, there has been an increase of 623,000 persons in distribution and an increase of 279,000 in general sports and recreation, a total increase of 902,000 persons. In the period 1st July, 1932, to 8th July, 1935, which we can deal with only on the basis of insured persons, the process continued. From 1st July, 1932, to 8th July, 1935, there has been a decrease of 245,000 insured persons employed in coalmining, cotton, woollens, shipbuilding and general engineering.

Again, if we take the distribution and general entertainment and recreation trades, the spending trades, we find that there has been an increase of 183,000 persons. I submit that a national system of finance ought not to overlook those facts. It is upon the primary trades that our industrial supremacy in the last resort must rest. Whether we view the matter from the standpoint of industry or of commercial supremacy throughout the world, or of military safety, the primary productive trades are the base of our existence and of the standard of life of our people. These figures prove conclusively that we are forcing a progressively greater output per man from a dwindling industrial population and that we do not reward them with a higher standard of existence. As wealth is created in these primary trades, it is drawn from the areas where it is created and spent through other channels and in other circumstances elsewhere in the community. That is a very unhealthy state of affairs.

It is in regard to the problem of the National Debt, however, that I think this Budget must come in for greatest criticism. The Chancellor of the Exchequer has been able to effect a reduction of only £70,000,000 in the period under review. That is a totally inadequate provision for reduction of the National Debt in the past four years. I would remind hon. Members that our dead-weight debt to-day is higher than it has been at any other period in the history of the country except the year 1920. The Colwyn Committee said that steps ought to be taken to increase the Sinking Fund, as early as possible, to £75,000,000 a year, yet the Chancellor of the Exchequer has effected a reduction of only £70,000,000 during the five years of National Government. The Colwyn Committee in its report added to that recommendation: The aim should be to increase by degrees this sum to 100,000,000 a year. The right hon. Gentleman's policy has been to increase the National Debt. He has suspended the Sinking Fund; he has flouted the opinion of the Colwyn Committee and he has repudiated the American debt, entered into by his own leader when Chancellor of the Exchequer. When one remembers the bitter, unscrupulous and unfair attacks made upon the Labour Government in 1930 and 1931, I do not think it says much for the standard of political honesty in this country to find that the Chancellor of the Exchequer should have foisted an unsound financial policy on the country during the last foul years and should have received nothing but congratulations for it.

The right hon. Gentleman will hardly expect me to conclude my remarks without referring to a matter with which I am specifically and intimately associated. In the 1933 Budget he broke through a very well-established financial tradition in this country. For 80 or 90 years the principle of mutuality in trade was recognised by successive Chancellors of the Exchequer. Reputable and well-known Chancellors like the late Lord Asquith, Mr. McKenna, the present Prime Minister, the right lion. Gentleman the Member for Epping (Mr. Churchill) and Lord Snowden all considered this problem from time to time and agreed on the principle that mutuality of trade did not disclose a taxable profit. Under the influence of private trading associations, however, and contrary to well-established case law—contrary also to the opinion of the ex-Chairman of the Board of Inland Revenue and representative Inland Revenue witnesses—the Chancellor succumbed to unfair political pressure and took advantage of the national crisis to cancel that principle of mutuality and inflict double taxation on a large section of the citizens of this country. Now, after two years of the administration of that taxation, and speaking on behalf of 7,000,000 organised consumers and co-operators, I address an appeal to the right hon. Gentleman. I ask him now to acknowledge the error which he committed in 1933. I ask him to realise that he made a mistake and that he was not justified in imposing on over 5,000,000 persons in this country, whose wages are below the Income Tax assessable figure, the necessity of paying a tax which they were not entitled in law to pay.

The hon. Member for Wood Green (Mr. Baxter) speaking during the debates on the Budget Resolutions, levelled a very unfair attack against the co-operative movement. When we were discussing the proposals for dealing with evasion, the hon. Member suggested, indeed stated, that the co-operative societies of this country had followed a policy of Income Tax evasion. That is a gross misstatement of the facts. Prior to the 1933 Budget we paid, as we always have paid, both as individuals and as societies whatever taxation the law imposed. Before 1933 our Income Tax position rested, as I say, on case law and on the opinion of the Inland Revenue supported by a long succession of British Chancellors of the Exchequer. When the present Chancellor of the Exchequer was dealing with that position he had to alter the law deliberately, to apply this tax specifically to the co-operative societies and to make them entities for the purpose, ignoring the fact that the co-operative societies are the members and the members are the co-operative societies and that you cannot establish an entity in respect of a co-operative society without affecting the whole body of the members.

Out of our membership over 85 per cent. receive wages so low that as individuals they are not taxable and cannot be made eligible for taxation. The remaining 15 per cent.—representing on a rough calculation those whose incomes bring them within the Income Tax law—are assessed and pay tax as individuals. Any investments they have in co-operative societies are disclosed to the Treasury and added to their total income and they pay taxation on that, as individuals, if they are liable. As 85 per cent. are below the limit, how can they be said to evade taxation when they are not liable to taxation; and how can the remaining 15 per cent. be said to evade taxation when they are already paying it as individuals? I earnestly appeal to the right hon. Gentleman to remove this injustice and to treat co-operators like other citizens of this country.

My final point relates to the war position. The right hon. Gentleman when dealing with employment generally did not refer to the fact that one form of prosperity created by the Government's policy has been an enormous improvement in the value of war investments. The share value of five great war groups in this country in 1932 was £6,672,000. The value of the same shares to-day, as a result of the Government's policy, is £29,624,000, an increase of £22,000,000 in four years. My summary of the Budget is this. During the past 12 months Customs and Excise and Inland Revenue increased by £22,000,000. It is all to be used for armaments. This year's proposals include a raid on the Road Fund representing £5,500,000; a tax on the consumer of tea representing £3,500,000, and additional burdens on the Income Tax payers representing £12,000,000. That is an additional £21,000,000, and all is to go for armaments. Next year the right hon. Gentleman expects indirect taxation to yield another £10,500,000 and direct taxation to yield a further £15,000,000. That additional £25,500,000 will be spent on armaments. Out of this Budget of £98,000,000 no less than £402,000,000, or over Ws. in the £, is to be utilised either in war debt redemption charges or in war maintenance charges. If the Government can present no better Budget, then we feel that this Finance Bill ought to be rejected and the Government defeated.

6.42 p.m.

Mr. CHAMBERLAIN

The Debate has proceeded far enough during the three hours that we have been discussing the Second Reading of the Finance Bill to enable us to see the general lines which the remainder of it is likely to follow. I have to thank those supporters of the Government who have spoken and who, notwithstanding the natural disappointment which everybody feels at the prospect of further taxation, in spite of bounding revenue, have given a general approval of the main lines upon which the Budget is founded. My Noble Friend the Member for Newark (Marquess of Titchfield) is one of those to whose words I always pay attention because he puts his case in so convincing and so persuasive a way. He asked me once again to consider seriously the question of taxing lip-stick and cosmetics. Although I cannot say that I see how that is consistent with his avowed object of making everybody happy, I certainly will not refuse—

Marquess of TITCHFIELD

I only meant to suggest that it was better to tax decorations than to tax necessities.

Mr. CHAMBERLAIN

As I say, I certainly would not refuse to consider seriously any proposals of my Noble Friend. As for the other speeches, those made from the Opposition were on somewhat discursive lines and, generally speaking, it may be said that hon. and right hon. Gentlemen opposite were pursuing their usual task of attempting to belittle anything that has been achieved by this Government or its predecessor. As they have not had much material for attacking the Budget itself, they have ranged partly over the past and partly over the future. But there is one thread which runs through most of their speeches, reappearing from time to time on the surface, to which I must make further reference a little later, and that concerns the question of defence and armaments generally.

It is common form, I suppose, for an Opposition to say that every good thing that has happened since the Government came into office was due, not to the Government, but to world causes or to the pressure of the Opposition, and that every bad thing which has happened, wherever it has happened throughout the world, was due entirely to the wickedness, the foolishness, or the idleness of the Government. The hon. Member who has just addressed us not only pursued that theme with considerable enthusiasm, but he also exhibited the converse of it by explaining to us that when his party were in office all the bad things that happened were due, not to anything that their Government did, but to causes entirely beyond their control. I have no doubt that if any good thing had happened, they would have explained with the same assurance and conviction, that it was entirely due to their own genius for administration. That process, no doubt, gives a great deal of satisfaction to the speakers, but I do not think it really cuts very much ice in the country, because, after all, the people must know what is going on. They do know whether they themselves and their neighbours are better off or worse off than they were before this Government came in. When they talk, for instance, of the "alleged recovery," it is more likely to excite laughter than sympathy on the part of those to whom the argument is addressed.

I do not want to say anything about the details in the Finance Bill this afternoon. I rather desire to make some general observations and some reference to points that have been put before us by the right hon. Member for Keighley (Mr. Lees-Smith), who opened the Debate. There is one characteristic of this Finance Bill to which I do not think any allusion has yet been made, though I dare say it will be made later in the Debate, and that is—and I make this admission frankly—that in its wording it is more technical and more complicated than any Finance Bill for which I have been responsible. Certainly I am not prepared to jeer at anybody who says that he is unable to understand some of the more involved passages in certain parts of the Bill, but having perhaps had more experience in the conduct of technical and involved Measures in this House than any other Member, I would point out that the complexities with which hon. Members are troubled are not to be found in those Clauses which deal with comparatively simple -affairs. Nobody has any difficulty in understanding Clause 1, for example.

The Clauses which present the obstacles to rapid assimilation and understanding are those dealing with tax avoidance, and I would ask hon. Members to recollect that, in dealing with tax avoidance, we are dealing with a number of attempts that have been made by people who have given prolonged study to the subject to see how they can achieve their purposes without going outside the meshes of the law. If you want to avoid their continuing to do that, you will have to use a very fine mesh, or else they will be getting through again. In view of the number and variety of the methods which have been employed and the necessity for trying to provide that you do really stop up all the holes, it is, I am afraid, impossible to find any plain, simple language understood of the people, in which you could express all that you want without incurring the danger of permitting evasion. If any hon. Member doubts that, let him consider for a moment, in the case of any Clause or part of a Clause, what he thinks is the intention of the Government in framing it, and let him try himself to see whether he could use simpler language. I have often made experiments of that kind myself in the past, and I have thought at first sight it was really impossible to believe it could not be made simpler, but you find that one thing and another has cropped up, and so there was a reason for every word in the Clause as drafted by the very experienced draftsmen who have been responsible for these Clauses in this Bill.

Let me make one general answer to the hon. Member for Chesterfield (Mr. Benson), who a little while ago addressed some reproaches to me not for what was in the Bill, but because he said I had not gone far enough. He suggested that I had begun at the wrong end and that what I ought to have done was to have said that any settlement trust should have been made invalid for the purpose of tax dodging. Then perhaps he would make some exception to that general statement, but if he were here now, I would invite him to put his ideas into the form of a Clause and see how it looks, and to let that he exposed to the criticism of those who would then proceed to examine it. I do not profess for one moment that this Bill deals with every single case of tax avoidance which has been in the past known to occur or which might possibly be embarked upon in the future. My general answer to the hon. Member is that under the old rule that the law is concerned with the larger and not with the smaller things, I say that we have taken in this Bill the three classes of avoidance which are most in vogue and from which the revenue is at the present time losing the largest amounts.

The cases which the hon. Member brought up in illustration of his argument are not cases in which any considerable amount of money is concerned, though if one of these should become so, then, of course, the case would have to be considered again. Anybody can see, for example, that many a man is willing to do for his child what he would never think of doing for a stranger, and that, as in all cases of irrevocable trusts, a certain amount of risk has to be run; that is to say, that a man is actually parting with some of his property, and he is not likely to take those risks unless he has either some very large subsidiary motive or unless that motive is supplemented by the ordinary considerations of family ties. Before I leave that part of my speech, I would like to repeat what I think I said in my Budget speech, namely, that I do think there is definitely a, difference between educational trusts, using the words in their broadest sense, and the forms of tax avoidance of other kinds which are dealt with in this Bill. I have received a certain number of letters from people who have said that I have fallen into a great error in speaking of educational trusts as a form of tax evasion. As a matter of fact, I never did so describe them. I rather went out of my way to say that, although quite recently they were developing into a new form in which tax avoidance was the principal object, there were many, many cases that I knew in which they had been entered into, not from that motive at all, but from different motives which in themselves were perfectly proper and even praiseworthy.

Now let me turn for one moment to the Amendment which has been moved by the right hon. Member for Keighley, but to which he and his friends have not given very much attention in the course of their speeches. Nevertheless, I suppose that one may take the Amendment as representing the carefully considered views of hon. and right hon. Members opposite and as the grounds upon which this Finance Bill should be rejected by the House. If it be carefully read, it will be seen that there are five reasons why the Finance Bill should riot be accepted, and the first is that it does not contain sound financial provisions for meeting out of income the huge undisclosed expenditure upon national armaments to which the country has been committed. There is a phrase there, "national armaments," to which I want to draw special attention, because it seems to me that those words have been deliberately chosen in order to create prejudice, and indeed I am bound to say that I think the party opposite are being rather dishonest in their whole treatment of the question of armaments and the method of financing armaments which is provided for as far as we go in the Budget of this year. In this Amendment, and still more, of course, outside this House, in the country, in the meetings of Labour party women and other people which are being addressed, there is all through a suggestion that the Government are embarking upon an armaments race, that thereby they are dragging the country to the brink of war, and that they are showing no interest in the question of disarmament.

To-day again the right hon. Member opposite has declared that this is a foreign policy Budget, by which he explained that he meant that the necessity for the new taxation which is imposed by this Bill arose entirely out of the defective foreign policy of the Government. I will not argue with him as to whether if, not this Government, but a previous Government, had made the proposals that it did for disarmament at a different time, they would have had a better reception than they did. I do not argue that, because it is an argument which it is impossible to conclude. You can prove nothing; you can never say what would have happened if the circumstances had been different. But I do say this, that the real reason why the disarmament proposals have failed to produce any practical results up to the present has not been because they were produced at the wrong time, but because they were not preceded by that sense of security without which many countries will not consent to disarm. I put that forward as a general proposition.

I must come back to this: What is the foreign policy that the party opposite would have desired us to follow? I am glad to see the hon. Member for East Edinburgh (Mr. Pethick-Lawrence) in his place, because up to the present he is the only Member of his party who has said clearly and definitely what their policy is. The only way to deal with the situation abroad, he tells us, is to prove to the aggressor at whatever expense that it does not pay to be an aggressor. Then the hon. Member is prepared to prove to Signor Mussolini that it does not pay to be an aggressor, at whatever expense?

Mr. QUIBELL

Hear, hear.

Mr. CHAMBERLAIN

Then why is the hon. Member criticising this Finance Bill, why is he objecting to armaments, why does he not recognise that if you are to pursue a policy of that kind you must be armed if you are to fulfil your obligations to collective security? If the hon. Member for East Edinburgh is the spokesman of his party in this matter I ask him, as I have asked before—are they prepared, whatever the expense, to prove to the dictators of to-day that it does not pay to be an aggressor? I have not had an answer to that yet. I hope that before to-day is out somebody on that side will give us an answer. It is essential that we should know where the party opposite stands. I challenge them to give an answer to that question. I cannot see any answer to it except that if a policy of that kind is to be pursued this country must be armed.

The hon. Member for Keighley asked what right had I to assume that the expenditure of this country on armaments will rise to a peak in the next few years and then descend again? I think the answer is pretty obvious. I explained in my speech that we had two reasons for embarking this great programme of defence. The second reason, taking them in the order in which I gave them before, was that we had been endeavouring to follow effectively this policy of collective security and that we had found that collective security involved us, at any rate until it had proved itself, in new risks, and that it was necessary therefore to provide against these risks in our defence programme. The first of my reasons was that we had deliberately declined to keep up our armaments to what I might call the normal level for a long period of years. Therefore we had a series of deficiencies to make good.

But these deficiencies are not unlimited. We know practically what the limit is. We have staked out a programme, which it is true is provisional and which may be altered if conditions alter, but assuming that the programme is carried through because conditions do not alter, then it must rise gradually as we are able to get our programme into operation, and it must come down again because there is a limit to the deficiencies we have to make up. The hon. Member will see that he is wrong in suggesting that we are embarking on an armaments race. We have a, definite programme in front of us, we expect to carry it through in a few years, and we naturally expect that when we have passed the peak the expenditure on defence will come down. I have explained that; when it comes down it will not come down to where it started from. It cannot, because the more armaments there are the higher must be the cost of maintenance.

The Amendment declines assent to a Bill "not containing sound financial provisions," a criticism which no doubt comes with peculiar force from such authorities as hon. Members opposite. Consider for a moment what we are putting on to the taxpayer this year. Comparing the Estimates for defence this year with the Estimates that I had to provide for in last year's Budget, there is a, difference of £34,000,000. If you take out the new taxation and the amount drawn from the Road Fund, £22,000,000, that leaves £32,000,000 which we are finding out of existing taxation in addition to what was provided for in last year's Budget; £32,000,000, there- fore, which if we had not to provide for this extra defence would have been available for substantial remissions of taxation. If you take that into account, and add £16,500,000 which I am asking the taxpayer to provide, you see that the real new burden on him this year for defence is £48,500,000. Do hon. Members opposite say that that is not sound finance? They would put more on still, and yet in the last item of their Amendment they reproach us with having raised taxation to an unprecedented level. They might at least in a short Amendment of this kind have tried to introduce some consistency between the beginning and the end.

We are told that the Bill "imposes additional burdens upon the poorest section of the community." I am not prepared to deny that. On the contrary, I have stated more than once that in my opinion the safety of the country, which as my Noble Friend behind me said concerns everybody in the community, should be contributed to by everybody in the community, though of course not in the same proportion. I am not going into the question of the relative proportion of direct and indirect taxation which still interests the Liberal party, or such of it as is left. The fraction of it which criticised the Finance Bill on that point has now apparently got another engagement. When you remember that the 85,000 individuals who pay Surtax, that small proportion of the total population of more than 40,000,000 provided nearly 60 per cent, of Income Tax, Surtax and Death Duties, and between one-quarter and one-third of the whole taxation of the country, nobody can say they are not doing their share. Coming to the poorest section of the community, I have gone into the question again of what the actual burden on them will be, what is the contribution that they will have to make under this proposal towards their own safety. The consumption of tea averages 9¼ to 9½ lbs. per person per year. If you take a household of four that means a consumption of 37 to 38 lbs. of tea in a year. At 2d. a lb. that means 6s. 2d. to 6s. 4d. a year.

Mr. GARRO JONES

Does the right hon. Gentleman imagine that the actual consumer will only pay 2d.? Does he not realise that 2d. is the price at the source of origin and that every intermediary puts on his profit, and that it may reach 6d. or more by the time the consumer gets it?

Mr. CHAMBERLAIN

Even if it were true that it was 3d., the amount would be something less than 10s. a year. The possible difference in the cost of living cannot be more than half a point. It is interesting to see how the cost of living index to-day differs from what it was when the party opposite were in power. In May this year the cost of living index is 44. In 1929 it was 61. There is still a large margin for the poorest of the poor compared with the burdens they were bearing in 1929.

Mr. GEORGE GRIFFITHS

When did the Labour party come into power in 1929? It was nearly Christmas. You had 1929 most of the year.

Mr. CHAMBERLAIN

I meant the year 1929–30. It is a big reduction none the less. As to the third part of the Amendment, the grievance of the cooperative movement, the hon. Member misrepresented once more what actually took place. It has nothing to do with this Budget because, as the hon. Member knows, the operation which placed the co-operative concerns in exactly the same position as any other trader and at last did justice to people who were competing with them, took place before the last General Election. Of course the last General Election endorsed the policy of the last Government, and the justice of the change that had been made. When hon. Members who were particularly interested in this matter used to tell me what frightful things would happen to the Government, and to me in particular, if this were carried through, I always said, and I repeat, that the ordinary co-operative member is not aware of the change. It does not affect his "divi," and it is impossible to work him up to any enthusiasm in the matter.

Let me come back to the question of unprecedented taxation which forms a large part of the Amendment. I agree that taxation is now standing at a very high and undesirable level, but I am afraid that we must make up our minds for some time to come that high taxation is going to be an unavoidable evil. I would like to make some reference to a speech delivered by my hon. Friend the Member for Aylesbury (Mr. Beaumont) on the Budget Resolutions. I should have liked to have replied earlier if I had had more time at my disposal, but I would like to say something about it now. My hon. Friend expressed the view, which, as he candidly said, he did not imagine would be shared by a large number in the House, that we had gone in the wrong direction in the extension of social services. He believed that it would be better for the country and the people in the country if the social services, that is to say, the attempt of the State to provide against the risks, dangers, and difficulties of the people, should be abandoned, and that instead there should be a rise in the wages of the workers. I did not quite apprehend how my hon. Friend thought it would be possible to provide that the rise in the wages of the workers could be so general, widespread and universal as to give them the equivalent for the social services they would lose. Perhaps my hon. Friend did not think it necessary to go into details of what in his mind was more a general idea than a practical proposition, though I must confess that I do not think his proposition is a practicable one. It is certainly not one with which I can agree.

At the same time, I think that my hon. Friend did a valuable service in bringing forward the general case that expenditure in this country is continuing to advance at a really alarming pace, and that there is a widely held and unfounded view that you can go on indefinitely and yet safely increasing the expenditure of the country because there will always be an expanding revenue sufficient to meet it. I believe that these social services, which have been such a feature of recent years, or, at any rate, post-war years, probably do represent a general sense throughout the community that there is a duty of the State towards the members of the State, or, if you like to put it this way, a duty of the more wealthy members of society to assume burdens for the sake of helping those who are less wealthy or less fortunate. There is a general agreement that that is an idea which has obtained an increasing hold upon the people of this country, and no doubt it was given a considerable fillip by the sort of feelings which were general after the War, when everyone expected that a. new state of things was going to arise, and that we had entered upon a new era of greater happiness, fairness and justice. Then came the great depression. That, perhaps, helped to illustrate the greater and growing need of social services, and to strengthen the feeling that the social services must be increased, or extended, or varied to meet the new demands upon them.

Whatever may be the cause of it, the fact remains that, if we take some of the principal services which are now the subject of State assistance, we find that in the last 10 or 11 years they have undergone a very remarkable increase. They are old age pensions, widows' pensions, housing, health insurance, unemployment insurance, unemployment allowances, grants to public assistance authorities, and education. I find that the contributions to these eight services have grown from £103,000,000 in 1925 to no less than £212,000,000 this year. That is not going to be the end of it. There are going on all the time automatic increases which, I am afraid, are often lost sight of. I would like to remind hon. Members, for example, that the cost of old age pensions, which in 1925 was £28,000,000, has by this time reached an annual sum of £45,000,000.

Mr. G. GRIFFITHS

You do not want them to die earlier, do you?

Mr. CHAMBERLAIN

They do not die earlier, but rather at a later age. In 30 years' time it is expected that the cost will rise to £60,000,000, and it will go on increasing after that until it will reach the peak of about £80,000,000 a year. [An HON. MEMBER: "It is well spent."] I am not arguing whether it is well spent or not. I am merely pointing out that we must not think that we have got to the end of our present expenditure on our existing services, but that, if we never did anything more, and merely carried on the existing services, that figure for old age pensions, which was £25,000,000 in 1925, will ultimately reach £80,000,000. That must not be lost sight of. It is only one instance. Widows' pensions, which were nothing in 1925, have risen to £15,000,000, and in six years' time it is estimated that they will have risen to £21,000,000.

Again, there are other features about the finance of this year which cannot be considered permanent. Take the fixed debt charge. I have already drawn atten- tion in the House to the fact that the rate of interest for short-term money is abnormally low at the present time. Although I have no reason to expect that it will rise next year, one must, in looking forward, remember that one may have to provide anything up to another £10,000,000 a year for the extra cost of money on Treasury Bills. Again, the hon. Member for East Ham, South (Mr. Barnes), in his stout defence of sound finance, has pointed out very truly that we have not a Sinking Fund. In normal days £50,000,000 a year was considered quite a moderate sum to set aside for the Sinking Fund. I do say, therefore, that my hon. Friend the Member for Aylesbury is perfectly right in calling attention to the fact that the expenditure is continuing to mount in this way and that in future, even if we touch no new forms of expenditure, we are likely to find that our Bill is going to increase to a very material extent.

Where are the means to be found to provide for this increase? We may expect that the productivity of taxation will, I will not say while the present Government lasts, but while the present prosperity goes on increasing, rise, too. That, however, will not last for ever. Reference was made by the right hon. Member for Keighley to the report of the Beveridge Committee. He said that it was an official report. Provided that it is clearly understood that that does not mean it is a report backed by the Government, I do not object to that definition. That Committee has a statutory duty of advising on the Unemployment Fund, and for that purpose it is bound to make some sort of an estimate of what will be the trend of unemployment in future. It is, therefore, part of its statutory duty to make prophecies, which, in any other case, would be gratuitous and, one might be tempted to say, without any great value. The Committee said that trade moves in cycles and it gave its ideas as to how this particular cycle will move in future.

Calculations of that kind, although they are necessary to a committee charged with duties which this Committee has, are apt to be thrown completely out of gear by conditions which cannot have been foreseen. For example, if conditions continue perfectly normal there will, after a time, be a slowing down of the rate of building. That might in the ordinary way lead to considerable unemployment in the building trades, but do not let us forget the enormous defence programme which the Government are going to launch, and which will occupy all the available labour in the building trade. Nevertheless, I accept the broad principle that these things do work in cycles, and I have to look forward to the time when we may expect in the natural course of things that trade activity will diminish instead of increase.

What is the conclusion of all this? I do not take the view that we have anything to regret in what we have done. The Government have already stated that they saw no reason for abandoning the social programme that they have in mind. The agricultural workers' insurance Bill is already before the House. There is the Midwives Bill, which is another form of social service, and, in future, there will be voluntary insurance for black-coated workers. We do not propose to stop any of these things, but I do think it is a warning when we come to talk about new schemes which would cost vast sums. I regret that some hon. Members identify themselves with constant suggestions that one of these days it may be practical politics to consider schemes for giving pensions to people at an earlier age or in larger amounts. That would cost £100,000,000 or £200,000,000 a year, according to the size of the pension. I do not believe that that vast expenditure would be practical politics, because it would go far beyond the capacity of the country to bear the increased taxation required to meet it. When the party opposite are drawing attention to the unprecedented level of taxation which they say has been brought about by the present Government, we ask them to bear in mind that if they were in our place they could not refuse to spend the same money that we are spending on defence. They could not find any fresh economies in the management of the National Debt. The only big item on which economies would be possible would be the social services. I cannot imagine anything more unfortunate than that people should first have it suggested to them that the social services can be increased for their benefit no matter what the cost is, and then, having got the country into the condition when another May Committee might be necessary, for those services to be cut. I think that would be disastrous, I think it would be cruel and I agree with the hon. Member for the Gorbals Division (Mr. Buchanan), who has on a previous occasion expressed his regret that people should be misled by promises or suggestions which really cannot be fulfilled.

In this Finance Bill will be found Clauses which will require careful exposition in Committee, where they will pass through the mill of the exchange of questions and answers, and Members will have the opportunity of putting particular cases that occur to them. As the Bill has been drafted it will be seen that it fulfils what I think was implied in my earlier statement, that while the Financial Resolution had been drawn wide enough to include everything and anything, it did not follow that the Clauses of the Bill would contain everything which they might contain. I desired to hear what hon. Members could contribute from their own experience, or the experience of others, towards the elucidation of what is a difficult technical problem—tax avoidance. I am grateful to hon. Members who have communicated with me on this subject, and have brought to my notice variations of the common form such as it was almost impossible to foresee beforehand. I hope that as the Bill is drafted it has met some of the fears and anxieties which I know many hon. Members felt that it might catch the wrong people. I have tried to meet such objections as seem reasonable, and we shall, no doubt, be able to discuss the Clauses in greater detail on the Committee stage.

7.33 p.m.

Mr. THURTLE

Before coming to the specific point with which I wish to deal, I should like to make a reference to the Chancellor's point in regard to armaments. He challenged this side of the House as to its attitude towards the new armaments programme of the Government. I have no authority to speak for the party of which I am a member. No doubt someone on the Front Bench will speak later, but I should like to take the right hon. Gentleman to task for the way in which he stated this problem. His defence of the Government's proposals to increase armaments was that they are merely bringing armaments up to "the normal level." I challenge the use of that phrase as being meaningless. Will he tell the House when conditions have been normal as regards armaments since 1914? It may be that before the War broke out it could have been said that there was a normal period, but since 1914 the whole conditions of the world have changed. Since peace was concluded in 1918 and up to the present time the world has been in a state of flux and change. There has been no period, not even a period of three years, in which you could say there was normality, and therefore to talk about "the normal level since the War" is to talk of a meaningless level. I submit that the level now fixed is not really the normal level, because there is not any measure by which you can determine what is the normal level, but that it is an arbitrary level, and by whom has it been fixed? It has been fixed by the heads of the great fighting Services and to some extent determined by the armament interests. It is fallacious for the Chancellor to ask us to accept this arbitrarily-fixed level of armaments as something which can be proved historically. We say it is something which has been fixed by the fighting Services in the main, and that it bears no relation to a reasonable interpretation of our national and international obligations.

The specific question which I wish to raise deals with the evasion of taxation. The Chancellor of the Exchequer brushed aside somewhat lightly forms of evasion with which he is not dealing this year, and defended his inaction mainly on the ground of the difficulty of drafting Clauses which would be comprehensive and effective. I suggest that the subject is much too serious to be dismissed in that fashion. When he said he would introduce Clauses dealing with educational trusts he made a very sound point. He said it ought to be a rule that all taxpayers should be treated on a footing of equality, that some parents should not be able to avoid their proper obligations while others met them. He said: I think everybody will agree that all parents ought to be treated alike in this matter, that it is extremely unfair that, while some are obtaining relief in this way others, either because they have scruples about employing methods of this kind or because they simply do not happen to know how to apply them, are not only getting no such relief themselves but are actually having to pay more than their fair share of taxation in order to fill up the gap in the revenue."—[OFFICIAL REPORT, 21st April, 1936; col. 48, Vol. 311.] That is a very sound argument which will command the support of the whole House. I want to draw the Chancellor's attention to another form of evasion, equally important and, I suggest, equally urgent. I understand that my hon. Friend the Member for Chesterfield (Mr. Benson) has to some extent dealt with this matter, but the story is so interesting that it ought to be placed in a connected form upon the records of this House, and I will describe it in some little detail. It concerns the practice of wealthy Surtax payers who contract with persons in their employ that they will pay them sums equivalent to the salaries or wages which they have been receiving for a given period of years and then claim exemption on those sums on the ground that the payments are not remuneration of services. I should like to illustrate that in detail by the case of the Duke of Westminster, which has already been before the Courts. I will summarise the case in the words of Lord Atkin in the House of Lords. He said: The Duke of Westminster executed a series of deeds in which he covenanted to pay to the several parties mentioned in the deeds certain weekly sums for a period of seven years or the joint Jives of the parties. The recipients in all the cases in question were persons then in the employ of the respondent at fixed wages or salaries; and after the completion of the deeds they continued in the employment and continued to receive such sums as, with the sum payable by the deed, made up the amount of the wages or salary payable before the deed, and no more. The sums varied from 12s. to £2,000, the employment from gardener and laundryman to architect, and the past period of employment from four years to 45. In describing this case Lord Atkin said.: It was not I think denied, at any rate it is incontrovertible, that the deeds were brought into existence as a device by which the respondent might avoid some of the burden of Surtax. I do not use the word device in any sinister sense; for it has to be recognised that the subject, whether poor and humble or wealthy and noble, has the legal right so to dispose of capital and income as to attract upon himself the least amount of tax. Let me illustrate the operation of this device by the case which was taken in the House of Lords. It was the case of a servant who was getting £3 per week. The Duke of Westminster covenanted to pay him 38s. per week for a period of seven years in recognition of his past services. This was said to be without prejudice to any remuneration to which this servant should become entitled in respect of future services. The servant continued in the employ of the Duke but received, instead of £3 per week, the sum of 22s. per week. It will be observed that 22s. plus 38s. make up exactly the £3 he had received previously. It is interesting to observe that in sending the deed to this particular man the solicitors of the Duke sent a letter to him which reads as follows: We read over with you a deed of covenant which the Duke of Westminster has signed in your favour under which you will be entitled to a gross sum of £1 18s. 0d. per week in consiedration of your past faithful service and irrespective of any work which you may do for His Grace after the deed comes into effect. I think that is very generous. The letter goes on: We explained that there is nothing in the deed to prevent your being entitled to and claiming full remuneration for such future work as you may do, though it is expected that in practice you will be content with the provision which is being legally made for you so long as the deed takes effect, with the addition of such sum (if any) as may be necessary to bring the total periodical payment while you are still in the Duke's service up to the amount of the salary or wages which you have lately been receiving. The servant in question was asked to acknowledge the receipt of this letter, and to say that he agreed with all it said, and that he regarded the agreement as binding upon himself. So the legal position is that taxation can be evaded in this way. The Commissioners of Inland Revenue felt that this was an evasion. They fought the case in the Court of Appeal. They lost there, and they carried the case to the House of Lords, and they lost there. I do not know how much is the sum involved. The Chancellor, in an airy sort of way, dismissed cases of this kind as not being very significant. I think he would agree that once a device of this kind became well known it might be followed by large numbers of Surtax payers, as was the case with the educational trust. A few years ago that was not a matter of great magnitude, but it has grown like a snowball until it has become so serious that he has felt it necessary to deal with it. It may be that the form of evasion to which I am referring has not reached that point, but the Chancellor should take time by the forelock and deal with it now. Lord Macmillan, in giving judgment, said: It is not likely that many other employers will follow the respondent's example, for few employers would care to take the risk to which the respondent has left himself exposed, namely, that his servants may quit his employment and take their services elsewhere, and yet continue to exact the covenanted weekly payments from him. That is conceivable, but there must be large numbers of people—in fact, the returns show that there are—who get incomes of from £100,000 to £40,000, and who would find it, extremely beneficial to adopt that method with their employes. It is time the Chancellor took steps to stop that form of evasion.

We tax all sorts of people in this House and do not show any leniency to the poor. I do not think it is suggested, either by the Chancellor or any other hon. Member, that there is good reason for showing indulgence to the Duke of Westminster, or to any other large Surtax payer, in regard to tax evasion. If the Chancellor wants to remove from poor people the feeling that rich men Are always allowed to get away with it, in regard to these issues of taxation, I seriously suggest that he does not delay, but takes an opportunity, if not this year, then next year, to stop this loophole.

7.49 p.m.

Sir JOHN WARDLAW-MILNE

I have been much interested in the account of this tax evasion—shall I so describe it?— to which reference has been made twice this afternoon, and particularly in the view of it which has just been put forward by the hon. Member for Shoreditch (Mr. Thurtle). I have never been lucky enough to benefit from any trust, nor ever been able to create one, but my impression now is how extremely stupid I must have been in not knowing hitherto what could be done. After the speech made by the hon. Member for Chesterfield (Mr. Benson) on the same subject, I felt that I had missed something really good, and that I ought to have known a good deal more about it. I now gather, however, that there is a serious snag in it and that it is not really as good as it looks; that, in fact, a serious liability may rest upon the people who create these trusts.

As for the hundreds and thousands of Surtax payers—I did not gather whether the hon. Member for Shoreditch said hundreds of thousands or thousands—who follow this practice, I would remind the hon. Member that only 6,142 people in this country have incomes of over £10,000 a year. The proportion of those who would be likely to take the risk to which he referred would be very small indeed. I did not rise, however, in any way to object to his bringing the facts to the notice of the Chancellor, but I am a little surprised that such a keen Chancellor of the Exchequer as Lord Snowden completely omitted apparently, when the Labour party were in office, to notice this leakage.

Mr. THURTLE

The hon. Member may not be aware that this form of trust was first started by the Duke of Westminster in 1930.

Sir J. WARDLAW-MILNE

I was not aware of it. All I can say is that he must be a very clever fellow, and I am not surprised that others have been following his example. I have not the remotest objection to this matter being raised. I only wonder whether we know all the facts about it, and whether the other side could not probably be stated which might alter our views upon the case we have heard this afternoon.

In his speech, my right hon. Friend the Chancellor of the Exchequer said he had great sympathy with those of us who found difficulty in completely understanding the language of the Finance Bill. I appreciate that sympathy, because this is a very complicated Bill. At the same time, I am afraid that my criticisms of the Bill are not because of what I do not understand, but of what, unfortunately, I think I understand only too clearly. I give complete approval, as anybody must do, to any measures which are taken to deal with those who try to evade taxation, especially when it is remembered that whatever taxation is avoided by one Member of the community falls upon the rest of us, but surely it is the first principle of honest and fair dealing with the taxpayer that we should make clear to him what his liability is. It is in that connection that I wish to comment briefly upon: some Clauses of the Bill.

In his desire to spread his net as widely as possible the Chancellor of the Exchequer has allowed to he put into the Bill a looseness of language which I hold is quite inadmissible. Further, he seems to me to have gone to the length of changing the principle under which taxation has hitherto been levied in this country; he has placed in some cases the onus on the taxpayer to prove that he is not liable, as against, in the past, the practice of putting the liability upon the tax collector, that is to say, upon the Government, of proving that the taxpayer is liable. I would ask the House to allow me to refer to that well known authority, Lord Halsbury's "Laws of England," which any hon. Member can find in the Library. In Volume 27, paragraph 345, there is a short statement, which deals with the structure and interpretation of fiscal and revenue Statutes. It is as follows: The language of a Statute imposing a tax must receive a strict construction. If the person sought to be taxed comes within the letter of the law, he must be taxed. On the other hand, if the Crown, seeking to recover the tax, cannot bring the subject within the letter of the law, the subject is free, however much within the spirit of the law the case might otherwise appear to be. There can be no equitable construction admissible in a taxing Statute. In explanation of the last sentence is given a quotation by an Irish judge, who said: The benefit of the doubt is the right of the subject. What do we find in the Bill? I would ask hon. Members to turn to Clause 16, and at the top of page 12 they will find the following words relating to preventing avoidance of Income Tax, in connection with the transference of income abroad: Provided that this Sub-section shall not apply if the individual shows to the satisfaction of the Special Commissioners that the transfer and any associated operations were effected mainly for some purpose other than the purpose of avoiding liability to taxation. I suggest to the Chancellor that the words "affected mainly for some purpose," are such that in effect the onus of proof is shifted entirely from the Crown to the taxpayer. Again, in Clause 17 (1, c), I ask the House to note these words: If, on the assumption that a company is a company to which the said Section twenty-one applies. How on earth can it be assumed that it is such a company? Either it is a company to which that Section applies, or it is not. It is completely wrong to have wording of that kind in a Bill which imposes taxation on the people of the country. I will give only one other illustration, again on page 12, and in Clause 16 (3), which says: An individual shall, for the purposes of this section, be deemed to have power to enjoy income of a person resident or domiciled out of the United Kingdom if— (a) the income is in fact so dealt with by any person as to be calculated, at some point of time, and whether in the form of income or not, to inure for the benefit of the individual. "At some point of time": I ask the Chancellor to tell me what that means. If it means anything at all, it means from now till the crack of doom. I suggest that those are not words that ought ordinarily to appear in a Bill of this kind.

Mr. CHAMBERLAIN

May I suggest that a point does not necessarily mean a line?

Sir J. WARDLAW-MILNE

Does that define what the period is?

Mr. CHAMBERLAIN

It says "at some point."

Sir J. WARDLAW-MILNE

That may be, and I accept the Chancellor's statement that it may be at some point, but surely that is vague enough. The fact that it is at some point does not carry us very far in defining the period. I suggest again, with very great respect, that those are words which the Chancellor of the Exchequer might be good enough to take an opportunity of looking into, during the further stages of the Bill. The last point I will raise is in relation to the Second Schedule, where there is what appears to me to be a clear injustice to the taxpayer. Paragraphs 6 and 8 of that Schedule leave the Board of Referees as the final court of appeal. That means that the right which the taxpayer has at present of having his case stated by the Special Commissioners for the opinion of the High Court is definitely taken away, as regards any question which might, under the Schedule, be referred to the Board of Referees.

That is a complete change, I suggest, from the present situation. The Board of Referees, I maintain, has largely lost the confidence of the people of the country, and I say that deliberately. It is well known to those who take an in- terest in these matters that Parliament in 1922 and 1927 set up the board as a court of appeal from decisions made by the Special or General Commissioners of Income Tax and adverse to the taxpayer. The results were set forth in an answer which the right hon. Gentleman himself gave me on 30th April of this year. Very rarely indeed has the decision of the board been in favour of the taxpayer on any case submitted to it. In eight years, 402 cases have been heard, and only 14 decisions have been given in favour of the taxpayer. In four years no decision was given in favour of the taxpayer at all. I am not arguing whether these results were right or wrong; the point is that the board has lost the confidence of the people of this country. The taxpayer would rather go back to the position in which he was before, when he could state his case to the Special Commissioners and had a right of appeal to the High Court on points of law. Moreover, to appeal to the Board of Referees is a very expensive business, almost as expensive as going to the House of Lords. It is necessary to prepare six copies of every document and account, and some of them have to be printed. The whole thing is extremely expensive.

I am raising these points, not as criticisms of the Chancellor himself or of the Government, but because they are matters which are so easily passed over if nobody points out what the position of the taxpayer is going to be. Speaking very briefly, I would say that there are certain Clauses in the Bill which shift the onus of proving that tax is payable from the Government of the day, on whom it ought to rest, to the taxpayer, who has to show that in fact he is not liable. The taxpayer in future is to be held guilty unless he can prove his innocence. To my mind that is a wrong principle, and I seriously invite the Chancellor of the Exchequer to do me the favour of looking into the wording in the Bill of which I have given examples, so that, if it be the case that we are seriously altering the position of the taxpayer, the Chancellor may at any rate consider whether it is not desirable to change the wording in later stages.

I want now to turn to the situation in which the Chancellor finds himself as a result of his Budget and of the Debate this afternoon. I think he is to be congratulated on the fact that there has been very little criticism—indeed, almost none at all—of his Budget, and perhaps it is only reasonable to expect that the people of this country, having to find £54,000,000 extra for the defence services, should not complain about an increase of 3d. on the Income Tax and 2d. on tea. The Chancellor himself, in our earlier Debates on the Budget has indicated, if he has not definitely said so, that this extra taxation was put on so that everyone should realise that they had to make some contribution towards this extra expenditure. I am rather glad that he put it in that way, because, although I am not quarrelling with this extra taxation, from the fact that I agree with the reason I have just quoted him as giving, at the same time I hardly think that, if he had taken, an optimistic point of view, he would have found that this extra taxation was necessary at all. The revenue in the past year has undoubtedly been a good deal better than he estimated for, although he was not pessimistic a year ago, and. provided that he can maintain, as I feel confident he can, the present progressive industrial development and the present conditions of prosperity with cheap moneys I think there is no doubt that he will find that his revenue will increase still further during the coming year.

I am also wondering whether it will be possible economically and reasonably to spend £180,000,000 on defence this year. It seems a very easy thing to say that one can spend as much as one can provide, but actually it is not quite so easy. If we do so spend, the other side of the picture has to be remembered. If that money is spent, a great deal of it—most of it—will immediately go into circulation. It will mean, in all probability, higher wages, greater spending power, and, therefore, again more revenue going into the Treasury in one form or another. I do not criticise the increase in the Income Tax, because I agree with the Chancellor's reasons for it, but I am bound to my that 4s. 9d. is a most annoying figure to have to calculate, and putting 3d. on the Income Tax seems to be rather like taking an elephant gun to kill a chicken. At the same time, I do not wish to be taken as suggesting that it ought to be more, which is perhaps the natural reply to that remark. There is one aspect of the decision of the Chancellor of the Exchequer which I think has not been sufficiently emphasised, and that is that the taxation is very definitely taxation upon bachelors. Under the conditions which the Chancellor has set out, a married man with an income of £500 a, year and three children will pay this year£33 5s., whereas previously he paid £40 10s., so that he is going to be better off. In fact, it amounts to a tax upon bachelors. That, perhaps, is not a bad thing, but it may not be realised that the increased Income Tax is really going to fall largely on the people with larger incomes and on the unmarried.

One of the most interesting figures connected with the Budget is that relating to the service of the National Debt, to which the Chancellor himself referred a few moments ago. I do not know whether, in the discussion this afternoon, hon. Members have appreciated the fact that the £81,000,000 saved annually, as compared with a few years ago, on the service of the National Debt, in interest on Government loans alone, falls largely upon one section of people, and that, when we speak of putting an increased Income Tax upon certain sections of the people, who are referred to as wealthy or rich people, we are liable to forget that that increase has largely been put upon people who have already contributed to the revenue, by the fact of their receiving lower interest, to the amount of something like £81,000,000. This class of taxpayers has been hit very heavily indeed. I do not know whether it will be possible, in the case of a great many of these people, to increase their incomes in the future. I doubt it, because there must be a certain number of rentiers who will not get any benefit from increased national spending power.

I do not want to dwell too long on the points referred to by the Chancellor with regard to the social services. There is not one of us who is not in favour of very many of the social services which the country is providing at the present time, but I wonder whether the House ever stops to think how far we are going? When I say that, I do not say it entirely from the point of view of the Chancellor of the Exchequer, that is to say, not purely from a financial point of view. It is quite true that in 1891, before the present century began, our social services cost only £22,000,000. In 1911 they cost us £68,000,000; and now, as we have been told to-day, they cost nearly £300,000,000. It is not a question only of whether we can afford this expenditure, but also of whether the working man in this country agrees that we can spend the money better for him than he can spend it for himself—

Mr. MARKLEW

Not if you will let him have it to spend.

Sir J. WARDLAW-MILNE

That is the very point of my argument—that there may come a time when the people of this country may turn round on this House and say: "We agree that all these social services are very well, but, if you will give us the money, we can do it better for ourselves than you can"; and there is a great deal to be said for that point of view. Is the Government—and here I do not mean necessarily this Government, but any Government—is the State the best agent for the spending of money? Hon. Members opposite may perhaps find it desirable to combat the statement, though in their hearts I fancy they really agree that the State is an extravagant spender. To say that is not to attack the Civil Service; it is because we here, in this House, are so continually subject to pressure from outside. I would ask any Member of the House, to whatever party he belongs, who has been here for a number of years, how many letters he has received from his constituents asking him to save money? Almost all the letters that we receive are letters asking us to spend money, in one way or another.

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

Sir J. WARDLAW-MILNE

The State is not necessarily the best agency for the spending of money. An example of that can be found in the cost of education. In 1913 the attendance of children at elementary schools was 5,380,000 and the cost of their education was £30,000,000. In 1921 there were fewer than 5,000,000 children but the cost had gone up to £79,000,000. I give that not to show that we have not done our best for the children or that this was neces- sarily caused by extravagance in administration, but as an example of the fact that the State is not by any means necessarily the best agency for spending money. Although we may give as much as we can in the way of social services —no one wants to curtail them—it is quite feasible that the time may come when not one class but all classes of the population may say to us, "We would rather manage our own affairs than have them managed for us. Good as your schemes may be, we should prefer to have assistance by which we were able to earn higher wages and to spend the money for ourselves." That they are able to look after themselves is proved by the fact that thrift continues. In spite of the poverty that we hear about from the benches opposite, the deposits in the savings banks go up and the people are better off every day.

The Chancellor of the Exchequer referred to the possibility of an increase in the cost of money, and therefore in the cost of his Treasury bill discounts, not immediately but, as I understood him, perhaps six months or a year hence. I wonder why he should consider that likely. I see no reason whatever, if he continues the policy that he has been following so very successfully for the last two or three years, why we should be faced with dear money at all. We shall not be faced with dear money unless any attempt is made to force this or any future Government to go back to the form of Gold Standard that existed some time ago. I warn my right hon. Friend, or any Chancellor of the Exchequer of any other party, that industry and labour will not stand that again. The time has passed when either the manufacturer or the workman is going to stand for the conditions brought about by the deflation of those dreadful years. I have preached against that for years. The idea that manufacturers can make a living by continually cheapening prices in a market of falling demand is as ridiculous as to expect that we are going to get labour to agree that some millennium is going to come about as the result of reducing wages. There is no reason whatever why increased spending power should not be obtained if we provide the money that industry wants, and that money is being provided by the Chancellor at present. Our note issue to- day is £50,000,000 above what is was a year or two ago and, unless we are forced by some madness on to a system of deflation again, I see no reason why he should not be able to get his Treasury bills discounted at as reasonable a rate as now. The policy which this Government has followed for five years has done more to re-establish our financial position in the world than probably anything that has happened in the whole of this century. The result of that is that there is not a country in the world that is not anxious to follow our example.

It would be out of place perhaps and detain the House too long to go into the details of what must inevitably happen in France within a few months or years. I do not object to gold being used as a standard, provided it is not used in the way it was used before. The idea that we can go back to anything of that kind as long as the United States and France hold 70 per cent. of all the gold in the world is ridiculous. It cannot be done. Merely used as a unit of measurement, I have no objection to gold. It is probably as good a unit for the purpose as anything else. We are apt to forget also that we are seeing completely new development in gold production. Russia is now the second largest gold producer in the world. In the past history of the world new gold supplies have meant booms in trade. I am delighted to see improving trade, but I do not want booms and slumps. I do not want us to be dependent on booms. I want the managed system of our currency as carried on at present to continue. It will lead, if we work it well, to its general adoption gradually throughout the world. There is not a single country which would not benefit by getting into convoy with sterling. The currency of the sterling group is far more stable than any gold currency in the world, and the more we can get people to work with us on a common basis and provided they make their price level to approximate to ours, the better for us and for them. I believe that going back to the system of deflation would be disastrous for every section of people in the country.

I have referred to this particularly because of the remark of the Chancellor, which it was no doubt wise of him to make as no one knows what demands may arise from industrial expansion. I hope, however, he does not contemplate in the near future that it might be necessary for him to face a materially higher expenditure on the placing of Treasury bills. It is because I am anxious that nothing should stop the progress that we have made, and still more anxious that every section of the people should know how intimately that progress is dependent upon our money being based on a stable price level, and not upon any fictitious gold standard, that I have pressed the matter upon the notice of the House.

8.22 p.m.

Mr. GRAHAM WHITE

The hon. Member has made a number of observations with which I am in agreement. I am not, however, quite able to agree with him in his statement that there has been no criticism of the Budget. I wish I could join with him in saying that. We have had many examples of Ministerial embarrassment in the last few weeks, but the last Member of the Government whom I wish to see embarrassed is the Chancellor of the Exchequer. I would, if I could, shield him from any embarrassment, because I know that his embarrassment is in a sense my own, and in a greater or less degree the embarrassment of every one of us, and of the country. The Chancellor was making a safe forecast when he said there would be in our discussion to-day comment on the language of the Clauses that deal with Income Tax evasion. There are eight or nine pages of material which certainly tax one's interpretative capacity to the very limit. In fact I find considerable confusion amongst even experts in Income Tax matters., people whose business it is to understand them and to advise others. The hon. Member who spoke last drew attention to obscurity in Clause 16. I need not assure the hon. Member that we are entirely with him in wishing to stop anything in the nature of illegal tax evasion or to stop tax evasion which may be called legal. In fact the argument has been put forward in the course of our discussion on the Budget Resolution that there is large legal evasion, and it is clear we would not only support any steps to stop it, but we should tighten the net by every legal means to prevent the Revenue being impoverished. I submit—and I mention this matter because the hon. and learned Gentleman the Financial Secretary may be able to help us in the later stages—that in Clause 16 (4), at the top of page 13, there is a paragraph which is really very objectionable in a taxing Statute. I will read the words: In determining whether an individual has power to enjoy income within the meaning of this section, regard shall be had to the substantial result and effect of the transfer and any associated operations. By introducing that Sub-section, which is most unfortunate, it takes the subject right out the realm of legal interpretation into the realm of opinion and of the judgment of third parties. It is important to the subject to know—and he cannot know by reference to this Clause —what is proper or what is not proper for him to do. I shall be glad if my hon. and learned Friend will make a note of these points. The use of these words takes all precision out of the Clause and leaves the whole position entirely vague. The result is, that the taxation does not result upon action taken by the subject, but upon what other people or third parties think is the result of the action which he has taken. It is most inappropriate that wording of that obscure nature should be introduced into a taxing Statute or Finance Bill at all.

While we support these proposals for the prevention of tax evasion, we are very concerned that there should be no weakening in this Clause of the rights of the subject to the protection of the courts. The real importance of having this point cleared up in Sub-section (4) of the Clause becomes much more important when we have regard to the matter which has already been quoted by the hon. Member opposite, namely, the proviso at the top of page 12. These matters, which may be of great importance, are to be decided by the Special Commissioners. There can be no doubt that the Special Commissioners are an admirable body for determining matters of fact and the actual amount of a liability which has been determined, but they are not the kind of people to whom the subject should be obliged to look in the last resort for the interpretation of the law as to whether he is liable or not. The matter becomes even more obscure if we take it into the field of the Second Schedule, which was also mentioned by the hon. Member opposite. In paragraph (6) of the Schedule we find that in certain circumstances the taxpayer, or the Commissioners of Inland Revenue, if they are dissatisfied, may ask for the case to be taken before the Board of Referees. The Board of Referees have been spoken of in very courteous terms, but I have heard them referred to as a kind of star chamber, and even less complimentary language than that has been used. There, again, the position set out in paragraph (6) appears to be entirely vague. It also says—and this is a point upon which I should like a definite reply—that the decision of the Board of Referees shall be final, and in paragraph (8) of the Schedule, it would appear that, in certain circumstances, the Board of Referees may state a case for reference to the courts. Having read it with such intelligence as I possess, I find myself completely unable to decide whether the subject has been deprived of the protection of the courts or whether the protection still remains to him. It is a matter that should be cleared up. If not, we shall have to go into it in great detail and give much consideration to it at a later stage.

Sir J. WAR DLAW-MILNE

I have been even bolder than the hon. Member because I think that the subject has lost the right to which he is entitled.

Mr. WHITE

I certainly hope that the doubt of the hon. Member and myself may be resolved before the House rises this evening. It is perhaps characteristic of the times, and perhaps inevitable, that nearly all our debates seem to become, as the right hon. Gentleman the Member for Keighley (Mr. Lees-Smith) said in his introductory remarks, Foreign Office debates. The Chancellor of the Exchequer said—and I agree with him—that there is no finality in the argument as to where the responsibility lies for the rearmament expenditure which is now taking place. One would have to go a very long way back to find where the original responsibility really does lie. One might have to go back to the argument that the Disarmament Conference failed because there was no sense of security. That, of course, is true. If you developed that argument, you would have to go back to the early days of 1931 and to the action or failure of action of this country and the League of Nations with regard to the attack of Japan upon China. That is where we reach the beginnings of things, but I have no wish to pursue that matter at the moment. It is true, as the right lion. Gentleman the Member for Keighley said, that this is an armaments or a defence Budget, and there is no escape from it. Unless the policy of the country in the future is more successful than it has been in the past, there is no forecast which has been made above the Gangway which is too grim. We only hope that the international outlook may brighten as a result of a courageous policy, and nothing less than that can prevent us from a series of grim and harsh Budgets. There have been speeches this afternoon as to the course of events, whether the industrial movement is likely to improve and what the Revenue resources of the country are likely to be for the next two or three years. Different views have been expressed. The right hon. Gentleman in opening the Debate referred, not for the first time in this House, to the report of the Beveridge Committee. This is an influential committee and the most authoritative expression of opinion that we have had, and the Government have accepted that opinion in so far as the policy of the Ministry of Labour is concerned. The Chancellor of the Exchequer rather belittled the importance of the views of that committee, but they are the the only views we have of that kind.

I think the Chancellor of the Exchequer is likely this year to get the revenue for which he has budgeted. I think his Income Tax returns will probably exceed his expectations, because he will have the advantage of getting into the field of taxation in the coming year the revenues from the swelling wave of industrial profits, but there are other matters in regard to our internal economy which may falsify his expectations. I notice that there are arrangements made in the Finance Bill for varying the rates of duty and also the amounts of imports of iron and steel goods, and I am wondering what is the object of that. I would warn the Government that there are jams arising in our internal industrial arrangements owing to the priority and the urgency of Government schemes and Government expenditure. There are many processes which normally would be carried on and which are demanded for industrial purposes in the ordinary way, apart from armaments, which have to be held up. Unless they are carefully watched these jams in the industrial machine may become very serious and may promote a reaction in trade much sooner than we might otherwise expect.

The Prime Minister said in a speech some years ago that no one would be able to tell what was the result of the effect of Protection in this country for many years to come. I agree with that statement. We shall not know what the results of Protection have been until we see the next trade cycle and the next depression, but, looking at the experience of other countries the outlook is not very reassuring. It is common knowledge that in regard to protective policies in any country which adopts Protection for the first time, the depression into which they run after they have emerged from one depression is worse than the depression from which they have emerged. We must hope for the best in these matters.

I should like to comment on the proposal that is made to extend the key industries duties for another period, not that I wish to argue whether it is right that there should or should not be duties of this character or not on this occasion, but the proposals follow in pretty close detail the recommendations of the Board of Trade Committee which has been examining the question of the renewal of these duties for some time past. I notice, and this is a matter to which we shall have to give some attention in the later stages of the Bill, that the Finance Bill places upon the Import Duties Advisory Committee the power to raise duties on these particular commodities which are included in the key industries regulation, but not to reduce them. That brings a new principle, which may be good or bad, I am inclined to think that it is bad, into the taxation arrangements of the country. Hitherto, it has been supposed that there were three bodies interested in the raising of taxation through the means of import duties, the Import Duties Advisory Committee, the Treasury and the Board of Trade. They were supposed to be independent and to represent different points of view, and they were expected to produce a flexible instrument which could be used to meet the needs of industry. But if these duties may only be raised in the future and not reduced, that flexibility is taken away; furthermore, the safeguard for the consumer and the community which arose from the fact that there were different interests watching the matter also disappears.

There is another matter to which I should like to draw attention, and that is that the recommendations of the Board of Trade Committee have been extended so as to include certain products within the range of the key industries duties which were not recommended by the committee itself. The committee made a recommendation that a particular kind of carbon—decolourised carbon—which is used in the manufacture of gas masks, should be included in the scheme of these duties. If there are to be key industries which are concerned with the production of things necessary in time of war, that particular carbon might well be one of the things to be included, and for it a strong case might be made out, but there have been included a whole lot of other carbons, activated carbons, not recommended by the committee, and to which exception may be taken. I should like to know why these carbons have been included and by whose influence it was done.

I should also like to mention that there have been included—I think, also again without the recommendation of the Board of Trade Committee—certain parts of wireless valves. I should like to criticise that proposal from the point of view of the placing of these products in a list of products on which the duties can be raised but cannot be reduced. Wireless valves have become of great importance in this country owing to the development of wireless. It is also well known that not only are wireless valves manufactured in this country but they are controlled by a ring. It is commonly alleged, and I have never heard it refuted, that a valve which is sold at 17s. 6d. is produced in this country for about 2s. 6d. The price is controlled by a ring. It is a matter of importance, especially to the Board of Education and the British Broadcasting Corporation, who wish to extend broadcasting as an educative medium, that sets should be cheap. Therefore, I regard with some concern the arrangement in the Finance Bill which says that these units of valves are to be placed in a list of products on which the duties cannot be in any circumstances reduced. One of the things which is holding back the development of broadcasting in schools is the high price of sets. I do not know whether the Board of Education have been consulted in this matter. If not, they ought to have been consulted. I also think that the Broadcasting Corporation ought to have been taken into consideration. These are points on which we want information and it would save time in the later stages of the Bill if some of them could be cleared up now.

My right hon. Friend in opening the Debate charged the Government with having brought the country to its present position by its failure in foreign policy. I am inclined to think that he would have been on surer ground if he had referred to the effect of the Government's economic policy upon the atmosphere of economic nationalisation throughout the world, than confining his charge to the question of international armaments and the general tension of feeling which has arisen; a feeling which has been stimulated and exacerbated to an extraordinary extent by the extension not only in our own country, but throughout the world of various privileged and preferential conditions of trade. That feeling has grown very much since the lamentable expression was used by a former Prime Minister of Canada that those who wished to trade with the British Empire in future would have to pay tribute to it.

I am very glad that in Clause 5 of the Bill the stabilisation of certain preferential duties is proposed only for 12 months. It is, I think, becoming increasingly obvious that the whole question of preferential and privileged trade is going to take a commanding position in the discussions of the next 12 months if we are able to emerge from the state of anxiety in which we are at the moment and to meet at a comprehensive conference in which the serious unrest and anxieties in the world to-day may be smoothed out and a proper system of peace built up. They are bound to be discussed. Two or three countries which are described as dissatisfied have put this matter on the agenda and are urging the transfer of territory and are raising questions of population. I do not propose to deal with these matters, but an examination of them reveals the fact that there is very little in them. The question of considering preferential trade was made the policy of His Majesty's Government when the right hon. Member for Chelsea (Sir S. Hoare) made his famous speech in September last and offered to consider any economic proposition which was not on the face of it absurd. The questions and problems which have been raised by dissatisfied Powers, questions of population and territory, are having important reactions throughout the world, but as there is no question of any Power making an agreed transfer of territory at present it makes it all the more important that we should study every other means available for removing inequalities and economic injustices in the world.

The maintenance of large colonial dependencies by France, Belgium and ourselves and others on preferential and privileged terms is incompatible with the maintenance of the peace of the world. So long as there are these economic inequalities and injustices there will never be a common interest and incentive to the maintenance of peace. Therefore, I am glad that Clause 5 does not propose to stabilise these preferential duties for longer than 12 months. If our statesmen are successful, as I hope they will be, in assembling a conference at which these matters can be considered freely and openly, it may be found that on the question of preferential and privileged trading the peace of the world will be determined. This matter was laid down as the basis of our policy by one of the most famous statesmen of his time, in words which have always made a profound impression on my mind. I will read to the House what Mr. Joseph Chamberlain said, speaking in Birmingham in November, 1896: We, in our colonial policy, as fast as we acquire new territory and develop it, develop it as trustees of civilisation for the commerce of all the world. We offer in all these markets … the same opportunities, the same open field, to foreigners that we offer to our own subjects, and upon the same terms. In that policy we stand alone, because all other nations, as fast as they acquire new territory—acting as 1 believe, most mistakenly in their own interests, and, above all, in the interests of the countries they administer—all other nations seek at once to secure the monopoly for their own products by preferential and artificial methods. Whether or not we, and other countries with us, will revert to a policy of wisdom like that, I cannot but we have great responsibility. We shall take an important step forward if we go to the next conference which is to consider these matters prepared to give a lead and point out the path of wisdom. If that is the case we may hope next year not to face a series of grim and harsh additions to the taxation of this country, but something very much more favourable than the prospects before us to-day.

8.50 p.m.

Sir ARTHUR MICHAEL SAMUEL

I hope the hon. Member for Birkenhead East (Mr. White) will forgive me if I do not pursue the line he took with regard to Free Trade and Protection. I would only refer him to what was said by the right hon. Member for South Molton, a former Free Trader (Mr. Lambert), who has changed his views. We have discussed Free Trade and Protection almost ad nauseam in this House. We have tried every possible means of getting other countries to give us fair play. The late Mr. William Graham spent the last years of his life in an endeavour to get fair play for our workers and failed. In 1936 it must be realised that this ideal, a very good ideal, cannot be attained in the world conditions which now exist. It is folly not to admit this. I want to deal principally with one or two points which have emerged during the Debate. In the first place I should like to enter my protest in a courteous way on Clause 19. Not in regard to the aims of the Clause or the principles of the Clause, but as to the way in which it is drafted. If hon. Members will turn to Sub-section (4) they will see that it is almost impossible to understand the Sub-section. The Chancellor of the Exchequer excused the drafting of this Sub-section. I do not think he quite realised how difficult it was for anyone to understand the references. I am not going to analyse the Sub-section at length, but merely to read a few lines of it in order to justify my objection to the drafting. Sub-sections (2) and (3) of Section twenty of the Finance Act, 1922, shall have effect as if references to paragraph (c) of sub-section (1) of that Section included references to the foregoing provisions of this Section, as if references to a disposition included references to a settlement, and as if the reference to the making of a disposition included a reference to the making of or entering into a settlement, and subsection (4) of that Section shall have effect as if the reference to that Section included a reference to the said provisions of this Section. There are four different "as ifs" operating; "that section" is set against "this section" and with varied "effect" and "references." It is almost impossible to understand what, it means. Without criticising in any way the objective of Clause 19, I think it would have been better to repeal Section 20 of the Act of 1922. I remember, when the right hon. Member for Hillhead (Sir R. Horne) was Chancellor of the Exchequer, going on a deputation to him in regard to the 1922 Bill. This Section 20 of the 1922 Act should be repealed at once, and such portions of it as are operative or are necessary for the present Bill should be embodied in a new Clause in the 1936 Bill. We should then see what the Clause means and have a better opportunity of understanding it. At present none of us can understand the Clause, and, so far as the public are concerned, it may mean eventual litigation before the courts. This House should not pass legislation which is not clear and which does not protect the taxpayer from having to go to law for interpretation. I think Clause 19 should be withdrawn; that Section 20 of the Act of 1922 should be repealed, and the necessary provisions embodied in a new Clause for this 1936 Bill.

I would like now to deal with one or two of the things which were said from the benches opposite by those who supported the Amendment in the early part of the Debate. Hon. and right hon. Gentlemen opposite talked about the rehabilitation of trade in this country and the reasons for it, discussing whether this Government did it or whether the other Government did not bring it about. But they seemed to leave out of account one aspect or cause of cheap money. For many years I have both inside and outside this House advocated the stopping of lending money to uncredit-worthy foreign borrowers. We have in the past lent money abroad to various foreign nations—I make a differentiation between the foreign borrowers and Brtiish Imperial borrowers, because we have not lost what we have lent to British Imperial borrowers. There is scarcely a foreign nation to whom one dare lend money at the present time.

I hope the hon. Gentleman the former Financial Secretary to the Treasury, the hon. Member for East Edinburgh (Mr. Pethick Lawrence) will bear with me for a moment. I hope he will take the view that we are right in stopping overseas loans to non-credit-worthy foreigners. It is always possible to improve the export trade if we lend our savings abroad. Yet what is the good of lending money to foreigners to buy our goods with, when they do not pay their debts after having received the loans? It is, however, true that the export trade can be increased in that way, as it has often been in the past. The Board of Trade export returns went up and we rubbed our hands and said: "Look at the export trade returns going up !" That can be done again by lending abroad. What happens is that the people who in America are called the loan-mongers, the flotation firms, the issue underwriters, the overwriters—the people who scrape off commission by floating worthless foreign paper on the public—do very well. The loan money goes out of this country, more or less in goods, but they are paid for by the investors here. The foreigners get the goods and the worthless paper is left in this country and defaulted upon. Thus the British investor pays for the exported goods, which have gone abroad as gifts. That situation has gradually come to be understood and the recently appointed committee to control foreign lending is a healthy move.

I think that the Labour party, which used to laugh at the losses of the bondholder who lent money abroad, now sees that its derision was foolish, because people here who lent money abroad to foreign borrowers, dishonest as they turned out to be, enabled foreigners to buy goods from us which in turn gave employment to our workers. That loss of British savings has been stopped. A committee has been set up to see that foreign lending is not allowed in future to be as undiscriminating as in the past. The result has been that there has been very little foreign lending of late years, and the further result of that has been that money has been kept here and lent cheaply at home. There have been, besides the building of houses for working people, other types of building. Big factories and fine shops have been built in our cities; good class residential schemes have been carried out. All this has been made possible by the fact that abundant money which otherwise would have gone abroad to the foreigners, who would have bought our goods with it and never repaid the loans, has been invested here at cheap rates, with the result that if money is lost by an unsuccessful venture, the assets produced by the cheap money at any rate are here. The residential flats, the factories and the shops, or any asset on which the money is spent, at least exist here and not in a foreign country. This is one of the things which the right hon. Gentleman the Member for Keighley (Mr. Lees-Smith) overlooked when he browsed on wishes to see the export trade increased. The cessation of lending to foreign un-credit-worthy borrowers and using our savings at home is part of the cheap money policy.

I am glad that the Treasury has set up that foreign issues Committee. It will help to break the violence of any recession of employment which might come about as the result of the peak of employment falling. I would beg the right hon. Gentleman the Member for Keighley not to pay too much attention to professors—I do not know whether the right hon. Gentleman is himself a professor.

Mr. LEES-SMITH

No, do not accuse me of that.

Sir A. M. SAMUEL

I congratulate him. Do not pay too much attention to flocculent windbags like economic professors. Do not look at what they have said but at what they have done. That is the test. Look at the way in which one section of the great professors, the self-styled experts in trade, finance and industry, said one thing during the 10 years following the War and the other section said another thing, and ask yourselves whether by their advice and theories they did a single thing to help us to restore trade after the War. They did not even foresee that European currency would go wrong. They did not even advise the great industrial and financial heads of this country how we could make provision to meet a breakdown of international al currency and leaving the gold standard. Their preaching is a mere Tower of Babel, confused chatterings which have been of little use. On the whole, harm has been done to us by these flocculent-minded economists with their theories unrelated to facts. I remember one of them telling us about five years ago in a Committee upstairs that there would be a shortage of gold and that in a few years time the mines of South Africa would be exhausted. He was one of the greatest professors in the world.

Mr. E. J. WILLIAMS

What did Mr. Montagu Norman do?

Sir A. M. SAMUEL

I do not understand the relevance of that interruption. The hon. Gentleman has a habit of interrupting with some vapid phrase. I am perfectly willing to give way when there is a reasonable interruption, but it is not reasonable to ask me what Mr. Montagu Norman did. I did not mention his name or have it in mind. The hon. Member can himself explain his views about Mr. Norman later on. The professor told us upstairs that there would be a shortage of gold in a few years, but what has happened? More gold has come out of the bowels of the earth each year for the last two or three years than in any before. What is more, to show how wrong he was, there has been an utterly unforeseen additional gold supply opened up, that is to say, the Indian supply of gold, from which £200,000,000 of gold has been produced since the professor spoke to us. Therefore, I want to beg the House not to pay too much attention to what these professors say about employment. One must judge by what actually happens in the world and remember that text-book experience or the scribblings of amateurs about trade and planning are not worth much. The professors overlook the human factor, and the amateurs who have never been in trade do not know what will be the reactions and repercussions of events of which they have not had experience while working in trade. I therefore ask the right hon. Gentleman the Member for Keighley not to bother too much about the employment prophecies of the Beveridge Report. It may be that the men who produced it were very wise men; yet I should give a good discount to what they say and rather trust men who are in trade, who see trade as it goes on in actual operation.

The right hon. Member for Keighley also spoke about stabilisation. Naturally one of the greatest benefits trade could have would be stabilisation of international currency. It is difficult to buy and sell goods with a currency which goes out and in like an elastic band. But. when it comes to stabilising international currencies you might just as well try to alter the temperature of the Gulf Stream as to think you can get stabilisation, even though you help France through with her devaluation, while Mr. Roosevelt has not made up his mind what he is going to do with the dollar and is tinkering with silver or a bimetallic standard. There can be no doubt of the fact that the American Government will not throw in their lot with us on stabilisation until it suits their politics to do so. We saw last year that they smashed up the currency system of China. They are now doing something which we do not yet understand with regard to the silver currency of China.

I remember when my right hon. Friend the Member for Epping (Mr. Churchill) proposed that we should have an international conference on currency. I then felt that there could be no good result of a conference in view of the state of American opinion. We had a conference. The present Lord President of the Council went to America in the middle of it. We went to trouble and expense to get the conference together with the idea of setting up some system of stabilisation. What was the result? We sent our representative over to the United States, and while he was on his way there Mr. Roosevelt changed his mind and said, "We are having nothing to do with stabilisation." Do not let the right hon. Gentleman opposite bemuse himself and deceive himself that he can get the stabilisation of international currency which is so necessary for us, even by helping France with her devaluation, as he proposed. If France devalues there must be some currency rearrangement in Holland and Switzerland. We shall have America again standing out and saying, "We cannot support your policy in any way. We cannot offend our silver senators." Currency means Presidential votes.

I am very much afraid about devaluation in France for a number of reasons. It may lead us into a currency depreciation competition. The right hon. Member for Keighley welcomes it, apparently. Ought he to do so? Supposing France makes the franc go to 100 or 120 to the £. I hesitate to give a figure and I merely mention that to show the possibility of having more francs to the pound than we have at present. That will play havoc with our cotton trade, our iron trade, our textile trade. If you get 100 to 120 to the pound instead of 75 at once there is given a bounty to the French people for the export of their steel, iron and textiles, and we may have to enter into some sort of Bedlam competition in currency depreciation. Is it to be imagined that the Americans will stand still and let us do what we wish, without making any effort by currency juggling to protect their own trade? The right hon. Member for Keighley says in an airy way "We must have stabilisation." We all desire to do away with cancer and with tuberculosis, but it is not easy to do so, and currency stabilisation is not as easy as the right hon. Gentleman seems to think. It is useless to suggest that it can be done by this Government or any other British Government in collaboration with France, until the American Government lend their cooperation. I see no signs of it.

The hon. and gallant Member for Carnarvonshire (Major Owen) spoke about the price which some impoverished municipalities had to pay for borrowed money and asked the Government to contribute £5,000,000 or £10,000,000 to put that matter right. That sounds very well but it is to be remembered that some of these municipalities borrowed the money from the Government and that the Government have borrowed the money in the market at the ruling price to lend it to public bodies. As we see in the Public Accounts Committee the Government make no profit. It merely re-lends the borrowed money to the municipalities or other bodies.

Mr. BENSON

I do not think it is quite true to say that the Government make no profit out of it. Something like £200,000,000 or £300,000,000 is distributed by the National Debt Commissioners among the Government Departments and they are charged on an average 5 per cent. for that money which has not been issued on the market.

Sir A. M. SAMUEL

That sounds all right but it does not lead us very far. The money lent by the Commissioners is lent at about the market price of the day. I have sat as chairman of the Public Accounts Committee, the hon. Member for Chesterfield (Mr. Benson) has been one of my colleagues and we both know the integral factors of these transactions. What he says is only partly true, but, as I said, the Government borrow the money from the public or the Commissioners by means of local loans stock and relend it to the municipalities and charge just a little more than ruling market rates, in order to cover the cost of administration. That is a broad general statement of the position. The Government really make no money by borrowing cheaply for small public bodies, on the credit of the taxpayer, these large sums. But the hon. and gallant Member for Carnarvonshire says that these municipalities are paying too high a rate and that we ought to give them something back. These municipalities are now borrowing at, I think, about 3⅝

Mr. BENSON

Three and a quarter.

Sir A. M. SAMUEL

Be it so; they are borrowing from the Public Works Loans Commissioners at. 3¼. Supposing that later on we had to borrow again at a much higher rate, what would public bodies say if we put it to them, "You got your money too cheaply and you must now pay more to the Treasury"? It is not so much a case of a bargain being a bargain as a case of the necessity of keeping strictly to the terms of contracts even if the values of money rise or fall. The money is borrowed by the Government and re-lent on certain terms and conditions and it is wrong afterwards that public bodies should be whining and saying that it has been borrowed by them at too dear a rate because conditions change from time to time.

Mr. E. J. WILLIAMS

What about the case of war stock?

Sir A. M. SAMUEL

That is not a parallel case. If the lenders of the money to the 5 per cent. War Loan did not wish to take 3½ per cent. in War Conversion Loan they were given their money back in cash. It was optional. I think we want to register it as a matter of principle that when moneys are lent to municipalities, whether in times of cheap money or in times of dear money, the terms and conditions should be understood and they and we should stick to the contract. Finally, I hope that the Financial Secretary to the Treasury, when he replies, will explain the meaning of Clause 19. I am not going to deal with any of the points raised by the hon. Member for Chesterfield who eviscerated this Clause. He tried to pull it to pieces. I would only say that his speech shows how difficult it is to understand the Clause. I have had some experience of the hon. Member on the Public Accounts Committee and I know that he has a very acute mind in matters of finance, and he seemed to interpret some details incorrectly. I do not view the Clause in the same light as he does, but I suggest that there is much in it which requires further explanation.

Mr. BENSON

rose—

Mr. DEPUTY-SPEAKER (Captain Bourne)

I must point out to hon. Members that the speeches have been very long, and that every interruption makes them longer.

Sir A. M. SAMUEL

I am not going to detain the House any longer. I hope that my hon. and learned Friend the Financial Secretary will deal particularly with Clause 19. I do not wish to examine any of its details, but we ought to be told exactly what it means so that the public may know where they are.

9.15 p.m.

Mr. McGHEE

As a new Member of this House, I have been rather struck with the enthusiasm with which the Members of this House look after the finances of the country, as is evidenced by the number of Government supporters in this Chamber who are showing their interest in how these vast sums of money are being spent. I would like to say, quite frankly, that I feel that the. Chancellor of the Exchequer has given us a very clear and definite statement on the finances of the country as they are, and I think that other Ministers who have been speaking to the House this week might take a leaf from his book, because some of the speeches in which Bills have been introduced by Ministers have been neither very clear nor very concise, but the Chancellor of the Exchequer has to-day been definite in two or three very serious statements. On this side of the House, we join issue with him on the question of the recovery of the trade of the country. We agree that there has been a great recovery of trade in the light and the luxury industries, but in the heavy and basic industries there has been no recovery; and no hon. Member opposite dare go down to one of the special areas and claim that there has been this huge recovery.

On the question of the involved complexities of the tax evasion Clauses of the Bill, I cannot agree that any subject is so terribly complex that some means should not be found of making it clear to the ordinary man, who, after all, is expected to obey these laws. I think the point raised by the hon. Member for Kidderminster (Sir J. Wardlaw-Milne) is very serious. The hon. Member for East Birkenhead (Mr. White) and he disagreed as to whether paragraph 8 of the Second Schedule restricted the right of the subject to appeal to the High Court, and I hope the Financial Secretary to the Treasury, when he replies, will make it quite clear what the paragraph means.

The right hon. Gentleman the Chancellor of the Exchequer denied that we were engaged in an armaments race, but I have listened very carefully to all the foreign debates in this House, and it has always seemed to me that the reason we were given for these increases was that other nations were increasing their armaments. That is, to me, an armaments race, and no matter how the Chancellor of the Exchequer tries to gloss it over, the fact remains that because Germany or some other nation is increasing her armaments, we have decided that we must increase ours too. With regard to the armaments reaching a peak, it seems to me that that peak will only be reached when we get into a war, and if the Chancellor believes that we can, by some miraculous means, control what other nations are doing in this armaments race, he might make a start by controlling the lending of money to Germany for the armaments race, as we are now doing. He seemed to suggest, in part of his speech, that the wealthy paid for all the social services, but we cannot agree to that. We say that a large proportion of these social services is paid by the people themselves. We contend that a large proportion of the social services are simply the co-operative effort of the people to obtain better services than they can individually obtain for the same money, and that is the only justification that we want to offer on that question.

I was glad to hear the Chancellor of the Exchequer state deliberately that he believed that the Tea Duty would he paid by the poorest section of the community. In other words, he expected that everybody should contribute to our defence programme. He said in effect that the Income Tax would be paid by the rich and the Tea Duty by the poor, and everybody would be quite happy; but this whole question of indirect taxation has more in it than a mere statement of that kind. One of my hon. Friends interrupted the right hon. Gentleman, and his interruption was quite correct, to the effect that the people who pay this indirect tax on tea not only pay the tea tax, but they pay a profit on the tea tax as well, and that might amount to a considerable sum. It may be hidden in a lower quality of tea, but the effect of it is that they are paying this increased tax as well as a profit on the tax. We are naturally opposed to the principle of indirect taxation. We believe that all taxation should be of the direct type and should be traceable in its incidence, but with this indirect taxation that is impossible. I suggest that if the people really knew the burden which they are bearing, it would be absolutely impossible for the Prime Minister to go to the microphone in a general election and to say, "We have spent hundreds of millions on the Navy, but it is mere scrap iron." That could not happen, and it can only happen because the people have no idea that the shopkeepers, the grocers, and so on are the real tax collectors in this country.

A third of this Bill or more is designed to prevent tax evasion. In his Budget speech the Chancellor drew attention to the fact that as you increase a duty, smuggling becomes more profitable. That is all very well, but this speculation or so-called insurance against direct taxation cannot be indulged in by the people who are expected to pay indirect taxation. They have to pay that over the grocer's counter, and a profit on it as well, and they are not in a position to go to the London Stock Exchange and, by speculating in these insurances, get away with their responsibilities to the country. On this question of indirect taxation, if Carlyle were back, he might well have said of the right hon. Gentleman on the Treasury Bench: He has an alchemy, whereby, when the labourer gathers his nettles, one-third is taken for the good of the country and for the defence of the country, and it is a great comfort to these poor people who are suffering from this taxation that they are safe in their beds behind the huge armaments which we are going to build.

On the question of the raids on the Road Fund, the right hon. Member for Epping (Mr. Churchill) took great pride in the fact that he had blazed the trail. With his usual modesty or discretion, I think he might have allowed the country to forget that, because it was a very discreditable breach of faith, and not only to the motorists. The justification for the taxation was originally that these people had called for special new facilities and that they ought to pay for them. They have paid for them, and now the Chancellor comes along and tells us that all these road schemes may be scrapped, because it is more important to build huge engines of destruction than to build good roads and amenities for the community. There is another point in regard to this huge mechanised army. If you take this money you will not be able to have the roads which these forces can use. It is a short-sighted policy. There may be a great reduction in road schemes or heavy rates if this sum of money is allowed to pass to the Exchequer.

The Chancellor of the Exchequer has made it clear that he expects everybody to contribute towards the defence programme. In the White Paper we were told that the Empire had been denuded of its proper protection. But the people for whom this Empire is being held ought to be expected to pay. That is applauded, agreed with; but the benefits derived from the holding of this Empire do not accrue to the working people of this country, but to concessionaires, financiers and speculators in the City of London, and the common people of this country receive none of the benefits. We used to be told that they went out to India and the Colonies to teach the poor people there how to be civilised and to make Christians of them. It seems a sorry state for this Empire to be in that you have to have battleships and aeroplanes to keep it in subjection.

Mr. GALLACHER

That is Christian all right.

Mr. McGHEE

I do not go as far as that, but I do say that the people who really do gain are the financial speculators, and the people who take all the risks in the evens of war for these natural resources are the common people. My view is that those who own the country ought to pay for its defence. After all, the great mass of the people of this country own hardly a square yard of this land. The Chancellor of the Exchequer told us this afternoon that we could not possibly find money for increased social services. His predecessor in that office told us that if we liked to pay a 3d. tax on land values we could raise £60,000,000 at once. This huge source of revenue from land values created by the community ought to he taxed to pay for this huge expenditure. After all, it is their country, they own it, and they ought to be expected to pay a considerable proportion for its defence. The Chancellor of the Exchequer takes the other way. He has taken the Road Fund, increased the taxes on the commodities of the poor people and imposed additional Income Tax; but that untaxed source of land values he never thinks of touching. Here are huge resources which he could usefully tax and which could have widespread effects, other than as a mere fiscal reform, in bringing some measure of happiness and prosperity to the people of this country.

9.30 p.m.

Mr. HAROLD MACMILLAN

The Debate on the Second Reading of the Finance Bill by tradition covers a wide field, and to-day has been no exception to the rule. The Chancellor of the Exchequer, speaking in the central part of the Debate, gave a demonstration to the House of his usual skill, and he had no difficulty in dissecting the Amendment on which we are being asked to vote to-night and proving the inconsistency of the various parts of it. In all that part of his speech he showed his usual and almost uncanny debating power, but what interested me the most—and I think the House as a whole—were those more general observations which he gave us on the future as he saw it, and on the wide economic problems which present themselves to him and to us. What struck me in that part of the Debate was not the divergence between his speech and that of the right hon. Gentleman who opened the Debate, but the element of almost sinister agreement. The diagnosis of course is different. It is the function of the right hon. Gentleman who opened the Debate to minimise the extent of recovery and the amount of praise due to the Government for any recovery which he admits has taken place. Similarly it is part of the function of Members on the other side and of the Chancellor of the Exchequer to maximise the extent of recovery and the amount of praise due to the Government. There, although there is a difference in diagnosis, there is a similarity of method. One is in office, the other is in opposition. These are the ordinary debating methods.

What seemed to me the interesting part of the discussion was when they took a less partisan view of the future and gave their estimate of what is going to happen. They each accepted, to some extent, the prognostications of the orthodox economists, of the professors who composed the Beveridge Committee; and while the right hon. Gentleman who opened the Debate, having a more orthodox mind, took, a more defeatist view than the Chancellor of the Exchequer, who has a more pliable mind, yet both agreed to some extent with this new 20th century dogma of the inevitability of the trade cycle. There may be argument just how far up you are or how far down, but this kind of economic Calvinism is now the accepted dogma both on the Government and on the Opposition benches, which are more orthodox and where it is held with more orthodoxy than it is on the Government benches. This is the real thing which is interesting the House and the country. This problem: Are we to accept economic determinism, or have we free will? Can we apply human intelligence to make a solution of some of these problems or are they inherent in every system, capitalism, semi-capitalism, State capitalism, Communism? Are these difficulties, 2,000.000 unemployed and the ups and downs of trade, endemic or epidemic? That is the problem to which we should apply our minds.

In periods of depression it is easier to get people to take a deep interest in this question than when alleviation comes. As in the case of a sick man who feels a little better one day, the ailment does not concern him so much and he forgets to call on the doctor. But to-day, just as in the realm of medicine, we are moving from the conception of curative to the conception of preventive, so in the realm of politics and economics we are bound to force our minds to the problem whether we can, instead of dealing with the symptoms when they arise, remove the causes of this disequilibrium. In the short time in which I can detain the House it is difficult to develop a very complicated argument, and I can only ask for the indulgence of the House for having to present what is necessarily a difficult argument at this late hour. For four or five years I have tried, in my humble way, to apply what efforts I can to the consideration of these problems.

I formed the view three or four years ago that the real way to look at this problem is to find the characteristics which would ensure prosperity. I have stated in various Debates in Parliament, in speeches and in writings that the first is that there should be maintained, as far as possible, equilibrium between the production of goods and services so that they should interchange with one another; that is to say, a functional equilibrium. Secondly, there should be an equilibrium maintained between the rate of savings and the rate at which those savings become investments and so re-enter the market; that is to say, a monetary equilibrium. To attain functional equilibrium we should organise industry by whatever means, whether by self-government, by national control, by what is called planning, and so on, so as to preserve as far as possible a reasonable balance between the powers to produce and the power to consume, and so prevent the falls in price through overproduction which have such a bad effect on producers, masters and men. That has been developed by successive Governments, especially by this Government, as a great item of their policy. That is almost an accepted part of Government policy.

What I would like to try to develop a little further is the theory of the monetary causes of modern cyclical booms and depressions. I say frankly that the main credit, in my opinion, for all this work is due to an economist who for many years has taken a leading part in promoting a study of this question, Mr. Keynes. Applying this question to actual problems, this is the argument. If the rate of savings, that is to say, the rate at which purchasing power is withheld from consumption, is not equalled by the rate at which it re-enters the market in the shape of expenditure on capital goods, there will be a depression because there is a reduction of purchasing power and a fall in prices. If through some cause, inflationary or other, the rate at which investments is being made runs ahead of true savings, there is inflation, a boom and a rise in prices.

The first object of monetary policy should, therefore, be to see that in quantity and rapidity, that is to say, both in volume factor and time factor, the rate of investment equals the rate of savings. There are two aspects of savings which, I think, it is important for us to dissociate. There is what one may call the technical national importance of savings. What is the object of saving at all? What is the object of refraining from consumption It is, of course, to supply worn-out capital goods and to replace them with fresh goods or to invent new ones altogether. What should be the proportion of the activity of the nation which it expends upon capital goods or consumers' goods is indeed a delicate and difficult question. We can imagine a society, for instance, in which there was no expenditure on capital goods at all. That would be true of every primitive or savage society. All the effort lies in creation and the use of consumers' goods, and, except for an odd plough or spade or two, nothing was spent on capital goods. Such a society would, of course, be static. It could not progress. We can also imagine a society —for example, Russia, in the first five-year plan—where an excessive part of the effort of the nation was put on to the production of capital goods resulting in a real shortage of consumers' goods and, therefore, great hardship, because there was not enough food and clothes for the people. The true balance must be struck somewhere between the two to be of the greatest national advantage.

It is the national technical purpose of saving to make fresh capital goods, new plant and so on, or to replace them. But what is the human purpose of saving? It is something quite different. The individual saves either out of pride to elevate his position by becoming richer, or, much more commonly to-day, for security. To-day the great mass of saving, the £260,000,000 or 1300,000,000 a year that is estimated to be withheld from consumption, is not the savings of the rich. It is, in the main, the vicarious savings of the poor and the middle-class made through friendly societies, savings banks, insurances and so on. But security saving requires security investment; and that is the reason, because of the great volume of savings that are continually seeking gilt-edged investments and are largely precluded from speculative or industrial investments, why there has been the great pressure on the gilt-edged market which has been so marked of recent years. We have had a case recently showing the importance of the reorganisation of the capital market having regard to the fact that the great volume of savings to-day is security savings. We had a case where the Government took cognisance of that. It was the case of the "Queen Mary." The problem was not to get 7,000,000 pounds sterling to build it, but to get 7,000,000 of the right kind of pounds. You can get 7,000,000 security pounds but not 7,000,000 speculative pounds. As soon as the Government guaranteed the loan, it was easy to attract that 7,000,000 security pounds for the building of the ship.

Take the case of the railway development which the right hon. Gentleman, very wisely I think, brought in last year. In that case there was a sum of about £26,000,000 to be spent on railway development. There was no shortage of pounds. Curiously enough, there was no shortage of pounds in some of the railway undertakings themselves. I happen to be a member of the board of one of the railway companies. We had in our invested savings sufficient gilt-edged investments to build our new stations and our new lines, but we were precluded from using them by Statute because the money we held in gilt-edged securities was the guarantee of the various savings, the pension funds and so on of the staff. We were precluded by Statute from holding anything but gilt-edged securities in those funds. The Government having underwritten the development fund, it enabled us actually to buy shares in the railway development company so that we were able to use our own money in our own undertaking, which we were otherwise precluded from doing. I give that as an example of one of the first necessities, that is, the development of a new technique of the capital market that will take regard of the fact that such a great part of the volume of savings to-day is security savings, and is not available for the more speculative undertakings of industry. This was my earlier equation; that of the rate of savings and the rate of investment.

But it is now clear to me, at any rate, that merely to equate the rate of savings with the rate of investment is not enough. To keep this balance level is not sufficient. For instance, in theory it could be kept level at zero; but there is another factor to be taken into account, and that is to maintain your monetary policy having regard to the optimum level of employment, to make employment the guiding lodestar of your policy and make it the rule by which you manage your policy. That involves a new factor to this argument, a factor which Mr. Keynes has called the theory of effective demand, that is, the total amount of money which is spent on consumers' and capital goods together. If I may diverge for a moment in order to make plain this theory of effective demand, we have to recognise that in this respect we are in some ways returning to the mediaeval from the classical economic theory. This classical theory is one to which many of us have clung too long because we were brought up in that theory; and it is a theory which still holds the field in many parts of the City of London and in many parts of the country. Under this theory unemployment means that wages are too high; and the real cure for unemployment is to reduce wages. I leave out of account the fact that to do that is in practice impossible, because the trade union system and the whole structure of the social services have gone to buttress wages; and there is the historic fact that we tried it in 1925 and that it led almost to a revolution in 1926, and that the effort was finally defeated in 1931 when we left the Gold Standard. But I think it is not only politically and factually wrong but theoretically and technically wrong. It assumes that there is a certain economic level of wages at which full employment will be maintained; but that, of course, implies that a rise in the cost of living by reducing real wages causes unemployment, which, in fact, is not true, since Labour often thinks more about money wages than real wages. We know that the reduction of wages reduces effective demand and therefore there is an inherent fallacy in the idea of the old classical theory that there was a sort of theoretical level at which there would be full employment if wages could be forced down to that level. What, therefore, determines effective demand? I should like to quote, because it is a rather difficult argument, the definition of it not in Mr. Keynes own words but as another economist writing to the "Times" has expressed it: The amount of labour which each business man is prepared to employ depends upon the proceeds or 'profit' he hopes to earn. For each amount of labour employed, however, a certain total of costs will be incurred. If, therefore, full employment is to be attained effective demand must be at that level which will enable business men to cover all the costs involved in employing all the available labour and also to earn such a profit as will induce them to employ it. There is consequently a certain level of effective—that is, money—demand beyond which full employment cannot possibly be attained. It must be realised that full employment does not mean the absence of unemployment caused by outside factors such as the maladjustment of labour between different industries or the sudden collapse of a country's export markets which may happen through some outside pressure.

Now what affects the total of demand? The total amount of money spent on consumers' goods and capital goods. Here we have to take into account that there is a psychological as well as a technical effect. That is what makes economics a fascinating science. It is not a pure science like mathematics, but is a mixture of psychology and mathematics, and there is always the possibility that the psychological factor may upset other conclusions. I think it may be argued with truth that as the income of a community increases it will spend more, but it will not spend as much more as the increase in its income. That is to say, as it gets richer it will, of course spend more, but as a community it will tend to save more still —so that there is, in the development of the national economy, a tendency to increase savings rather than the expenditure on consumers' goods.

For that reason I think the Chancellor put his finger on a vital point when he referred to the social services. I am not sure that the development of the social services since this century has not been the thing which has just saved capitalist society in this country—not saved it for political or what one may call humanitarian reasons but saved it because it has been absolutely essential that the tendency to oversave in a growing, wealthy community, as England was from 1900 onwards, should be corrected by a tendency to force savings into circulation, into consumers' goods, which the social services have done. In this propensity to increase the rate of savings rather than the volume of expenditure on consumers' goods, savings must he forced into the creation of an active demand. How can that be done? In three ways. By more capital expenditure—and that the Government is undertaking and must resolutely continue—by more consumption, and by reducing the security motive to save.

Let me take the last point first. By the increase of pensions or anything that adds to the security of human life you reduce the tremendous pressure to save for security. Secondly, by increasing the social services, by having regard to the fact, shown in the terrifying reports of some of our experts like Sir John Orr (that there are great parts of our population underfed and undernourished) and by forcing more money into expenditure on consumers' goods; in short, by extending and not by retarding the social services we shall be doing not merely a humanitarian thing but what is a sound economic process from the point of view of capitalist society. Lastly, there is the question of increasing the total amount of investment by forcing savings into investment. That is what I apprehend the Chancellor means by his policy of cheap money. It is true that occasionally Members of the Government speak as if cheap money or dear money were like a wet day or a fine day, something that came from Heaven. Cheap money is caused by no other factor except the total volume of money created in relation to the demand for it. It is not a kind of natural force, like a river, of which when it is full you say there is plenty of water and after some unfortunate drought, when it has dried up, you say there is not enough water.

Once you are off the Gold Standard the rate of money depends upon your own volition, and I take it that the policy of cheap money is that to which we are now pledged not only for immediate necessities but because we regard it as part of the sound technical and economic process of developing our prosperity. This means, in a word, that we are returning to the mediaeval conception of money. That is what the Fathers of the Church meant when they attacked usury. They meant that the rental value of money should never be high, but that it should be nominal, that there should be a high reward for the risk value only. In money rates there are always these two considerations, the rental value of money and the risk value.

For my part., I am an unrepentent believer in the continued usefulness of capitalist society, under proper restriction and control. I believe it is perfectly equitable that there should be a return for risks and speculations undertaken. That is what I call the risk value. But if the rental value becomes unduly high, it approximates to what was called usury in the old days. The true policy, the policy of cheap money, is continually to reduce the rental value of money for the dual purpose of making a sufficient amount of money available to keep down its rate, and of forcing savings into industry by making unprofitable any mere holding of money for its rental value. Finally, governing all these considerations, is, of course, the obvious point that any such policy can be pushed to its extreme. "What," hon. Members will ask, "differentiates this from an inflationary policy?" Only this, that you must pursue this monetary policy, as I apprehend the Government intend to pursue it—I trust so—with the criterion of the optimum level of employment.

If you pursue your policy on all those counts, and take employment as your criterion, you will be able to continue the expenditure on social services and the forcing of money into investment and the like. Using employment as your ratio, you will not get a true inflation, unless you continue doing so until after there has been a maximum optimum level of employment; by which I mean that there is always a certain number of people unemployable and always a certain amount of frictional unemployment, due to the changing demands of different industries. Having got the maximum rate of employment which could reasonably be expected, if we were to use the employment figure as the future measuring rod by which a managed currency is to be managed, I believe we should have a criterion which would preserve us at once from the difficulties either of the deflationary bog in which we were immersed 10 years ago or the equally dangerous inflationary position of pressing such a policy too hard.

I feel that I have inflicted upon the House at a rather late hour a difficult subject, but I am very grateful for the attention of hon. Members. These are not the easy territories of well-known and accepted doctrines; they are the unplanned—at present uncharted—morasses into which I know it is very dangerous and perhaps very foolhardy, to try to find our way. Nevertheless, I come back to the observation with which I started: Are we masters of our fate, or are we to accept the grim decision that, in whatever society it might be, these are inherent difficulties that will not be removed and are certain to arise? The right hon. Gentleman who opened this. Debate pointed out that there has been an equal recovery in Socialist countries and in non-Socialist countries; he said that those movements varied up or down by a kind of fixed law, that it did not. really matter who was in office and that the real lesson to be learned was to say, "Why argue? Why bother 7 Why make an effort? Why worry about what will happen?" I do not believe that to, be true. I believe that a solution can be found by the application of human intelligence, combined with an effort of character, for the solving of what, after all, are not insuperable problems. I still believe in free will.

9.59 p.m.

Lieut.-Colonel SANDEMAN ALLEN

I now come back for two or three minutes to the Bill that we are discussing, and I would like to refer to the Road Fund. The Chancellor has given us an assurance that there will be no alteration in the method of using the Road Fund which will interfere with the efficiency of the Ministry of Transport. We are very glad to accept that assurance. We would like to know what provision will be made to, ensure that sufficient money will be spent on new roads and the provision of improvements. The proposal is to spend £100,000,000 in five years on new construction and upon maintenance. In the last 12 months £2,500,000 was spent. That means that large provision will have to be made in future Budgets to keep to the programme, which is very necessary if the conditions of the highways and roads of the country are to be improved.

By highways I means to make a distinction as against roads. The highways will be the grand trunk communication roads throughout the country. There is to be an enormous increase in expenditure under that plan, but I trust that the Chancellor has realised that that increased expenditure will prevent any accretion to the Treasury in the next 12 months of the £5,500,000 that they received this year. I know that that matter is receiving the Chancellor's attention, but I feel that proportionate to the amount that the motoring community provide for the Road Fund and in other ways, such as by petrol taxation, which produces a very large sum, motorists and traders are not receiving the attention which might be expected. I hope that the Chancellor will consider this matter at an early opportunity, although I do not suppose there will be any opportunity yet, with a view to revision as soon as possible. I am very glad that Section 3 of the Act of 1920 is being repealed. It did not allow the spending of more than one-third of the Road Fund in one year upon new roads. I believe it has been repealed because of the crying need in this country for long, large trunk roads, which will bring a considerable amount of safety to the country.

One small point which I should like to make upon the Amendment, in which the Opposition declare that there is unjust taxation in relation to co-operative societies, is that I see in that Amendment merely a political point. The first thing that the co-operative societies did was to raise their dividends in order to reduce the amount which the Exchequer could get by means of Income Tax. That was a political error on their part, because all co-operators were satisfied that Income Tax has not made the slightest difference to their dividend. It was a matter of tax evasion, against which the Opposition have been talking very strongly. Co-operative societies have used that method to evade taxation as far as possible, and it is sheer hypocrisy for hon. Members to condemn tax evasion with that glaring example in front of them.

10.4 p.m.

Mr. PETHICK-LAWRENCE

The Debate on the Second Reading of the Bill has ranged over a very large number of subjects. It is one of the most interest- ing features of the year that we are able on this Bill to discuss questions for which we may not have had time during the Session. We are all obliged to the hon. Member for Stockton-on-Tees (Mr. Macmillan) for his speech, in which we took a great deal of interest. We shall study the speech, which will no doubt add considerably to the knowledge and understanding of hon. Members upon the subject. The right hon. Gentleman who followed my right hon. Friend and opened the Debate on the Government side, said that the matter all boiled down to this, that there was confidence in the National Government. The country had confidence in the National Government, and that confidence had meant that the country had already attained, and would in future further attain, a measure of prosperity. I hope very much that the prosperity of the country depends on something a little surer than the confidence which this country and this Parliament have in the present Government, for I am bound to say that I have never sat in a Parliament where a Government had so large a majority, and started with such an abundant measure of confidence both in the House and in the country as a whole, as evidenced by the election figures, and which lost that confidence so rapidly as the present Government appear to have done.

I was rather amused by the speech of the right hon. Gentleman the Member for South Molton (Mr. Lambert) when I recollected his past. The right hon. Gentleman was a leading Free Trade member of the House and of the Liberal party. As a Liberal, he was a great apostle of Free Trade, and, I am quite sure, an apostle of the free breakfast table, as all his colleagues on the Liberal benches always were. This afternoon he criticised the Chancellor of the Exchequer, and I should have expected that, as an old Free Trader, his criticism of the financial policy of the Chancellor of the Exchequer would have been that he had imposed a very large measure of Protection in this country. I was rather surprised, therefore, to find that the right hon. Gentleman's criticism was of an entirely different character, namely, that the Chancellor of the Exchequer had not imposed taxes on all kinds of food, whether used for the breakfast table or for other purposes. I have heard of Satan reproving sin, but on this occasion it seems to me to have been a question of an apostle reproving virtue.

The hon. and gallant Member for Carnarvonshire (Major Owen), who followed the right hon. Gentleman, brought out the retrogressive nature of a great deal of the present taxation. He pointed out that even some years ago, before all the additional taxes which the Chancellor has put on during the last few years, the taxation of the poorest section of the people was heavier in proportion to their income than the taxation on persons of slightly better means, and that is a very important point which bears on the Chancellor's present proposals and on the whole policy which he has put forward. The hon. and gallant Member made a proposal to the Chancellor which I hope the Chancellor will consider. I am not in a position to know how far it would be possible to meet the hon. and gallant Member's suggestion, but he pointed out that there was a great deal of hardship on local authorities owing to their inability to convert their existing liabilities to a lower rate of interest. I am not suggesting that this is at all a simple matter, and I am not accusing the Chancellor on account of his failure to deal with it, but, as far as I can judge, it would not involve a very large sum, and I hope the Chancellor will look into the matter between now and next year and see whether it is possible in any way to remove, I will not say an injustice, but a great hardship, on many local authorities in this country.

The hon. Member for the City of London (Sir A. Anderson) referred to the need for stable currency for the purposes of international trade, and I think that in all sections of the House there will be a great measure of agreement with that idea; but I want to emphasise most strongly the point that stable currency does not mean solely stable exchange. It does mean quite definitely, as well as stable exchange, stable purchasing power of money, and there I find myself in a large measure of agreement with the hon. Member for Kidderminster (Sir J. Wardlaw-Milne), who referred to the currency question, and urged most strongly that there must be no question at all of a return to the limitations of the old Gold Standard. The predecessors of the present Government originally came into office in order to maintain the Gold Standard, but it is a matter of history that they had not been in office more than a few days before the Gold Standard, which they had come into office to maintain, slipped away from them; and I do not believe that any commercial person in this country has ever regretted that that happened. Indeed, I believe that the Government themselves, in spite of their original intention, are now fairly convinced that any return to the Gold Standard would be disastrous. I only want to add my voice to what has already been put forward in this Debate in support of that view.

My hon. Friend the Member for Chesterfield (Mr. Benson), in a speech which those who were present in the House—I am afraid they were not very many—must all agree was very interesting and informative, discussed the question of the various methods of tax avoidance, and pointed out—and I do not think the Chancellor himself controverted his main proposition—that the avoidances which are being met in this Bill are only a few of the very large number of avoidances which are possible under the existing law. I think my hon. Friend showed clearly that the door would still be left very wide open after the proposals of the Chancellor had found their way on to the Statute Book. I do not think the Chancellor himself denied that statement, but he said that the particular passage through which the great bulk of people were effecting avoidance at the present time was being stopped up by this Bill, and that he would wait to stop up the other passages until he had evidence that any considerable number of people were passing through them. I know, of course, that he cannot do everything at once, but I suggest to him that that is not a complete answer to my hon. Friend. If the Chancellor is only stopping up one of the passages of avoidance, and leaving the others open, I suggest to him that it is very likely that people who find the way blocked by which they have been going already will take to some of the other forms of entry, and I think it would have been much better if the Chancellor had taken a somewhat wider measure of control than he is taking at present. At any rate, I commend to him for a future occasion the suggestion that he should look carefully into that matter and see what he can do.

Now I come to what was perhaps the most amusing speech of the day, made by the Noble Lord the Member for Newark (Marquess of Titchfield), who was very anxious that the Chancellor of the Exchequer should get credit for the present situation. He said it was quite erroneous to say it was due to luck or to something that had happened in other parts of the world. The measure of prosperity that had been attained was due to the Chancellor alone and his policy of cutting down expenditure with his axe in 1931. The Chancellor himself was rather more modest. He did not claim that it was his sole action that had brought about any benefit that might have accrued, but a number of hon. Members opposite have argued that it is not an accident or a piece of luck, but that they are entitled to attribute to the Chancellor the change that has taken place in the situation. That is an argument that is commonly known as post hoc propter hoc—what has happened after a thing has taken place must be attributed to that as its cause. I am not prepared entirely to agree with that view. Hon. Members opposite cannot have it both ways. If they attribute to the policy of the Chancellor the whole of the international improvement on the economic side, they must also take the responsibility for the whole of the adverse international change on the political side. That is not merely a theoretical point, because we can trace the worsening of the international political situation in detail to definite and specific actions taken by the Government. In my speech on the Budget Resolutions I showed clearly that the international situation had worsened through the breakdown of the Disarmament Conference, that the Government, so far from preventing the triumph of Japan, assisted it by the speech of the present Home Secretary, and that the Government cannot escape responsibility for the humiliation of the League of Nations at the hands of Italy.

The right hon. Gentleman claimed that the attitude of the Opposition was inconsistent because, while we have criticised the Government for not making effective use of sanctions against Italy, we are not giving our full support to the so-called defence policy of the Government. In support of that view he quoted a phrase of mine in the course of the Budget Debate, and asked me to expand it and to say what it meant, and I have very great pleasure in acceding to that request. Before I do so, I will read what I actually said. In column 165 of the OFFICIAL REPORT for 22nd April I said: I entirely agree with what the right hon. Gentleman the Member for Epping (Mr. Churchill) said a few days ago, that in their attitude the Government have taken the middle course, instead of being the safest and the best, is possessed of the disadvantages of both. They have put pinpricks on to Italy, which have not stopped the war, which have not proved the paramountcy of the collective principle of the League of Nations, but which have angered the Italian Government and made them hostile to this country. That seems to me, as it did to the right hon. Gentleman, the worst of three alternatives, and we are saying that the right course for the Government is, at whatever expense, to prove, once and for all, that aggresssion does not pay. Quite clearly, the point to which I was addressing myself was the full employment of economic sanctions, including the oil sanction, against Italy. I advocated that being done, whatever the expense of doing so involved. We had to face the risk that Mussolini—[HON. MEMBERS: "War!"] I will make my speech in my own way. The House will see whether I am in any way avoiding the issue. We had to take the risk that Mussolini would take retaliatory measures. We on these benches have never advocated the making of war on Italy in order to stop the aggressive war in Abyssinia. [HON. MEMBERS: "Oh!"] I am trying, and am quite willing, to meet the wish of the Chancellor of the Exchequer, that I should explain the position. We on these benches have never advocated that we should have made war on Italy to stop the war of aggression in Abyssinia, but what we have advocated—and we did advocate it most strongly—was, that the oil sanction should be imposed in order to prevent that war being carried on, and, if as a result of that sanction, Mussolini made war upon us, that we must be prepared to take that risk. [HON. MEMBERS: "What with?" and "How could you without arms?"] I am answering the question of the Chancellor of the Exchequer, and I am doing it fairly and in an orderly way, and not trying to avoid the issue in any way. That was our policy, and for that reason.

I am quite prepared to agree—and I believe that I am speaking for hon. Members on these benches—that we should not have opposed but we should, if necessary, have supported such dispositions of our forces in the Mediterranean, as would have protected our possessions if Mussolini had proceeded to the extraordinary course of war. Not only those on these benches but the House as a whole never thought that it was ever likely that Mussolini would have taken the mad course of attacking us if oil sanctions had been imposed, when we had the whole of the rest of the League with us. However, that risk would have had to be faced, just as hon. Members opposite, if Mussolini attacked British Somaliland, would be prepared to defend it in all circumstances. The Labour party were prepared to put on oil sanctions.

Mr. LESLIE BOYCE

Unilaterally?

Mr. PETHICK-LAWRENCE

We were prepared to put on oil sanctions and to take whatever risk that involved. I should like to quote a further sentence from my speech: We have always maintained from these benches that the policy of the defence of this country must be related to the collective action of the League of Nations as a whole.''—[OFFICIAL REPORT, 22nd April, 1936; cols. 165–6, Vol. 311.] Quite clearly, the sanctions to which I referred must be the sanctions of the League as a whole. We have never advocated sanctions unilaterally imposed. [Interruption.] I would appeal to hon. Members opposite not to interrupt. It is only fair that when I am explaining what has been a source of difficulty hon. Members should give me reasonable attention. When the Foreign Secretary is dealing with these matters we on this side give him the utmost attention, and I ask for the same courtesy to t e extended to me. I have been asked by the Chancellor of the Exchequer to explain our position and I am endeavouring to do my best. I have never and we have never suggested that sanctions should be imposed unilaterally by this country. We have always taken the view that the sanctions should be the sanctions of the League of Nations. Similarly, the defences that we contemplate in this country should be related to the League of Nations as a whole.

The Chancellor of the Exchequer argues that because we take that view we ought to support the full proposals of the Government for rearmament involved in this Finance Bill. That is an entire non, sequitur. There is no indication whatever that the additions to the Army, the Navy and the Air Force are to be related in any way to the wishes of the League of Nations, and to be part of the collective security of the world. There is no suggestion, and there has been no attempt on the part of the Government to prove, that if they had had these forces they would have put into operation collective sanctions, particularly oil sanctions, against the aggressor, Italy, in this case. There is no guarantee of any kind that if we as a party were to give our support to the full programme that the Government are putting forward we should be any nearer genuine support of the principle of collective security than we have been during the past few months since the Hoare-Laval peace proposals were proposed, and the Government ran away from the question of oil sanctions. Finally, it is obvious that there is no co-ordinating policy of defence on the part of the Government. They are merely reproducing the same kind of armaments on a larger scale than they had before the year 1914. That is the answer to the Chancellor of the Exchequer on that point.

Now I come to one of the important words in our Amendment—the word "undisclosed." When this question of defence was first proposed by the Government we were given a White Paper, but the total amount of our liabilities was left undisclosed. We had a Debate in which we tried to find out the amount to which we were being committed. We were told that we must wait until the Budget. On the Budget we were not told. All that we have been told is the amount which is going to be spent in the current year. Hon. Members may say that is all we should expect to be told. But that is not in accordance with the usual and constitutional practice of this House; and, if the House submits to it, it is allowing the Government to do something which is unprecedented and improper. It is the business of the Government to tell the House the full amount of the expenditure upon which it is embarking, when giving us the estimate of the amount of the expenditure which will fall within the current 12 months of the financial year.

Let me make the matter a little clearer. It would be perfectly possible for the Government to start the building of 10 ships with a capital charge of £30,000,000 or £40,000,000 or £50,000,000, and to do only so little of that work in the current financial year that the total expenditure might be only £5,000,000. Does any hon. Member suggest that it would accord with the constitution and procedure of the House of Commons merely to be told that £5,000,000 was going to be spent when, in fact, the commitments under the policy of the Government might amount to a total sum of £50,000,000? The Government have refused to tell the House the amount of the total commitments under their policy.

Until now I have always supposed that the Government could not tell us the total amount because they did not know; they said that it depended on circumstances, and as circumstances might change the total amount might change. Until to-day I thought there was some force in that explanation, but the Chancellor of the Exchequer in his speech this afternoon has himself refuted that contention. In reply to my right hon. Friend the Member for Keighley (Mr. Lees-Smith), who discussed the question as to whether there would be a peak in the expenditure on armaments from which it would gradually fall, the Chancellor of the Exchequer said that was perfectly true, and used words to this effect. I took them down, and although I am not a shorthand writer this is, I think, the substance of what the Chancellor of the Exchequer said. "We have certain deficiencies to fill up and when these deficiencies are filled up the expenditure will begin to go down. We have a definite programme in front of us, and when this is carried out the peak will be passed and the expenditure will be reduced." That is not a quotation of what the Chancellor said but the substance, and if it is true then quite clearly the Chancellor has in mind a perfectly definite amount of deficiencies and a definite programme upon which the House has been asked to start. We ought not to agree to these things without receiving more information.

I hope that the Financial Secretary will say for the first time what is the full amount to which this House is to be committed. If the House does not insist on that, it will be parting with a traditional right which it has had for centuries and with which it ought not to part in the light-hearted way in which the Government are asking it to do. The Chancellor of the Exchequer also claimed that there was an inconsistency between the two parts of our Amendment because, he said, we complained on the one hand that the full bill was not being met, and, on the other hand, that the bill we were paying was too high. There is no inconsistency in our Amendment at all and the two parts hang together. The point is that although the country is being asked to pay in taxation a larger sum than it has ever before been asked to pay in peace time, the full bill is not being met. It is perfectly clear that the full provision for the meeting of this programme in the future is not being made in a way in which the House has a right to expect it should be, and my hon. Friends and I have thought i right to call attention to the fact that we are not facing this financial problem in the manner in which it has been faced in previous years.

During the Debate an hon. Member said that it was incorrect to describe expenditure on armaments as expenditure on a wasting asset, and he said it was not a wasting asset because it meant building up the defences of the country. Whatever may be the advantages or disadvantages of this great defence scheme from an industrial and economic point of view, the provision of armaments is the provision of a wasting asset. I do not think we can juggle with words on a matter of this kind. There is, of course, a fundamental economic difference between money spent on armaments and money spent on an asset which is productive in the future, and it is that distinction which we make. The Chancellor of the Exchequer, in the course of his speech, gave some figures in regard to the cost of living. I do not think he intended deliberately to mislead the House, and indeed that would he the last thing that the right hon. Gentleman would wish to do; but he conveyed the impression that the present Government have brought down the cost of living figure very considerably.

Mr. CHAMBERLAIN

That was not the point of my argument. I was not arguing that the present Government have brought down the cost of living, but that the increased taxation on tea would make such a trifling difference in the cost of living that it really was not to be taken into account in comparison with the very much higher cost of living at the time the Labour Government were in office.

Mr. PETHICK-LAWRENCE

I think the words "Labour Government were in office" are misleading. The figure which the right hon. Gentleman quoted and correctly quoted was the figure at the period when the Labour Government came into office, and that is a very important point. In 1929 the figure was 61, as quoted by the right hon. Gentleman, but in the following year, 1930, while the Labour Government were still in office, it fell to 55 and in 1931 to 47. I am not claiming any credit for that reduction and I am not sure that the general fall in prices was really a good thing, but in point of fact the cost of living did fall during that period. I do not know what it was when the Labour Government went out of office, but it came down to 43 and then to 36 in 1933. Since 1933, however, it has gone up to 44 and the tariff policy of the Government is reflected in that increase. However, I am not trying to make too much of that point, but I wish to correct the impression which I think the Chancellor unintentionally gave to the House by choosing the figure for a particular period.

I wish also to refer to the point which the right hon. Gentleman made in regard to the increased cost of social services. He referred to the rapid rise which might be expected, in the years to come, in non-contributory old age pensions. In the year 1925 the right hon. Gentleman the Member for Epping (Mr. Churchill) introduced the Widows', Orphans' and Old Age Contributory Pensions scheme and he included regulations which would have the effect in the course of time of making the non-contributory scheme a contributory scheme. These are the words of the right hon. Gentleman the Member for Epping in 1925 when ho was Chancellor of the Exchequer: If the Parliaments of the future adhere to the three decennial increases suggested, and the conditions prevail which I have already explained, the whole question of old age pensions, not only the new scheme but the existing non-contributory scheme, will gradually come on to a self supporting basis."—[OFFICIAL REPORT, 28th April, 1925; col. 78, Vol. 183.] We should like to know whether the right hon. Gentleman the Chancellor of the Exchequer adheres to that view, and, if that be so, I should like to ask for an explanation later on as to whether the figures which the right hon. Gentleman gave as to the heavy cost falling upon the Exchequer of Old Age Pensions are borne out in fact.

In conclusion, I agree with what has been said in many quarters, that it would be improper to rouse extravagant hopes of developments of the social services which could not be carried into effect. But that these social services ought to grow and must grow is, nevertheless, true, because these are services of life and not services of death. We on these benches are willing to agree and in fact must agree, as citizens of this country, to such defences as are really required by our adhesion to the League of Nations and our acknowledgment of the principle of collective security. Such defences as can be proved to be necessary we are prepared to support, but expenditure on a race of armaments is expenditure on death, and the expenditure which we believe to be essential is expenditure on life. I do not see the Secretary of State for War here, but even he must recognise that for the purposes of recruiting a very large number of rejections take place owing to the fact that large numbers of the people are undernourished and under-fed. That is only one aspect of the question, but the much larger aspect, which is, after all, the wellbeing, the health, and the life of the people of this country, is the paramount interest which we in this House ought to preserve. However urgent and necessary it may be to preserve the defences of our country and of the world, it is still more important that we should spend the money of the people on the services of life which go to make up the wellbeing, the health, and the future of the men, women, and children of this country.

10.47 p.m.

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

I feel sorely tempted to pursue the fascinating enterprise of trying to find out what exactly is the foreign policy of the hon. Member for East Edinburgh (Mr. Pethick-Lawrence), who has just addressed us, and what exactly he would do if he were in our place at the present time. When he was challenged by my right hon. Friend as to the meaning of a certain observation of his, namely, that it was our duty to prove that aggression did not pay, no matter what the expense, he gave us an interpretation of that plain statement which, I am bound to say, I found more difficult to understand than the phrase which it was supposed to enlighten; but it appears now sufficiently clear for the purposes of this discussion that the hon. Member would take any step, not definitely a declaration of war, but, any other form of sanction, regardless of the fact that it might involve us in war.

For my limited purpose to-night in asking the House to agree to the Second Reading of the Finance Bill, that confession is amply sufficient, because the financial provision which the House is being asked to make to-night is very largely increased by the circumstances which have made it necessary for us to repair certain gaps and deficiencies in our defences. If the hon. Member opposite is prepared to take a course regardless of whether or not it would involve us in war, then I say that I cannot believe it possible that any hon. Member of this House, no matter on which, side he sits, would at one and the same time embrace a policy which might lead to war and deny the necessary expenditure to make sure that the servants of the Crown and of this House who would have to conduct and fight the war are provided with the most modern equipment so as to place them on an equality with their adversaries. The mere talk of war, the mere talk of taking part in courses which may involve us in war, is to make mere empty gestures, and if they are made at all, they do not improve the situation, but worsen it. If you are taking a course of action which may involve war, you owe it to the men who will have to fight the war to see that you provide them with the weapons of war.

The hon. Member repeated the complaint that has been made frequently that we have not disclosed the full cost of all the programme of re-armament included in the White Paper. The hon. Gentleman failed to appreciate what my right hon. Friend said about the elements which go to make up the necessity for this programme. There are two elements to be considered. We must so rearm not only that we may fill up the gaps which past policy has created in our defences, but we must also carry out a programme which will fit us to bear risks which may be thrust on us by the policy of collective security. While the hon. Member argues with some force that if there are gaps and their existence is known we should be able to prognosticate with certainty the cost that will be incurred, he forgets that one of the elements is to enable us to withstand the risks, and considerable risks they may he. That is the element which varies considerably, and therefore it would be impossible to prognosticate too far in advance. The hon. Member can rest assured that the Government do not intend to commit the House in the careless way he thought possible. He mentioned laying down 10 battleships and said that the House might find itself committed to that expenditure. Apart from the ordinary expenditure for the year, if the Government were to lay down ships in any year it would of course inform the House, arid the fear that undisclosed expenditure might be entered into is without foundation.

The question of tax avoidance has been mentioned by many lion. Members. The Bill provides for dealing with three sources or causes of tax avoidance. One is the avoidance which takes place when a, man transfers his assets to a foreign company or person and at the same time retains power to enjoy the income which comes to that person, although he receives it in a capital form not assessable to Income Tax. The hon. Member for Kidderminster (Sir J. WardlawMilne) drew attention to the proviso in Clause 16 which deals with this matter, and took exception to what he thought might be one effect of the change in the law. We are asking the House to agree that if a man has adopted this particular form of transaction and if he still has power to enjoy the assets substantially, that should be his income for Income Tax purposes just as if he had never transferred it abroad. That is an equitable and just principle, but in case we should by so wide a definition inadvertently injure some man who has made a transaction, not for that purpose but for some legitimate trade or commercial purpose, the proviso to which he takes exception is inserted so as to let out of the net a man who can show that he comes within this beneficent provision.

Sir J. WARDLAW-MILNE

I do not object to the proviso, but to the wording., which does not make it clear that the innocent will not have to prove that they are innocent. Who is going to decide that a man is, in fact, not avoiding taxation but has transferred the money for this other purpose?

Mr. MORRISON

The fact is that if a man is living in England and is enjoying an income, and one finds, at the same time, that that income is really accruing to a foreign company or person and is by these devices coming into his possession, the presumption is that in a great number of cases tax avoidance is at the bottom of it. Consequently, we think it not unfair for the very exceptional case that exists, where a man has gone into this elaborate transaction for the purpose of some legitimate trade interest, to ask such a man to go before a body of commercial men who are well able to judge the question of fact and to say that he has done it for that reason and to let him out.

The hon. Member for East Birkenhead (Mr. White) also drew attention to the wording of this Clause and made the criticism, which many hon. Members have made, as to its complicated character. If the House will reflect that the whole essence of tax avoidance by this means is to clothe that transaction with a legal form which is different from its true form, the House will realise how complicated must be the legal language that attempts to sweep away the legal form that is created and to reveal the transaction in its true colours. That is the reason why there is a great deal of complication in the Clause. The hon. Member also drew attention to the appeal which is provided to the Board of Referees. Of course, that is an appeal on a question of fact, whether or not the transaction has been entered into for some purpose of tax avoidance, and the hon. Member need have no fear that this appeal in any way ousts a man from his natural right on a question of law to go to the High Court or to have a case stated.

I was asked to say something about Clause 19, which has led to a great deal of discussion. As my right hon. Friend said earlier to-day, this problem is, from a revenue point of view, a very different one from the point we have been con- sidering. In this particular form the natural, prudential motive of providing decently for children enters so largely into the transaction that it is impossible in a great number of cases to regard it as tax avoidance anything like the sort we have been considering in the case of foreign companies. One of the reasons why it was thought necessary at this time to deal with this matter, is that it has become of increasing importance to the revenue. There has been a vast increase in these deeds, many of them clearly of a tax-avoiding character, in the last 12 months. Consequently it is a matter that ought to be put on to a proper basis.

If the House will allow me, I will try to express shortly what the Clause does. I will first distinguish settlements which are revocable and those which are irrevocable. A revocable settlement is one in which a man who has settled the money can at any moment draw the money back into his own possession and use it for his own purpose. With regard to revocable settlements, the income from them will in future be aggregated to the income of the parent and treated as if, in fact, the income is derived from the parent. If the income is derived from some other relation this Clause is not effective; but where a man has provided by means of a revocable settlement for the maintenance of his children the Clause says that he shall be in the same position as the ordinary man who has made no such settlement but provides for the maintenance of his children out of income on which he has paid Income Tax.

As regards irrevocable settlements those made on and after the date when my right hon. Friend opened his Budget will be in this position: The annual payments of income made by a parent under an income settlement will be treated as the parents' income for the purposes of Income Tax, and as regards the income arising from the invested funds in the trust, if that income is paid out to the parent for the mainenance of his child it will be treated as the parent's income for the purposes of tax, but if it is accumulated within the trust and not paid out it is not income and will not be aggregated.

Mr. BENSON

Will the hon. and learned Gentleman explain why this invidious distinction is made?

Mr. MORRISON

I am not aware that there is any invidions distinction. Perhaps the hon. Member has misunderstood me and imagines that there is a distinction made between settlements by way of capital and settlements by way of income.

Mr. BENSON

No, I understand the hon. Member to say this: A parent may settle money in a trust and if the revenue from that settled capital sum is not spent on the child but is allowed to accumulate for the future benefit of the child, it shall not be taxable; whereas if a parent saves money in a normal way for his children and invests it, the revenue is still part of his income and is aggregated with his income. That is the invidious distinction.

Mr. MORRISON

In my submission there is no distinction in that. If income is accumulating interest under an irrevocable trust, if the parent cannot use the interest and it is merely to be saved there, it is not his income at all and will not be so treated for Income Tax purposes. With regard to irrevocable settlements effected before the Budget day, they are not affected by the new Clause. The reason for that is plain. In the legislation of 1922 a distinction was drawn between revocable and irrevocable trusts, and if you were to gather into the net irrevocable settlements which are really irrevocable, you would be giving a man the worst of both worlds, in that a man who made a revocable settlement could get his money back but with an irrevocable settlement he has parted with the control of it. Two points I would like to make clear are that the provisions in Clause 19 apply equally whether the settlement is one that is made by putting a lump of capital aside or whether it is a settlement effected by making an annual payment to the trustee. There is no distinction drawn between them. The only other point is that the word "irrevocable" is redefined so as to make it irrevocable in fact as well irrevocable in law, and so that the genuinely irrevocable trust receives the saving which is effected as to trusts which existed before the Budget.

The hon. Member for East Birkenhead asked me about the key industries in Clause 5, and what justification there was for the long-term fixation of the duty. All those matters are included in the key industries. The Advisory Committee had no power to recommend a reduction in this matter. The articles which are in the key industries, and are contained in Clause 5 of the Bill, are in a particular category as being necessary for the nation, and it is therefore essential that the duties should be stabilised for a long enough period to ensure that those engaged in the manufacture of those articles should be able to go on with the research which is so important in these days of scientific advancement. With regard to wireless valves, the fact is that the wireless valve and certain other articles of important scientific equipment were included in the Key Industries Duty, 1921, but it has been found that certain parts of valves were being brought into the country and reassembled. Naturally it was felt that if it was desirable to protect wireless valves manufactured in this country, it would be folly to allow free entry to parts which could be reassembled here.

The hon. Member for Stockton-on-Tees (Mr. Macmillan) delivered a very interesting and thoughtful speech on the economics of the present position. I hope he will forgive me if I say that I would rather reply to it after I have read it in the OFFICIAL REPORT. I understand the desirability of the various equilibria which he mentioned, but he will agree with me that there is some difficulty in the world in attaining those equilibria, owing to the great diversity of people who exist in the world, especially when he remembers that a great many of those people have yet to be perfectly convinced of the truth of the ideas which he put forward. He said, on the whole, that we were doing the right thing, and I was encouraged that he should be able to advance so many excellent and novel reasons for supporting us.

I agree with him in deploring what he called the economic determinism, and I call the fatalistic attitude, which has been displayed by hon. Members opposite. We have been told that whatever factors may have combined together to produce the recovery which is such a. happy feature of our national life, the action of my right hon. Friend aid of His Majesty's Government was not one of those factors; anything else, but certainly the Government had nothing whatever to do with it. One would imagine that the Government would exercise some small effect upon the fortunes of the country. We have seen those fortunes wax and wane in remarkable coincidence when there have been two different sets of men and principles employed in the Government, and it is natural that the public should cherish a superstitious belief that there is some connection, however mysterious and slight, between the fortunes of the country and the men who govern it. When hon. Members opposite were in office, I am bound to say they were consistent. They used to say that the misfortunes of our poor country—at that time—had no connection with the fact that they were occupying these benches, but were due to powerful influences generally described as world forces. The criticism that I and some of my friends used to be bold enough to make of those who were then sitting on these benches was that, though world influences might be unpropitious, lion. Members opposite, as a Government, took no steps at all to isolate this country from the full violence of those conditions as they obtained in the world at that time. I remember saying that it reminded me of a man who sat in a draught and complained of how cold it was, when all he had to do was to get up and shut the door.

I would ask the House to remember that, although certain aspects of this Budget have attracted a, good deal of attention, when one thinks of the principle, the real thing about the Budget is that it is an attempt to demonstrate to the country and to the world that we can meet the heavy charges that are necessary for our own defence without any dubious financial expedients; and I am satisfied that a, great deal of the cost can be borne on the expanding revenue of this country which is the result of four or five years' good work in the past. I would ask hon. Members to look at this Finance Bill as one of a series, and to remember that the effect of the Government's twin policy of cheap money and tariffs has been a permanent saving in the annual Budget charges for interest on the National Debt; that it, has led to the construction of 1,250,000 houses; that our exports have gone up by £50,000,000; that the number of employed persons has gone up by 1,250,000; that Savings Bank deposits have increased by £100,000,000; and that in this period the aggregate remissions of taxation which have been made in spite of these great efforts have amounted to £50,000,000 a year.

When hon. Members opposite talk about world forces and world recovery as being responsible for all this, I would ask them to reflect that, if it be true, as I hope it is, that the world as a whole is recovering something of its financial poise, the recovery of this country and the recovery of the world are not unconnected, though the connection may not be exactly what hon. Members have said it is. It may be that, in our efforts during the last four years to restore our own position, we have materially helped the world to recover its position also. After all, let us remember what effect this country can exercise in these economic matters. It is a great market, and, when hon. Members opposite speak about the improvement in the prices of raw materials and primary commodities, and say, as has been said to-day, that that is a thing which the Government cannot influence, I would ask them to reflect on the brisk demand that has been created for primary commodities in our own market, with industry demanding raw materials, with 1,250,000 more people in employment, who with their higher purchasing power are demanding more food. All these things have a powerful effect upon the primary commodity markets of the world. Moreover, this country has been for 100 years a great monetary centre; it is, in financial and commercial matters, one of the hinges on which the world swings. If as the result of our good management in the last four years we have made that hinge firmer in the world, so that the world can swing more safely upon it, is not that a great contribution to the economic and industrial recovery of the world? Hon. Members have made many claims that cheap money is not due to the action of the Government but to trade stagnation. Trade was stagnant when they were in office, but money was not cheap. When they talk about conversion being a matter that was very easy of accomplishment, why did they not convert when they were in power? The answer is that there was an absence of those conditions that would have made it possible to conduct that operation, the main part of which is that the people of the country must have confidence in its Government, and when one is told how much good it has done us to go off the gold standard, remember that it does us good to go off the gold standard only if there is something stronger than gold at the back of our currency. If we had had to go off gold at a time when confidence in the Government was shaken, the results might have been very different from what they are

to-day. I ask the House to give the Bill a Second Reading.

Question put, "That the words proposed to be left out stand part of the Question."

The House divided: Ayes, 291; Noes, 136.

Division No. 193.]	AYES.	[11.18 pm.
Acland-Troyte, Lt.-Col. G. J.	De Chair, S. S.	Hume, Sir G. H.
Adams, S. V. T. (Leeds, W.)	Denman, Hon. R. D.	Hunter, T.
Agnew, Lieut. -Comdr. P. G.	Dodd, J. S.	Hurd, Sir P. A.
Alexander, Brig. -Gen. Sir W.	Donner, P. W.	Jackson, Sir H.
Allen, Lt.-Col. J. Sandeman (B'kn'hd)	Dorman-Smith. Major R. H,	James, Wing-Commander A. W.
Allen, Lt.-Col. Sir W. J. (Armagh)	Dower, Capt. A. V. G.	Jarvis, Sir J. J.
Anderson, Sir A. Garrett (C. of Ldn.)	Dugdale, Major T. L.	Jones, L, (Swansea, W.)
Anstruther-Gray, W. J.	Duggan, H. J.	Kerr, H. W. (Oldham)
Aske, Sir R. W.	Duncan, J. A. L,	Kimball. L.
Assheton, R.	Dunglass, Lord	Knox, Major-General Sir A. W. F.
Astor, Hon. W. W. (Fulham, E.)	Dunne, P. R. R.	Lamb, Sir J. Q
Atholl, Duchess of	Eales, J. F.	Lambert, Rt. Hon. G.
Baldwin, Rt. Hon. Stanley	Eastwood, J. F.	Law, R. K. (Hull, S.W.)
Balfour, Capt. H. H. (Isle of Th[...]net)	Eckersley, P. T.	Leckle, J. A.
Balniel, Lord	Edmondson, Major Sir J	Leech, Dr. J. W.
Barclay-Harvey, C. M.	Elliot, Rt. Hon. W. E.	Lees-Jones, J.
Baxter, A. Beverley	Ellis, Sir G.	Leigh, Sir J.
Beaumont, M. W. (Aylesbury)	Elliston, G. S.	Leighton, Major B. E. P.
Beaumont, Hon. R. E. B. (Portsm'h)	Emery. J. F,	Lennox-Boyd, A. T. L.
Belt, Sir A. L.	Emmott, C. E. G. C.	Liddall, W. S.
Bernays, R. H.	Emrys-Evans, P. V.	Little, Sir E. Graham
Birchall, Sir J. D.	Erskine Hill, A. G.	Liewellm, Lieut.-Col J. J.
Blair, Sir R.	Everard, W. L.	Lloyd, G. W.
Blaker, Sir R.	Findlay, Sir E.	Locker-Lampson, Comdr. O. S.
Bossom, A. C.	Fleming, E. L.	Loftus, P. C.
Bowater, Col. Sir T. Vansittart	Fremantle, Sir F. E.	Lovat-Fraser, J. A.
Bower, Comdr. R. T.	Furness, S. N,	Lumley, Capt. L. R.
Bowyer. Capt. Sir G. E. W.	Fyfe, D. P. M.	Lyons, A. M.
Boyce, H. Leslie	Ganzonl, Sir J.	Mabane, W. (Huddersfield)
Brass, Sir W.	Gibson, C. G.	MacAndrew Colonel Sir C. G.
Briscoe, Capt. R. G.	Gllmour, Lt.-Col. Rt. Hon. Sir J.	M'Connell, Sir J.
Brocklebank, C. E. R.	Gledhill, G.	McCorquodale. M. S.
Brown, Rt. Hon. E. (Leith)	Glucksteln, L. H.	MacDonald, Rt. Hn. J. R. (Scot. U.)
Brown, Brig.-Gen. H. C. (Newbury)	Glyn, Major Sir R. G. C.	MacDonald, Rt. Hon. M. (Ross)
Browne, A. C. (Belfast, W.)	Goldie, N. B.	Macdonald, Capt. P. (Isie of Wight)
Bull, B. B.	Goodman, Col. A. W.	McEwen, Capt. J. H. F.
Bullock, Capt. M.	Gower, Sir R V.	McKie. J. H.
Burghley, Lord	Greene, W. P. C. (Worcester)	Macmillan, H. (Stockton-on-Tees)
Burgin, Dr. E. L.	Gretton, Col. Rt. Hon. J.	Magnay, T.
Burton, Col. H. W.	Gridley. Sir A. B.	Maitland, A.
Butler, R. A.	Grigg, Sir E. W. M.	Makins, Brig.-Gen. E.
Calne, G. R. Hall-	Grimston, R, V.	Manningham-Buller, Sir M.
Cartland, J. R. H.	Gritten, W. G. Howard	Margesson, Capt. Rt. Hon. H. D. R.
Cary, R. A.	Guest, Capt. Rt. Hon. F. E. (Drake)	Markham, S. F.
Castlereagh, Viscount	Guest, Hon. I. (Brecon and Radnor)	Mason, Lt.-Col. Hon. G. K. M.
Cayzer, Sir H. R. (Portsmouth, S.)	Guest, MaJ. Hon. O.(C'mb'rw'll, N.W.)	Maxwell, S. A
Cazalet, Thelma (Islington, E.)	Guinness, T. L. E. B.	Mayhew, Lt.-Col. J.
Chamberlain. Rt. Hn. Sir A. (Br.w.)	Gunston, Capt. D. W.	Meller, Sir R. J. (Mitcham)
Chamberlain, Rt. Hn. N. (Edgb'fn)	Hacking, Rt. Hon. D. H.	Mellor, Sir J. S. P. (Tamworth)
Channon, H.	Hanbury, Sir C.	Mills, Sir F. (Leyton, E.)
Chapman. A. (Rutherglen)	Hannah, I. C.	Mills, Major J. D. (New Forest)
Clarry, Sir Reginald	Hannon, Sir P. J. H.	Mitchell, Sir W. Lane (Streatham)
Colfox, Major W. P.	Harvey, G.	Mitcheson, Sir G. G.
Collins, Rt. Hon. Sir G. P.	Haslam, Sir J. (Bolton)	Moreing, A. C.
Colman, N. C. D.	Heilgers, Captain F. F. A.	Morgan. R. H.
Colville, Lt.-Col. D. J.	Heneage, Lieut.-Colonel A. P.	Morris-Jones, Dr. J. H.
Cook, T. R. A. M. (Norfolk. N.)	Hepburn, P. G. T. Buchan-	Morrison, G. A. (Scottish Unlv's.)
Courtauld, Major J. S.	Hepworth, J.	Morrison, W. S. (Cirencester)
Craddock, Sir R. H.	Herbert, A. P. (Oxford U.)	Mulrhead, Lt-Col. A. J.
Cranborne, Viscount	Herbert, Major J. A. (Monmouth)	Munro, P.
Craven-Ellis, W.	Herbert, Captain S. (Abbey)	Nail, Sir J.
Critchley, A.	Hills, Major Rt. Hon. J. W. (Ripon)	Nicolson, Hon. H. G.
Croft, Brig.-Gen. sir H. Pagé	Holdswortn, H.	O'Connor, Sir Terence J.
Crooke, J. S.	Holmes, J. S.	O'Neill, Major Rt. Hon. Sir Hugh
Crookshank, Capt. H. F. C.	Hope, Captain Han. A. O. J.	Orr-Ewlng, I. L.
Croom-Johnson, R. P.	Hore-Bellsha, Rt. Hon. L	Patrick, C. M.
Crossley, A. C.	Horne, Rt. Hon. Sir R. S.	Peake, O.
Crowder, J. F. E.	Horsbrugh, Florence	Peat, C. U.
Culverwell, C. T.	Howitt, Dr. A. B.	Penny, Sir G.
Davidson, Rt. Hon. Sir J. C. C.	Hudson, Capt. A. U. M. (Hack., N.)	Perkins, W. R. D.
Davies, Major G. F. (Yeovil)	Hudson, R. S. (Southport)	Petherick, M.
Davison, Sir W. H.	Hulbert, N. J.	Porritt, R. W.
Pownall, Sir A. Assheton	Shakespeare, G. H.	Sutcliffe, H.
Radford, E. A.	Shaw, Major P. S. (Wavertree)	Tasker, Sir R. I.
Raikes, H. V. A. M.	Shaw, Captain W. T. (Forfar)	Thomas, J. P. L. (Hereford)
Ramsay, Captain A. H. M.	Shepperson, Sir E. W.	Thomson, Sir J. D. W.
Ramsbotham, H.	Shute, Colonel Sir J. J.	Titchfield, Marquess of
Ramsden, Sir E.	Simon, Rt. Hon. Sir J. A.	Tryon, Major Rt. Hon. G. C.
Rankin, R.	Sinclair, Col. T. (Queen's U. B'lf'st),	Turton, R. H.
Rayner, Major R. H.	Smiles, Lieut.-Colonel Sir W. D.	Wakefleld, W. W.
Reed, A. C. (Exeter)	Smith, L. W. (Hallam)	Walker-Smith, Sir J.
Reid, W. Allen (Derby)	Smith, Sir R. W. (Aberdeen)	Wallace, Captain Euan
Remer, J. R.	Smithers, Sir W.	Ward, Lieut.-Col. Sir A. L. (Hull)
Rickards, G. W. (Skipton)	Somervell, Sir D. B. (Crewe)	Ward, Irene (Wallsend)
Ropner, Colonel L.	Somerville, A. A. (Windsor)	Wardlaw-Mllne, Sir J. S.
Ross, Major Sir R. D. (L'derry)	Southby, Comdr. A. R. J.	Warrender, Sir V.
Ross Taylor, W. (Woodbridge)	Spears, Brig. -Gen. E. L.	Waterhouse, Captain C.
Rowlands, G.	Spender-Clay, Lt.-Cl. Rt. Hn. H. H.	Wedderburn, H. J. S.
Ruggles-Brise, Colonel Sir E. A,	Spens, W. P.	Wickham, Lt.-Col. E. T. R.
Russell, A. West (Tynemouth)	Stanley, Rt. Hon. Lord (Fylde)	Williams, C. (Torquay)
Salmon, Sir I.	Stanley, Rt. Hon. Oliver (W'm'l'd)	Williams, H. G. (Croydcn, S.)
Salt, E. W.	Stewart, J. Henderson (Fife, E.)	Windsor-dive, Lieut.-Colonel G.
Samuel, Sir A. M. (Farnham)	Stourton, Hon. J. J.	Winterton, Rt. Hon. Earl
Samuel, M. R. A. (Putney)	Strauss, E. A. (Southwark, N.)	Womersley, Sir W. J.
Sandys, E. D.	Strauss, H. G. (Norwich)	Young, A. S. L. (Partick)
Sassoon, Rt. Hon. Sir P.	Strickland, Captain W. F.
Savery, Servington	Stuart, Lord C. Crichton- (N'thw'h)	TELLERS FOR THE AYES.—
Selley, H. R.	Sueter, Rear-Admiral Sir M. F.	Sir James Blindell and Mr. James
		Stuart.
NOES.
Acland, Rt. Hon. Sir F. Dyke	Green, W. H. (Deptford)	Muff, G.
Adams, D. (Consett)	Greenwood, Rt. Hon. A.	Naylor, T. E.
Adams, D. M. (Poplar, S.)	Grenfell, D. R.	Oliver, G. H.
Adamson, W. M.	Griffith, F. Kingsley (M'ddl'sbro, W.)	Owen, Major G.
Alexander, Rt. Hon. A. V. (H'lsbr.)	Griffiths, G. A. (Hemsworth)	Paling, W.
Ammon, C. G.	Griffiths, J. (Lianelly)	Parker, H. J. H.
Anderson, F. (Whitehaven)	Groves, T. E.	Pethick- Lawrence, F. W.
Attlee, Rt. Hon. C. R.	Hall, G. H. (Aberdare)	Potts, J.
Banfield, J. W.	Hall, J. H. (Whitechapel)	Pritt, D. N.
Barnes, A. J.	Hardle, G. D.	Quibell, D. J. K.
Barr, J.	Harris, Sir P. A.	Richards, R. (Wrexham)
Batey, J.	Henderson, A. (Kingswinford)	Riley, B.
Bellenger, F.	Henderson, J. (Ardwick)	Ritson, J.
Benson, G.	Henderson, T. (Tradesion)	Robinson, W. A. (St. Helens)
Broad, F. A.	Hills, A. (Pontefract)	Rothschild, J. A. de
Bromfield, W.	Hollins, A.	Rowson, G.
Buchanan, G.	Jagger, J.	Seely, Sir H. M.
Burke, W. A.	Jenkins, A. (Pontypool)	Sexton, T. M.
Cape, T.	John, W.	Shinwell, E.
Charleton, H. C.	Johnston, Rt. Hon. T.	Silkin, L.
Cluse, W. S.	Jones, A. C. (Shipley)	Silverman, S. S.
Clynes, Rt. Hon. J. R.	Jones, H. Haydn (Merioneth)	Simpson, F. B.
Cocks, F. S.	Kelly, W. T.	Smith, Ben (Rotherhithe)
Compton, J.	Kennedy, Rt. Hon. T.	Smith, E. (Stoke)
Cove, W. G.	Kirkwood, D.	Smith, Rt. Hon. H. B. Lees- (K'ly)
Cripps, Hon. Sir Stafford	Lathan, G.	Sorensen, R. W.
Daggar, G.	Lawson, J. J.	Stephen, C.
Dalton, H.	Leach, W.	Stewart, W. J. (H'ght'n-le-Sp'ng)
Davidson, J. J. (Maryhill)	Lee, F.	Strauss, G. R. (Lambeth, N.)
Davies, D. L. (Pontypridd)	Leonard, W.	Taylor, R. J. (Morpeth)
Davies, R. J. (Westhoughton)	Leslie, J. R.	Thurtle, E.
Davies, S. O. (Merthyr)	Logan, D. G.	Tinker, J. J.
Day, H.	Lunn, W.	Viant, S. P.
Dunn, E. (Rother Valley)	Macdonald, G. (Ince)	Walkden, A. G.
Ede, J. C.	McGhee, H. G.	Walker, J.
Edwards, A. (Middlesbrough E.)	McGovern, J.	Watkins, F. C.
Edwards, Sir C. (Bedwellty)	MacLaren, A.	Watson, W. McL.
Evans, D. O. (Cardigan)	Maclean, N.	Westwood, J.
Fletcher, Lt.-Comdr. R. T. H.	Mander, G. le M.	White, H. Graham
Foot, D. M.	Markiew, E.	Williams, E. J. (Ogmore)
Frankel, D.	Marshall, F.	Wilson, C. H. (Attercliffe)
Gallacher, W.	Maxton, J.	Windsor, W. (Hull, C.)
Gardner, B. W.	Messer, F.	Woods, G. S. (Finsbury)
Garro-Jones, G. M.	Milner, Major J.	Young, Sir R. (Newton)
George, Major G. Lloyd (Pembroke)	Montague, F.
George, Megan Lloyd (Anglesey)	Morrison, R. C. (Tottenham, N.)	TELLERS FOR THE NOES.—
		Mr. Whiteley and Mr Mathers.

Resolution agreed to.