HC Deb 20 April 1937 vol 322 cc1613-6

There is one source of revenue to which all Chancellors look in time of trouble and which has never yet failed them. I refer to the Income Tax. I have observed that at least two ex-Chancellors of the Exchequer have publicly expressed the view that an increase in Income Tax is justified and is to be expected. They have gone further and they have agreed, I am sure without any collusion, that the proper extent to which Income Tax should be increased is to be found by rounding up the present uneven figure of 4s. 9d. in the £ to the more convenient figure of 5s. I cannot resist such overwhelming authority, and I propose to adopt the proposition of my right hon. Friends the Members for Epping (Mr. Churchill) and Hillhead (Sir R. Home). The 3d. increase in Income Tax will give me £15,000,000 in a full year and £13,000,000 in the current year. The gap which I now have to fill has been reduced to the trifling figure of £1,748,000.

Before I come to deal with it, I want to put certain considerations to the Committee which may give it a somewhat different aspect. Under the Defence Loans Act the Government were authorised to borrow up to a maximum of £400,000,000 spread over a period not exceeding five years. That is to say, assuming that the period remains unchanged and that the borrowing powers are exercised to the fullest extent, an average of £80,000,000 a year. But in the Statement relating to Defence Expenditure, which was issued last February it was clearly laid down that although it was not yet possible to determine which year would see the peak, the level of defence expenditure was likely, over the next two or three years, to be very much heavier than in the present year. That being so it would be natural to expect that the curve of borrowing, even allowing for expansion of revenue, should to some extent follow the curve of expenditure, beginning well below the average and rising to a peak and falling thereafter. Therefore, it was a matter of very considerable surprise to me that the revelation, when the Defence Estimates for this year were published, that I pro-posed appropriations-in-aid which required borrowing in the first year up to the full amount of the average excited no comment of any kind, and the acutest minds in this House and out of it thereby missed the clue to the proposal which I am about to put before the Committee—a proposal which in fact determined the amount which it is necessary for me to borrow during the current year.

On this occasion I have thought it necessary to take a somewhat longer view than is generally required in examining, the contents of a normal Budget. Hon. Members no doubt have in mind all the qualifications and the reserves which we have felt obliged to make in attempting to describe or to define a Defence programme which must continually be subject to variations in scope and in time, in one direction or in another, according as conditions change, but, broadly speaking, we know that we have got to prepare ourselves for expenditure of a very special and exceptional character, which will rapidly increase and then later fall until it reaches its new level. Under those circumstances it seemed to me that if the Chancellor of the Exchequer in each year had to impose a succession of new taxes, hitting first in one direction and then in another, that would be a course of proceeding which would be likely to cause the maximum amount of uncertainty and disturbance, and I sought, therefore, for the means of providing at least a major part of the expenditure that would be required by some device capable of growth in itself, but easily adjustable, so as to allow for variations in the yield of revenue from existing taxation.

Where could I find such a source of revenue, bearing in mind all the differing circumstances of the variously occupied men and women who make up the population of this country? I have already increased the Income Tax, and this year the increase is not accompanied by those changes in the allowances which last year and the year before did so much to help the possessors of small incomes subject to the tax. I might, of course, increase indirect taxation, but the prices in the shops, which particularly affect wage-earners, the lower grades of clerical workers, and the smaller rentiers whose incomes are largely derived from fixed interest-bearing securities—those prices already show a tendency to rise, and I did not want to do anything to push them any higher. But, Sir, nobody who reads the papers carefully, and especially who pays attention to the reports of trading concerns, can fail to be struck by the almost monotonous story repeated in their annual reports of increased business, record turnovers, and larger profits. I suspect that on the whole those profits still fall far short of the level of 1928 or 1929, but, on the other hand, there is no indication that they have yet reached their peak, and I myself anticipate that they will continue for some time to come to expand, I give every credit to the leaders of industry for the ability and energy with which they are conducting their business, and to the trade unions and the workers generally for the way in which they have co-operated in expanding production, but I think everybody will admit that the Government have played a large part in the revival by creating the conditions under which this great activity has become possible, and in so far as it is consequent upon orders placed by the Government it arises directly from the expenditure of the State.