Postponed Proceeding resumed on Question,
That it is expedient to amend the law relating to the National Debt, Customs and Inland Revenue (including Excise), and to make further provision in connection with finance.
§ 7.31 p.m.
§ Mr. Price
I was referring to the increase in the cost of the social services, since 1931, of £180,000,000. In view of the fact that the increase in indirect taxation since that time has amounted to £195,000,000, it is reasonable to assume that those who mainly bear the cost of indirect taxation are worse off by £15,000,000. While it is true that direct taxation increased since 1913 by over £300,000,000, one has to remember that in spite of the decrease in the cost of interest and management in connection with the National Debt, due to conversion, that cost still amounts to over 200,000,000. It comes to this, therefore, that, to a very large extent, the money which is paid in direct taxation goes, at least as to two-thirds, in the interest and management expenses connected with the National Debt. When we take into account also the new and increasing burden of armaments, we find that these heads of expenditure, namely, armaments and interest on and management of the National Debt, roughly cover the contribution of the direct taxpayer, meaning that the direct taxpayer finds little or nothing for the social services.
It has been claimed that this indirect taxation has resulted in an improvement in trade and a general revival. I am not one of those who take the view that all forms of interference with the foreign trade of the country are undesirable. Probably in 1931 when there was a general deflation of prices and when this country was being made a dumping-ground for surpluses from outside, there 2001 was a case for some form of insulation of our economy. Unfortunately, under our present economic system, in which private capitalist interests are so powerful, when that kind of restriction is introduced and when there is a Government which is favourable to those interests, then State interference in. the form of tariffs and quotas and in other forms, is liable to be retained longer than is desirable. As I say, there was a case in 1931 for some form of insulation while world deflation was going on and prices were collapsing, but that phase has passed and we have entered a phase of world inflation and rising prices. I maintain that the time has come to liquidate those restrictions, to lower tariffs and to do away with quotas. Indeed, that time came two or three years ago, but unfortunately the Government, subservient as it is to private industrial interests, finds it very hard to move in that direction.
Moreover, it is claimed that the trade of the country, and particularly the export trade, has been assisted by the introduction of these indirect taxes, and notably by those negotiated at the Ottawa Conference in 1932. I have been at some trouble to look up the facts concerning this matter, and I find that there was a steady increase in both exports and imports between this country and the Dominions and Colonies before the Ottawa Conference took place. Between 1931 and 1932 there was an increase of imports of 4.4 per cent. and an increase of exports of 3.5 per cent. Between 1932 and 1935, after the conference the increase in imports was 3.5 per cent. and in exports 5.5 per cent.
My point is that the important thing in trade was that we had left the Gold Standard in 1931. That was the important factor and not the Ottawa Agreements and to prove that, I would point out, that during all this time when our export trade was improving, after we had left the Gold Standard, it was going down with the countries which remained on the Gold Standard, such as France, Holland and Belgium. That tendency continued until those countries themselves did the wise thing and went off the Gold Standard—what this party was turned out of office for wanting to do and not doing. Once they went off the Gold Standard, our trade with them began to increase, but in the cases of France, Holland, Belgium and Switzerland our imports from 2002 those countries fell between 1931 and 1935 by from 14 per cent. to 8 per cent. I think too much has been made of the Ottawa Agreements by hon. Members opposite. The thing to be considered is the management of our currency system, in its relation to the currencies of other countries and their relation to gold.
The Ottawa Agreements, if anything, were a disturbing factor. They introduced a jarring political note into the international situation and, to some extent, poisoned the international atmosphere. It is also to be remembered that many of our Dominions are now developing in such a way that they are not so complementary to us as they used to be. It was always thought that Canada would supply us with food and that we would supply Canada with manufactures, but to-day Canada is becoming increasingly a manufacturing country, while we are tending to develop our agriculture. The point which we need to stress is this. If the Ottawa Agreements have initiated a low tariff arrangement between this country and the Dominions, what is there to prevent an extension of, that principle outside the Empire, and the inclusion of other countries? Why not include United States? Already Canada is taking steps in that direction. She has made an agreement with the Administration in Washington and she has also, I believe, made an agreement with Poland.
What I wish the Government to look to is not the continuance of these indirect taxes with a view to keeping the Empire a closed entity and the use of these taxes as a sheet-anchor of national finance, but their use for the purpose of expanding the low tariff area in the world, and taking the first practical steps towards the lowering of international barriers to trade. Economists tell us that every eight or ten years there is the danger of boom and depression. There seems to be an automatic tendency in that way, but it is noticeable that human agencies are capable of postponing or accelerating that process and preventing the boom rising to its highest peak and preventing the depression from reaching its lowest depths. I submit that it is possible for the Government to take steps to prevent the collapse which some people expect to happen in a few years time. One of the most important things done recently for the assistance of international trade has 2003 been the conclusion of the tripartite agreement between this country, the United States and France in regard to the stabilisation of the currencies of the three countries.
The seriousness of this aspect of the question is shown by the fact that a few weeks ago when the rumour got about that President Roosevelt was going to increase the gold content of the dollar and revalue the United States currency, without considering the effects outside the United States, there was immediately a panic on the stock exchanges here and in some other countries. In order to prevent that kind of thing, an extension of the currency agreement should be made to bring in any other countries who are ready to come in, in order that we may have stabilisation without the fear of any upset and make it easier to negotiate low tariff agreements throughout the world.
There is one other aspect of this Budget which will be much discussed, namely, the National Defence Contribution. For my part I welcome the new form of taxation which the Chancellor has introduced. I do not like to commit myself on details, and I realise that there are many difficulties in the way, but I feel that it is time that we introduced some more scientific and, if necessary, discriminatory form of taxation. What I mean is, that during the time of deflation when prices are going down, fixed-interest security holders do well and that was going on all through 1929, 1930 and for four or five years earlier. The holders of Government bonds and fixed-interest securities had then a bigger share of the national income than those who were holding industrial equities, but now the situation is reversed. In those days there was a strong case for asking for some special contribution from the fixed-interest bearing security holders. And that was finally taken in the form of a conversion. A Conversion Loan was issued and the rate of interest brought down, and that was the contribution of the fixed-interest bearing security holders. Now the time has come when prices are rising and, having regard to that fact, income of the holders of bonds and fixed-interest securities is less. Their share of the national income has gone down while that of the holders of industrial equities is going up, so that now I say is the 2004 time when some special form of taxation should be introduced such as was introduced during the War. It may be argued that then many mistakes were made and the proper things not done. But I want to see the Chancellor face up to his critics, meet the various criticisms that have been made this afternoon and bring about a workable tax which will make the holders of industrial equities pay towards the cost of rearmament and the national budget generally.
With regard to the fact that profits have been increasing for the last few years, I think the time is more than ripe. There are figures I have seen published showing that for the four quarters of 1935 and 1936 there have been increases of profit—in the first quarter of 1936 over the first quarter of 1935 by 13 per cent.; in the second quarter to 10 per cent.; in the third quarter, 14 per cent.; and in the fourth quarter, 15 per cent. over the previous year. I think that that is in itself a sufficient indication that the holders of industrial equities are doing relatively well. Moreover, may I point out that the rise in profits is greater in those industries which are dealing with commodities, and just in those sorts of things which are the raw materials of the armament industry, and for that reason I think there is abundant reason to take steps in this direction. I know it is difficult, but of course all industries must come under this. It is very difficult to separate armaments out especially for a tax of this kind. It cannot be done, but that is not my main contention. It should be possible to put some other tax as was recommended by the Commission on arms recently—some special contributions on the armaments firms alone—but this new taxation will not be only on armament firms, but on all industrial equities which are doing well under rising prices, and if prices cease to rise, their profits will not rise, and consequently the tax will not be operative. I know there are many objections by several speakers, and what we must especially watch against, what the Chancellor must especially watch out against, is what happened during the War: Firms put their profits away, they hid them in various reserves by building construction of all kinds. I know of cases of that kind happening at the time, and I know it may happen again.
May I put one question which concerns agriculturists? I do not think that many 2005 agriculturists under the present situation of the industry are likely to come in under this National Defence Contribution. [An HON. MEMBER: "With a subsidy."] Not even with a subsidy. But there may be some exceptions and, I would like to know this: For assessment of Income Tax farmers can either pay by submitting accounts under Schedule D, or, if they do not, they are assessed under Schedule B—the assessment is made for them. If they are likely to come in under this tax, will they have the assessment put on them by Schedule B if they fail to submit accounts under Schedule D? That has been put to me, and it is causing a certain amount of concern among farmers that this might possibly be done. For my part I think it will be an additional reason why as many as possible should submit accounts, but naturally they are afraid of, or at least they would like to know under what conditions an assessment is likely to be made, and I am putting that forward for them to know the facts.
I would say finally, as I said at the beginning, that I wish success to this new form of tax, because I believe it will introduce a scientific element into our taxation system. It will discriminate to some extent, and it will make a difference—it will show that the Treasury realise that taxation must vary according to whether prices are rising or falling, as to whether we are in a period of inflation or a period of deflation, and, in the long run, it will tend to even-up booms and depressions, making them less severe, because it is they that have been such a cause of serious economic and social dislocation in the course of so many decades.
§ 7.51 p.m.
§ Mr. Chorlton
I do not want to waste words on any general financial disquisition, but I would like to say first that the difficulties of this particular tax which have been dealt with by other hon. Members, the National Defence Contribution tax, is that its incidence may bear no relation to armaments at all; there will be more industry affected outside than in. That is really the hardest nut we have to crack. The large expenditure is, of course, primarily on armaments, and the impression has got about that heavy profits are being made on these contracts, and therefore the right way to meet such expenditure is by taxing the particular 2006 armament firms, wherever they are, but the proportion of trade affected quite outside armament work is actually greater and too severe regulations may be repressive.
The Chancellor has the most difficult job of trying to relieve firms which are in no way concerned with armament production, and in many cases are injured by it—the job of giving them some form of relief which will not affect their progress; because, after all, what we want is to continue the progress of industry. The happiness of everybody in the country is bound up with this, not only of the master but of the man, for I refuse to believe all the tales that the master tries to take too much and drives the men to get too little. That is not my experience of industry in the various firms with which I have been associated; I am thankful to say that we have worked together.
One of the first industries which is not concerned with armaments in the main and has been through a terrible depression is the cotton industry, and it is going to be affected unless something is done. I would ask the Financial Secretary in his reply to make particular reference to the cotton trade. Here is a trade that year after year did so badly that the number of mills actively engaged in it became less and less. The output of the trade fell from 7,000,000,000 yards to 2,000,000,000, less than a third, and that represents the way that money was being lost during those years. Now, how are we going to assess such an industry? It is proposed to start with the figure of 6 per cent. profit, but it cannot be that 6 per cent. is an adequate return for an industry which through all these years has been making losses. That seems to be a very important point. The 6 per cent. figure is too low, unless many allowances are made in different ways for losses in the past, as that it becomes a net figure that can be paid to the ordinary shareholders.
The cotton trade comes in amount of employment next to the coal industry, and in export value it is the greatest of all, so that obviously anything that can be done to prevent too heavy' imposition of this tax on this industry is of great importance. I do not think that the trade generally is opposed to the tax; the feeling, I gather, is the fear that it may be so heavy as to destroy initiative and 2007 prevent the increase of production for which we have all been looking. One of the difficulties—dealing not specifically with cotton but with other industries like engineering—is the years of assessment. The year of assessment, if I may make a suggestion, should include 1936. Trade was not beginning to expand until 1936 and one of the years, 1932, was I find really a bad year. In 1936 we had not arrived at anything arising out of armaments; it could not be said that any profits made were armaments profits, and for those firms with no connection with armaments at all, of course that was perfectly clear. I hope that 1936 will be included. It will, I believe, make a considerable difference and ease the minds of those people who are not out to make big profits but do not want to be shut down in their efforts to go ahead.
I support what has been said earlier, that the wider and more complete the explanation that can be given by the Chancellor of the Exchequer in his reply, the better. I know another company in which this industry has been carefully carried on for years by two men. They have run it successfully and by thrifty ways have managed to tide over all difficulties, and now they are doing so well that, because there is such a big demand, they have been actually encouraged to double their output. Where are they going to be, a firm like that? The next point I should like to ask is when the financial year will be taken as ended? Suppose it ends at April or March, will the Chancellor take the full year or, if it is very much earlier or later, will he get a portion of the year? What is the period to be taken? That is rather important. I have dealt with the question of the 6 per cent., the figure allowed, but I would like to add what exactly does the 6 per cent. mean? Is it net after all deductions have been made for whatever reason, or is it a figure that under normal conditions would be reduced by various provisions? If so, it is much too low.
Another question is, will the subsidiary companies be taken in with the main companies or dealt with separately? Then I hope the Chancellor will be explicit about capital value. Does it mean the present value of the assets of a company or of the assets when the company was formed? If they are to be taken on their 2008 present-day value, that means a terriffic job throughout the country. But those who have bought shares in the last couple of years are going to be badly hit if an earlier value is taken. It is the really hard cases to which I am calling attention. I want to do all I can in passing the Budget, so long as the hard cases receive fair and reasonable treatment. Only two days ago a special delegation, led by Lord Derby, made representations to the President of the Board of Trade on behalf of the industry pressing for assistance. Is this now to be caught in a net by this particular tax? This would be a calamity, just as it is recovering after suffering so severely as it has done for so many years.
I want to feel that there will be nothing in this tax to cause any hesitation on the part of small concerns to go ahead. The progress and prosperity of this country depend to a large extent on the small concerns who may be hit by this tax. Men who have suffered in hard times and are beginning to make a little profit are the people to be considered. We want to do everything we can to encourage them in every way to go ahead in their business, and I hope that the necessary regulations under the new proposals will be designed to that end. We want the country to turn out far more in the way of production than ever before.
§ 8.4 p.m.
§ Mr. McCorquodale
I rise chiefly because this is probably the last Budget that the Chancellor will be presenting. It is fitting that those who have admired his work in the last five or six years should take the opportunity of expressing appreciation and gratitude. Within the last two days I, with other hon. Members, attended one of the largest mass meetings ever held in my constituency, and the remarks which I made there on this subject were received with such applause that I venture to quote them here. I said that history would no doubt acclaim my right hon. Friend to be, because of his achievements, the greatest of modern Chancellors.Six years ago when he took office our finances were in a parlous condition. Now our credit stands as firm as a rock. Our finances are the envy of the world. He has largely extended our social services and, even in the face of the tremendous demands of our rearmament necessities, we can look forward with confidence to the future.My constituents also applauded when I said: 2009I was convinced that our country's safety, honour and welfare could be as safely left in the hands of the right hon. Gentleman the present Chancellor of the Exchequer as our finances have been in the last six years.I wish to raise one or two points about the Budget which I think have not so far been dealt with. The Chancellor is allowing for a general Supplementary Estimate of £10,000,000. He did not give much explanation about it, and a few more words might be valuable. He cursorily noted that his Miscellaneous Receipts were down £12,000,000. The total of those two items alone is more than he hopes to get in a full year by the new tax, about which everyone is disturbed. Could we have some further explanations? I think the basic idea of the National Defence Contribution is sound and just. Its object may be summed up under three heads: (1) to raise extra revenue out of the additional prosperity that armaments may create; (2) to catch any profiteers that may be hanging about; and (3) most important of all, to put a salutary check on anything approaching an unmanageable boom with its consequent slump.
While the country will whole-heartedly be in support of this basic idea, the method adopted is open to criticism. The tax may be discriminatory not only between industries but between various classes of shareholders in the same industry. There is nothing that annoys a taxpayer so much as the feeling that his neighbour is getting off too lightly while he himself has to bear a full burden. The country needs assuring that the tax is going to work fairly as between individual and individual and between firm and firm. I am tempted to think that the rate is too high. It is difficult to judge what the tax will mean and I do not think that even the Chancellor can estimate that. I think that 33⅓ per cent. is too high for a start. Possibly a rate of 10 per cent. rising to 15 per cent. would make the tax much more popular in the country and yield sufficient revenue. Regarding the years to be taken as a basis for standard profit, many firms may have experienced during one of those three years an abnormal increase or decrease in profits. It is surely unfair that such a period should be taken as a standard basis of profit for all time. I suggest that firms should be allowed to choose two consecutive years out of a period of three or four. I hope that whoever is Chan- 2010 cellor when we get our teeth into the Finance Bill will listen to suggestions and Amendments in the direction of making this tax both equitable and effective. If that can be achieved, this tax will be well received throughout the country.
One other point—I am rather nervous of speaking on this matter as I am not an expert in currency, but I am one of those who dislike anything hidden in the way of business. I dislike hidden reserves; I dislike hidden profits or losses. I am in favour of everything being open to inspection. The right hon. Gentleman the Member for Hillhead (Sir R. Horne) urged some form of stabilisation of currency. It seems to me that sooner or later—sooner possibly rather than later—that stabilisation will become not only necessary but easily accomplished. When that comes about and if the value of gold is anything like it is to-day, there will be a very large profit in the Treasury and in the Exchange Equalisation Fund, which holds gold at present at the old value of 84s. an oz. as against 140s. as it is to-day. That is a hidden profit. I have no idea how much it is. Perhaps it is over £100,000,000. But it is not only a hidden profit; it is a capital profit. It is a capital appreciation, and I do not wish to see some future Government—possibly of a different complexion from the present one—taking that profit and using it for income purposes. That would be the worst finance possible. I should welcome a statement as to how much profit there is in that Fund or how much there would be if gold were stabilised at the present price. If in the near future the currency is stabilised, I would like to see that profit used to help reduce the loan for National Defence.
§ 8.13 p.m.
Mr. David Adams
It is clear from the Budget statement and the subsequent debate that the Chancellor's double motives are likely to be achieved. They appear to be (1) to obtain new money, and (2) to arrest the speculative boom that was upon us. The fears of members and supporters of the Government, who in this House are primarily representatives of money, indicated that the first obpect had been achieved, and the fall in speculative securities on the Stock Exchange since the Budget statement, amounting to £400,000,000, indicates that speculation has received a most severe check. The fall is said to be greater than 2011 has occurred in the history of the Stock Exchange in the particular shares concerned. When we are advised, moreover, by the financial newspapers that such stocks—armament shares and engineering shares affected by armaments, and others—can be looked upon so far as speculative purposes are concerned, as nearly equal to gilt-edged securities, then we realise that the Chancellor has undoubtedly arrested the boom. I wonder what would have happened if a Socialist Government had been in office and had originated this form of taxation. I fancy the military might have been called out the next day. The fact that the Chancellor is present causes me to say that his Budget, which we are sorry is likely to be his last one, has produced on these benches a sense of fraternal relationship with him, and if at any time he may deem it judicious to change his location, we assure him of a cordial welcome on this side, for semi-Socialists or Socialistically-tinged Budgets of this character are not to be obtained from the Conservative party very often. It is a pleasure to be able to express satisfaction with the courage, the daring and the originality of the Budget statement, and to say that the method of its presentation was ideal, admirable and one which I am certain gave very general satisfaction.
As far as the material of the Budget is concerned, to one who always most ardently looks for unanimity in the House, as I do, it was lamentable that the substance of the statement did not obtain the equally unanimous approval of the House. I suppose the Chancellor could scarcely have expected that, since it would naturally take a longer time for the blessings and advantages of the Budget to be absorbed on his side of the House, which is so Conservative as to be rather slow in absorbing good ideas, as compared with hon. Members on this side of the House who have always looked for the new and perhaps the revolutionary. The Chancellor could hardly have expected it. I am reminded of the young Irish farmer who had just sold some pigs on Dublin market and was asked by one of his friends how he did, and replied, "I did not do as well as I expected I would, and I did not expect that I would." It is a sound canon of taxation that taxation should press equitably upon all classes, and it is to the credit of the 2012 Chancellor that he has not proposed any increase in indirect taxation. The classes most affected, suffering as they are from rises in prices, many of which have been organised by the Government, are not to be pressed still further under the Budget.
The cost of living rose from 144 on 1st April, 1936, to 151 on 1st April of this year, an increase of seven points, and since that time it has gone up by 12 points, making an increase of 8½ per cent., or is. 8d. in the £. I believe that in days to come Chancellors of the Exchequer will cast their eyes in that direction and see whether it is not in the general interest of the community that the depressed classes should have some consideration at their hands. The fixed-income people, the pensioners, the unemployed, those under the means test and their dependants, and people with small incomes, are paying in the increased cost of living a very substantial contribution to the finances of the State. It has been estimated that this amounts to not less than £20,000,000 or £30,000,000 annually.
Of course, the Government always have the Import Duties at their disposal as a standby, and it is significant that almost none of these Import Duties, which add to the burden of indirect taxation, has been met with protests from the Government side of the House. Yet, each of these increases has been not only art addition to the burden on those classes in this country, but an addition to the general unrest in the countries of the world, There is little doubt that our fiscal policy has contributed, and is contributing, not a little to the difficulties of the world in general and perhaps to the creation of the "boom" in armaments which now, alas, is almost universal. I hope that the result of the increase in the cost of living will not be to create undue industrial unrest, which nobody wants, but I believe that unless the problem is taken in hand, we shall, if these increases continue, he faced with substantial unrest during the ensuing months of this year.
As to the National Defence Contribution, it is a form of levy which, in my judgment, and probably in that of the Chancellor, has come to stay. As in the case of Income Tax, it is begun as a temporary expedient. It meets, in part, the demand on this side of the House for the taxation of the beneficiaries of the armaments expenditure, but it is not restricted, as has been pointed out, to those engaged 2013 in arms manufacture. I am certain that this form of taxation will be incorporated into the normal taxation methods of the country in the days that are to come. No doubt, when arms production in this country is over, we shall be confronted with depressed industries, and it is then that subsidies will once more begin to be paid. If subsidies can be justified for the adequate maintenance of industry in various forms, hon. Members on this side of the House are not opposed to them, provided there is adequate supervision or control over or interest in all such subsidies. We shall find that even Conservative Governments will automatically, and almost in the nature of things, when granting subsidies, consider it their incontestable right to take part of the proceeds of industry and share in the profits under the scheme which the Chancellor has introduced.
With regard to some of the effects of this Defence Contribution, we on this side of the House are just as interested, although we may not express it, in the prosperity of industries as is the other side, because we recognise that with general prosperity the worker has an opportunity of obtaining a better share in the produce of industry. Moreover, if one looks far enough ahead to the days when nationalisation is to come—if not in the next Parliament, it will certainly be in the ensuing one—we want industry to be in a flourishing condition when it is absorbed by the State. We are, therefore, genuinely interested on this side of the House in the prosperity of the business concerns of the country.
The years 1933–4–5 were very lean years, and the standard in many cases will be low; accordingly, many companies will be prejudicially affected as against others if these years are taken. Many cases have been quoted in which there will be manifest injustices unless meticulous care is taken in the determination of what is the proper capital standard or the proper dividend standard for individual concerns. I know the principals of a certain engineering firm on the North-East coast which is making goods principally for export. At the desire of the Government they began to manufacture armaments, which necessitated new building operations and new machinery, but above all, the chairman of directors informed me, they had to abandon their 2014 export trade. What is to happen to that concern at the end of the arms production period? They will be left, presumably, to maintain new works and machinery which are of no use to them. They will require very large resources, I am advised, to recover export trade. Large revenues are required to meet their various obligations due to their patriotic—and that is the correct word in their case—determination to assist in arms production. Is that firm to be penalised by the new profits tax which may in their case amount to 33⅓ per cent. deduction from the standard amount? If that be so, I am sure that if it ever should occur again that firms are required on patriotic or any other grounds to turn to armaments making, they will hesitate to do so in the interests of the solvency of their concerns.
Coming from a Special Area I am wondering what the Chancellor is about to do with us. The industrial position in the Special Areas, which is largely due to lack of foresight and planning, has caused a confusing situation. Several firms and businesses are there or will shortly be there. The first type are those which have financed themselves and are proceeding along normal lines. The second type alongside them have been financed through the aid of the Special Areas Reconstruction Association. Their capital has been obtained only at high rates of interest, and it has to be repaid in a maximum of five years. These concerns have to pay full rates, taxes and rentals, so that they will certainly need some merciful consideration. The third type are those which will have advantage of the Treasury £2,000,000. They may obtain, through advisory committees which have been set up, relief for five years of Income Tax, rates and rent. They are working alongside competitive firms which will thus be in a prejudiced position. The fourth type are those which have obtained recently—I know some cases this week—loans under favourable conditions and easy terms of repayment from the Nuffield Trust. The existence of these various types creates a situation which will take a Chancellor's mind to deal with equitably, and I mention them in order that equitable treatment may be meted out. There must be adjustments of a radical character or grave injustices will be done. I fear that 2015 the enterprise of particular concerns that I know on the North-East coast will undoubtedly be crippled.
Take the case of two firms which are both engaged in the same enterprise. One has displayed liveliness and competence, has written down its capital and modernised its plant. In order to do so it has sold its investments, and it thus has begun with a low capital standard and a low dividend standard. The other firm, however, is working with inflated capital. It has not written down its capital and has a high capital standard. It has paid out its resources in large dividends and is therefore in an altogether more privileged position so far as the new tax is concerned than the wise energetic firm that has done its duty by the State. With regard to the question of investments outside a firm's own business, I know that in the case of certain shipping companies such investments are the only source of return to the shareholders. If those are not to be taken into account, undoubtedly such companies will begin with low dividend standards. The Chancellor, we learn with regret, is about to make his exit for a more exalted station. What better advice can we give to him than was given by the hon. Member for Oxford University (Sir A. Salter) in his luminous address, which was exalting to the House of Commons, to which his presence has added a new lustre and dignity? It was an injunction to the present and to the succeeding Prime Minister to labour without ceasing in the direction of expanding not only British trade but world trade in the general interests of civilisation.
§ 8.36 p.m.
§ Mr. George Balfour
As hon. Members know, in recent years I have addressed the House only on rare occasions, and, if my memory serves me aright, on those occasions I have usually been in the position either of a critic or an opponent of the Government Measure or Resolution before the House. On this occasion I am happy to say that I find myself in agreement with the general proposals submitted by the Chancellor of the Exchequer. As an industrialist I should say that under normal conditions his new proposals were quite unjustifiable, but in the circumstances in which 2016 we find ourselves I think they are prudent and wise as a precaution to help us to restore normal conditions after the present abnormal conditions have passed. As an industrialist I feel also that it is right because of the abnormality that this special Defence expenditure is superimposing upon normal trade conditions and the normal armaments' expenditure such a huge expenditure as to create additional profits beyond anything which we could regard as normal. It is right, therefore, that for the limited period of years which the Chancellor has indicated we should make a special industrial contribution to this Defence programme, detached entirely from the general taxation of the country and dissociated, as it has been submitted to us, from Income Tax.
On these grounds I have no hesitation whatever in saying that the Chancellor has submitted broadly a sound Budget to the House, but I am sure he will not misunderstand me when I say that regard ought to be had to certain cases, no cases, as far as I can gather, with which I shall find myself associated. There must be a large number of cases in which companies can be related neither to the three years' average of profits nor, in any reasonable or sensible degree, to the 6 per cent. allowance, and I think the Chancellor will find it necessary to provide some machinery which will do neither more nor less than relate those special cases reasonably to his intentions in those alternatives scales. I realise that in framing these proposals the Chancellor has endeavoured, as far as is possible in a preliminary proposal, to meet the reasonable views of industry, but careful consideration will be needed in the framing of the law if he is to equate fairly the profits in a large number of concerns which could not properly be brought within the ambit of those two provisions.
§ Mr. Balfour
There must be such cases as those of plantation companies with a capital written down to a mere cypher and with, possibly, their assets not capable of easy recognition to the satisfaction of the authorities administering the law. There must be many such companies about which I could give examples if I were associated with or in- 2017 terested in such companies; but I am putting forward this plea solely on the grounds of fair and honest public policy, and in the hope that some arrangement will be made which will give these people the same relative allowances as other companies whose accounts disclose their proper and true position. Further, I suggest to the Chancellor that he would not only find it more convenient to himself but more acceptable to industry, if the flat rate of 6 per cent. were applied to the capital as represented by the assets of a company, without worrying about first deducting debenture interest or loan interest. It would make no difference financially to the result, and we should be dealing with a straightforward 6 per cent. In some cases companies have 7 per cent. debentures and in other cases 5 per cent. debentures, but if it is all put in the pot we shall find that industry as a whole will neither gain nor lose and the Exchequer will neither gain nor lose. It will be much easier for his staff to deal with a straight 6 per cent. on the accredited capital, whether represented by loan or share capital or debenture capital. I suggest that in the hope that it may be of assistance to industry and I do not think it will reduce the receipts by one penny. I do not feel that I can usefully add anything more, as I am sure that nearly every aspect of this National Defence Contribution has been raised in the speeches from one side of the Committee or the other, but I commend what I have said to the attention of the Chancellor, because I am sure that the adoption of the suggestion would remove a great amount of irritation, and be well worth any time given to it.
§ 8.43 p.m.
§ Mr. Stephen
The present Chancellor of the Exchequer has been a very lucky Chancellor. It is true that he took charge of the finances of the country in a period of depression, but there was the very genuine excuse that that depression was a world phenomenon, and that no Government could be held responsible for the depression in this country. Now the Chancellor is in a much more fortunate position, because there has been a revival of trade and industry, and throughout the Debate he has been congratulated because, it is said, it was due to his wise guidance in the financial 2018 affairs of the country that we have advanced from slump to prosperity. [HON. MEMBERS: "Hear, hear!"] Hon. Members say: "Hear, hear!" I would remind them that the same phenomenon has occurred in other countries, an improvement in trade and industry and a fall in the number of people unemployed. I suppose that, in some mysterious way, at this epoch in the world's history, each of those countries has been gifted with a wise Chancellor to conduct its affairs.
I do not think that the Chancellor and his policy have had very much to do with the revival of prosperity in this country. I do not want him to think that I say that in any grudging spirit or in any disrespectful way. Probably he has done his job as well as any capitalist-minded Chancellor could have done it in any country. He has been very largely the creature of economic circumstances. Responsibility was disclaimed by Chancellors, Governments, and parties previously and responsibility has now, in the same way, been due to economic forces and to the way in which the world economic system works. I remember when the Chancellor spoke last year. Generally he appears to be a very sober, steady and pessimistic person; anyone who wished to characterise the kind of Budget that might be expected from him would think of a general undertaker's Budget, because of the Chancellor's gloomy manner. Last year he spoke about the buoyancy of the Revenue, and he took a somewhat buoyant view of matters. The present Budget is influenced most of all by the international situation and its difficulties, and by the tremendous increases in expenditure upon armaments. The armament programme has to be provided for and, in framing his proposals this year, the Chancellor has in consequence had a difficult financial problem. I am not disposed to say that he has acted unwisely in the proposals that he has made; I am not even going to get very indignant about the way in which he is throwing much of the burden of expenditure on to loans and to a future date.
It is remarkable that this Committee can contemplate so calmly the tremendous expenditure needed for financing a programme of rearmament which will cost £1,500,000,000. The equanimity with which hon. Members regard it is extra- 2019 ordinary, when one remembers their response to the demands which have been made in the past for increased expenditure upon the social services in order to mitigate poverty among the mass of the people. We were told that that was impossible, and Members like myself seemed to be regarded as living under the influence of the silly idea that there was a large amount of money which could be drawn upon; whereas, the amount of money that could be provided was very limited. The extraordinary phenomenon in this and other countries, which is typified by our armament expenditure, does not seem to suggest that the bankruptcy court is facing us to-morrow. It is expenditure upon the instruments of death, but when a few hundred million pounds of expenditure was proposed for life, we were told lurid stories about the bankruptcy court and how everything that we proposed was all wrong.
It is evident that we have an un-balanced Budget. Hon. Members on the Government side of the House traced the pitiful conditions of 1931 to the unbalanced Budget, but now that we are launching, not an expenditure of a few hundred million pounds for the unemployed, but £1,500,000,000 for the instruments of death, those hon. Members are uttering practically no note of warning with regard to that expenditure. If this rearmament programme can be financed there should go with it a corresponding programme of amelioration of the conditions of the people. For every pound spent upon rearmament, a pound should be spent upon the social services. I was interested in what was said by the hon. Member for Oxford University (Sir A. Salter) and in his argument that much of the expenditure upon social services is paid for by the poorer sections of the community. I agree with him that our people do not seem to realise how great a portion of the revenue from indirect taxation is drawn from the working class and constitutes in many ways a most unfair system of taxation.
The Budget reflects the general economic conditions of the country and the state of trade and industry. The revival in trade and industry has been beneficial to the working class because many who have been unemployed for a long time have found employment. One 2020 is willing to admit that, but the improvement in the condition of the working class and the greater amount of security of employment to-day are in no way commensurate with what the employing class have obtained from that revival of trade and industry. After all, the working class are still on the poverty basis, or very near to it. The hon. Member opposite need not shake his head. Anyone who knows working-class conditions in this country knows that the working class are living either in poverty or on the edge of poverty. In the Budget proposals there is no attempt whatsoever to give anything like equality of treatment, or so to organise the financial system of the country that the great mass of the people will enjoy their full share in the revival of trade or industry.
If I may give an illustration, I will take it from the great works on the edge of my own constituency, the Parkhead Forge. It was only a few years ago that the Bank of England had to put in its financial bailiffs in connection with that concern, because it was in such a bad way; it was at a very low level indeed. To-day, with the rearmament programme and this expenditure for which the Chancellor is making provision, thousands more people are employed there, the work is booming; and there is this singular feature, that the work which kept the Forge going during the period of depression has now been practically closed down. One of my own constituents who worked there had been working for years one week on and one week off. Now he is out altogether, and he tells me that the kind of work he was doing has been closed down. But there is the big rearmament programme, and the Parkhead Forge is now in a very sound condition as an industrial concern. Money is being made again at the Parkhead Forge. And yet in these circumstances the engineers, the highly skilled men employed there, are refused a penny an hour on their wages. This firm that has come from bankruptcy to affluence is not able to provide an additional penny an hour for those highly skilled workers, who, the Minister for the Co-ordination of Defence has said, are among the most important people in this country. It is just the same throughout the rest of industry in the country.
The trade union executive leaders are face to face with the possibility of un- 2021 official strikes, because the workers in those factories, under the present conduct of the finances of the country, are not getting anything like their fair share in connection with the revival of prosperity in this country. Unofficial strikes do not happen because there is some extra dose of original sin in the working class; they happen because the economic circumstances are practically compelling the people to take the action of walking out. Nobody likes to take the risk and bear the sacrifice and hardship involved in leaving his job. I believe it is a sound criticism of the Chancellor's financial proposals to say that there seems to be no vision in regard to the fair treatment of the workers in connection with this great new expenditure for which the Budget is making provision.
These are the more indirect consequences of the Budget proposals, but I would also like to point out that, while there is this scheme for expenditure on armaments, there is no scheme for the development of social services. There is the grave problem of the Special Areas. Some of them are offered, possibly, a small-arms factory here and there, but that is all that there is in the outlook of the Chancellor of the Exchequer with regard to the Special Areas. All that is proposed is about as poky and miserable as what one might associate with the per- son most concerned in that connection—the Minister of Labour. The social services have come through this period of depression, but in many of them during those years one anomaly has been exposed after another. For example, there are hundreds of thousands of widows who have been denied pensions, although their circumstances are just as needful as any of those who are in receipt of pensions. All those widows have been cut out of the pension scheme, many of them in the most anomalous positions, and there is nothing in the Chancellor's proposals to remedy the circumstances of these poor people in this time of reviving trade and industry. There are the old people, and, with the expansion of prices to-day, it is only reasonable that the old people should be looking for an advance in the amount of their pension in order to allow them to keep the wolf from the door; but again there is nothing in the way of increase of pensions, nothing to bring hope to those poor people. During the year the Chancellor has had pre- 2022 sented to him the unfair treatment which single women are receiving under the present operation of National Health Insurance; the demand has been made for a pension scheme for spinsters; but again there is nothing doing. No money can be found; it would cost so many millions of pounds a year—not as much as the cost of another "Hood." There is nothing in the Budget for that, nothing in the way of improvement of the social services. In consequence, I think that the working class in this country will come out strongly in revolt against the financial provisions for the year.
The big point of controversy which has arisen so far has been the new National Defence Contribution. I listened with great interest to the speech of the hon. Member for North Tottenham (Mr. Morrison), who was pleading the case of someone with £17,000 or £18,000 which he had put into a certain business and how he would be affected by the new tax. I do not know for what party the hon. Gentleman was speaking, but on the seat on which I sit there were very many Tory expressions of approval. It reminded me very much of the speeches that used to be made by Conservative Members who told us that the Labour party never realised the number of poor widows who had been left by their husbands a few thousand pounds invested in railway or coal companies and how we were not really taking any account of what our policy would mean to these people. When I hear Conservative speeches on this new tax I think how wise a Conservative the Chancellor of the Exchequer is compared with his supporters who are in revolt against this proposal. He is proposing to let off the people who are going to profiteer at the expense of the community in connection with rearmament with a tax of a fifth. The working classes are intelligent people. They read the financial columns of the newspapers, and they see the way in which one share after another is soaring, and they know how these great profits are being made and will be made in the future in the armament industry and ancillary industries. The working people, as they see prices rising and find that the employers will not give them a penny an hour increase in wages, are not going to take it calmly. The Chancellor has every justification. He says that if extra profits are to be made in this way they shall 2023 form a source which shall make the national contribution to the defence of the country.
I do not think the working class are going to be so foolish as to be taken in by this controversy which is creating a certain amount of stir in the Conservative party. The fight is not between different sections of the Conservative party whether it shall be this tax, or this tax modified. The fight in the future over the expenditure with which the Budget is dealing is a fight between the working class and the owning class, who are not prepared, even with their wealth, to take the burden upon them of providing for the Defence of the country. The amount that is being taken from the workers is shocking. The indirect taxation is a tremendous reproach to the possessing class, and yet, with this burden upon the shoulders of the working class, they are not only being called upon to pay all these additional millions for Defence, but they are afterwards going to be asked to give their lives. I remember that in the last War there was a beautiful poster in Scotland showing one of our Highland glens and above it the words, "Is this worth fighting for?" The workers of Scotland were expected to look at that picture of a beautiful spot in their own country and rally to the Forces. I would have had no objection to their rallying in their thousands and their tens of thousands to fight for it, but they were rallying to fight not for it, but for the owners of it. I am told that this is the last Budget of the present Chancellor and that he is going to get promotion. I hope that in the not distant future the wholt Government will also get the due reward of the policy that is enshrined in this Budget and that the working class will drive them out of office and will take the power to use the wealth of the country to bring health and happiness to all the families in the community.
§ 9.14 p.m.
§ Sir John Mellor
It is, I presume, a consequence of the secrecy which must necessarily attend the preparation of the Budget that we have not at present very full and definite information with regard to the most novel proposal, the National Defence Contribution. It is owing, I think, mainly to the lack of full and definite information that the business community has been somewhat disturbed. 2024 I have very great faith in the Chancellor of the Exchequer, a faith which is certainly shared by the overwhelming majority of my constituents, and I believe throughout the community. That faith is well grounded upon six years of really sound finance. That being so, I hope and believe that, when he has had the opportunity to make the necessary inquiries and consultations and has been able to formulate these proposals more fully and definitely, the fears of the business community will be very much allayed.
I think the Government can claim full credit for the very large and increasing degree of prosperity which many of our businesses are enjoying. To that prosperity there will probably be added, as time goes on, a further degree of prosperity, due to the Government's armaments programme. I am certain that no one will resent in this country a special measure of taxation being applied to profits as the result of the manufacture of armaments, but the Government's proposals go a great deal beyond that. The proposed tax is really a prosperity tax. I do not think that that would be or will be objected to, provided it is apportioned fairly among those who enjoy this prosperity. I think the main anxiety of the business community is lest discrimination should he rather indivious. One example, the omission of the professions from the ambit of this new proposal, is certainly arousing some concern, because there is no doubt, as has been stressed on more than one occasion in this Debate, that, for instance, the accountants will gain enormously as a result of the uncertainty and the complications which must necessarily arise when this new form of taxation is introduced.
I think the principal anxiety which has shown itself up and down the country has arisen because there is a feeling that the sheltered industries will gain and the unsheltered industries will lose, with the result that those who are most prepared to take risks in this country will be most prejudiced. I think that would be an unfortunate result, and I hope very much that the Chancellor of the Exchequer will find a way of avoiding such a result, because it is those people who are prepared to take risks in enterprise who are the greatest stimulus to increasing prosperity.
2025 I think a mistake has been made by more than one hon. Member in suggesting that companies which have watered their capital in the past will gain as opposed to companies which have been more conservatively financed. I speak subject to correction, but I think that is a mistake because, speaking on Tuesday, the Chancellor of the Exchequer said that the capital will be calculated at the cost of the assets in the business, subject to certain adjustments. Therefore, the nominal capital will not be a matter of concern in this case. However, everyone will be very anxious to know exactly how the capital for the purposes of the Finance Act will be calculated. For instance, is the cost of goodwill to be included, whether written off or not? Will the cost of preliminary expenses be included, whether written off or not? Again, what about companies whose operations are mainly conducted abroad, although the companies are registered in this country? Are they going to be treated on exactly the same footing as companies which operate entirely in this country? In many such instances it would not be possible to say that they are gaining either from the Government's armaments expenditure or from the increase in prosperity in this country. Further, I hope very much that it will not be found that, say, a company which conducts its operations in Northern Rhodesia, a copper mining company, which has its registered office in London, will be at a disadvantage compared with a company engaged in gold mining on the Rand, which has its registered office in Johannesburg.
I know that the Chancellor of the Exchequer is anxious not to drive capital out of the country. Indeed, the advice which he has given to the City through the medium of the Foreign Transactions Advisory Committee's recommendations has shown his strong desire that capital should not leave this country unduly for foreign investment. I am not sure that the result of this proposal will not be calculated to drive a certain amount of British capital abroad. It may go further and result in a certain number of British companies forming foreign companies in order to conduct their operations abroad. I do not wish to detain the Committee any longer, but I hope very much that the Chancellor of the Exchequer, if possible to-night, or, if not, at the earliest opportunity, will endeavour to deal with 2026 the many questions that have been put to him in the course of the Debate, in order to clear up the anxieties of the business community.
§ 9.20 p.m.
§ Mr. Garro Jones
This has been a strange day in the history of the Chancellor of the Exchequer. The hon. Member for Tamworth (Sir J. Mellor) has added his voice to a large number of other supporters of the Chancellor of the Exchequer who have begun their speeches by professions of confidence in his administration and have then gone on to express the most profound anxiety about, if not open and violent criticism of, his proposals. This is the sixth and last Budget which the right hon. Gentleman will introduce. It is certainly the strangest Debate that he has had to listen to. For five years he has been held up to us as the arch-apostle of sound finance and sound administration, but to-day, because he has taken the first tentative step which touches the pockets of those he has been protecting for so long, an avalanche of criticism has fallen upon him. Surely, never has so neat a copybook had so black a blot placed upon it. When the Chancellor of the Exchequer goes home to-night, if he is inclined to philosophic reflection, I would remind him to read that poem by Robert Browning called "The Patriot," which must have been written for politicians under a cloud. Let him reflect on the last five years, when it was:Roses, roses all the way,With myrtle mixed in my path like mad.To-day, he has almost been hurried to the shambles, and we wonder what will be the result to-morrow. I recognise that the support of newspaper proprietors as a whole is fickle, and the financial newspaper proprietor is especially so, but I must confess that I never thought that I should live to see the day when the "Financial News," a paper of which the hon. Member for North Paddington (Mr. Bracken) is the chairman, could write these words about the Chancellor of the Exchequer:From every point of view the Chancellor's surprise is not only unpleasant but extremely regrettable. He has succeeded in courting a little easy popularity. As the price of that he has done a great deal of fundamental harm. His last Budget is his worst.It has, indeed, been an uncomfortable day for the Chancellor of the Exchequer, 2027 but I should like to say one word to cheer him. He will be able to soothe all this criticism by the large compliances he will make, and the violent speeches which we have heard to-day will prove to be just a few April showers which will have cleared up by the end of the month. Although we do not identify ourselves with the grounds of criticism upon which the speeches of the other side have been based, we have serious criticisms to make of this Budget and have made them to-day, including that most controversial proposal known as' the National Defence Contribution. But as for the suggestion that that Contribution will cripple industry or prevent the building up of prudent reserves, those of us who know anything about the history of taxation have heard that story so often that it has long since ceased to have any effect on us.
I amused myself—I think that is the right word—by reading some of the debates when the Excess Profits Duty was introduced during the last War. Cases were given where firms made £89,000 in 1913 and £367,000 in 1914 and £37,000 in one year and £131,000 in the next. And yet we had that cry that industry would be crippled if they introduced this duty and enterprise destroyed—until Mr. Bonar Law got up and made one of the most frank and forthright speeches which have ever been made from that Box. He told the Committee that he had invested not so long before £8,000 in a shipping company and he was now receiving profits to the value of £3,847 per annum, and that did not include the capital profits he was making, because he had £200 invested in one ship which had been sunk and he had just received a cheque for £1,000 to represent that capital value. That was when these complaints about crippling industry and destroying enterprise were being made, when the average impost made on industry was £375,000,000 per annum during those years and not £20,000,000 as now proposed.
We have heard from speakers on the other side of what a hardship it will be on these companies if one-third of their profit is taken away; they will be left with only two-thirds of the surplus swag out of which they must build up their reserves. I have here a statement which was made by Sir Josiah Stamp in his 2028 work, "Wartime Taxation," and this is his comment upon that matter:In every debate in successive years proposals were put forward for allowances to be made based upon the action that the prudent trader might see fit to take, which betrayed a touching faith that prudence was absolute in character and would remain uninfluenced by surroundings in the hands of a legion of traders all qualified to supersede St. Anthony.Therefore, on these two grounds these cries of "Wolf!" at this contemptibly small amount, having regard to the vastly increased profits being made, leave us entirely unmoved.
What, therefore, are the real grounds of our criticism of this proposal? I should regard it as justifiable on two grounds. First that it made an effective levy on armaments profits and, second, and as an alternative ground, that it levied an effective contribution from industry as a whole towards National Defence. It does neither of these things. As far as it is an attempt to make a levy on armaments profits, it is only a minute proportion of this £20,000,000 that will come from the armament firms even in a full year. The Chancellor has said that he finds it impossible to segregate armaments profits from the profits of industry as a whole. But even if you cast your net so as to encompass every firm which can possibly be connected with armaments manufacture, you will still find that it will be but a minute proportion that can possibly be paid by them towards this impost. I would like the Committee to consider a total expenditure of £1,500,000,000 in the five years or £300,000,000 a year. If you take the amount of that per annum which can be expended on materials, it cannot be more than half, and, therefore, if you take the total profit earned by armament makers in one year it cannot on 20 per cent. on turnover be more than £30,000,000.
I know that a quotation, unsupported by the vast resources of the Treasury and so on, is bound to be approximate, but I have thrown the net wide enough to err on the side of being unfavourable rather than favourable to the contention I am making. From that £30,000,000 you have to deduct certain sums in respect of profits of firms which are not liable. But I affirm that not more than £2,0000,000 per annum, assuming that the Chancellor raises £20,000,000 in a full year by this impost, will he laid on the 2029 back of those armament manufacturers —however wide you cast the net—whose profits have been cited as the justification of the duty.
A further serious defect of the tax is that it will be temporary. We all know what that will mean. We shall find every possible device and evasion—excessive depreciation of assets and good will, overvaluation of stocks, making capital transactions out of the sale of stocks. The classic case was that of a firm which had whisky which cost £20,000,000 and sold it for £130,000,000, but managed to get it through their books as a capital transaction, and did not pay a penny in Excess Profits Duty on it. We know that the armament manufacturers and other people concerned will employ every resource of accountancy in order to evade this duty, and all the more so because it is a temporary impost. If they can only push it forward until such time as the tax is removed, they will escape the net. Finally, it is not an effective levy on armament profits because it will be passed on either to the Government, or, in the case of those firms who do not manufacture armaments, to the public. I have a quotation from a great American economist, Dr. Eddy, who writing at the end of the last War, said:There is general agreement in England that in the case of commodities manufactured under Government contract, especially during the earlier years of the War, the Excess Profits Duty was very often taken into account in arriving at prices, that is, the manufacturer usually considered the Excess Profits Duty an expense, and succeeded in securing terms which left him after paying it about the same amount of profit he would have striven for had the tax not been in existence. Consequently the tax in England was probably to a considerable extent illusory; the Government itself creating the profits which it took back in taxes.In case any hon. Member has a prejudice against an American economist, let me say that Sir Josiah Stamp with his great record and authority said:It is difficult to dissent from that view.This tax on armaments is an illusory safeguard and can be justified only on the ground that it is an effective general levy on industry to contribute towards the cost of a war. Let me deal with that contention. The clue to the extent to which the tax is spread is strangely enough to be found in the varying voices of those who have commented upon it on the opposite side of the House and in the commercial 2030 and daily Press. If you follow up the business connections of those gentlemen who say that it is a fair and reasonable proposal, like the hon. Member for Hampstead (Mr. G. Balfour), the managing director of Woolworths and others, you will find that they are connected with businesses which will not be touched by it. You have Woolworths paying 80 per cent. and 100 per cent.; they will not pay a penny, or at any rate it will be a negligible amount. There is Joseph Lyons and Company with their vast profits, and Imperial Chemical Industries who made a profit of £7,200,000 and who will pay £170,000, unless their profits greatly increase. That is only one-fortieth of their profits.
There is another very interesting class of enterprise which will remain untouched by the proposal—the joint stock banks. There it may be we shall find the mainspring of the proposal. Take the Midland Bank with a capital of £40,000,000. Looking back over its history you find 16 per cent., and 16 per cent. and 16 per cent. Strange is it not that their earnings should always remain at such a steady level? It would take a very shrewd accountant to find out where the surplus has gone, but most people know nevertheless. It has gone into new premises and other things. Take Barclays Bank, which has paid 14 per cent. from 1924 to 1936. None of these vast enterprises will pay a penny of what is described as a contribution towards National Defence. How, therefore, can the tax be so described? It is not as if meritorious effort or a general contribution towards the welfare of the community was the test as to whether they will come within the net or not, because these meritorious enterprises are assessed for profits on precisely the same basis as profits arising from speculation, from security values, from armaments. Or if you like to take another class who are unpopular with the more enterprising branches of industry, those people who lock up vast sums in gilt-edged securities, they will not pay a farthing towards the cost of these armament schemes.
Even if the scheme finds its way on to the Statute Book it will be further lessened and reduced by endless exceptions and reductions. I should like to know whether the Chancellor of the Exchequer proposes to set up a board of referees to deal with all the questions which will arise. That 2031 was found to be necessary when the Excess Profits Duty was put on, and the claims for exemptions and mitigations, and reductions put forward were on such increasingly flimsy grounds that the chairman at one sitting was moved to remark that before long they would be asked to exempt firms on evidence based on nothing stronger than the photograph of the managing director. The same thing will happen here. My belief is that this payment will tend to become like one or two other of our taxes, little more than a glorified subscription list, to which those will subscribe whose conscience or opportunities do not allow them to evade it. The armament manufacturers are not going to be found at the head of that list.
The Chancellor of the Exchequer has been called the iron Chancellor, or was it the iron and steel Chancellor. In any case that epithet does him less than justice because he has protected the interests of other commodity merchants just as well. It would be just as fair to call him the rubber Chancellor or the tin Chancellor, because we can be perfectly certain that they are not going to suffer much from this tax. However, in spite of all the turmoil, I am sure the Chancellor will survive the storm. For our part we are equally unimpressed by the clamour, or the proposal to tax armament profiteers. The real test of a Budget is not what it adds to the wealth of those who already have ample, but whether it relieves that enormous mass of poverty and suffering which is represented by 10,000,000 of people on the lowest scale of living in this country, and who are the real weakness of our country to-day. For them, neither in this Budget nor in his five previous Budgets has the Chancellor of the Exchequer introduced any effective proposal. Nevertheless that remains the acid test of sound finance and good statesmanship, and by that test the Chancellor of the Exchequer will be judged and condemned.
§ 9.45 P.m.
§ Mr. Morgan Jones
Most of the discussions in the latter part of our Debate this evening have centred round and been occasioned by the new tax which the Chancellor of the Exchequer has proposed in his Budget, but I may perhaps be permitted to revert to a more general discussion, because after all, it is the Budget as a whole that is the subject of our discussion here to-night, though, of 2032 course, it is appropriate that we should give our minds in particular to the consideration of this new imposition. I believe there is still a ha bit in some parts of the country, when a wealthy person passes on, for the relations to gather at the home of the deceased to hear the will read, and I believe too that on those occasions the flow of tears is in proportion to the amount of the inheritance. We all turned out last Tuesday to hear the will read, and as usual there has been rather more than the usual rumpus among the relations. I believe the Home Secretary is nominated as the principal heir. We heard the Chancellor of the Exchequer develop his theme, and I rather guessed that the Home Secretary was muttering to himself, "The old rake has left me nothing, except colossal debts and some good advice." I hope the Home Secretary is proud of the patrimony which is left him when he enters on his interitance.
My right hon. Friend the Member for Hillsborough (Mr. Alexander) reminded the House of a very important fact, I believe, that this country is now within speaking distance of a series of £1,000,000,000 Budgets. The Chancellor of the Exchequer, very wisely, if I may say so, reminded the Committee of what yet may be in store for him, in the speech which he made on Tuesday, when he used these words: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."—[OFFICIAL REPORT, 20th April, 1937; col. 1614, Vol. 322.]The Chancellor may claim that he has not concealed the fact from the House and the Committee that our prospective commitments are likely to be heavier in subsequent years even than in this year. A £1,000,000,000 Budget in ordinary circumstances is, of course, an unprecedented figure, but it need not be an unduly alarming one, given certain conditions. One condition must obviously be that the revenue of the country must not only be buoyant, but there must be some assurance of continued buoyancy on the part of the revenue. Yesterday the Chancellor seemed to indicate that he for his part inclined to be optimistic. Perhaps it is the job of Chancellors to be optimistic when speaking of revenue, but 2033 I would like to remind the Committee, none the less, that there are some factors to be borne in mind in connection with the present and prospective Budget commitments.
We are in process of passing through a boom, and I would like once again to recall to the Committee that some of these factors are factors that will not return. But they are factors none the less that have inured to the advantage of the Chancellor of the Exchequer while he has been in office. First of all, for instance, we have gone off the Gold Standard; we cannot go off the Gold Standard again, and whatever benefit going off the Gold Standard might have brought with it—and it has brought benefit undoubtedly—there it is and it cannot recur. We changed our fiscal policy. I am not arguing now whether that is right or not. It is not perhaps appropriate at the moment to discuss it, but we have changed it; and may I remind the Committee that this change of fiscal policy was the trump card of hon. Gentlemen opposite behind the Government? It has been the one thing to which they have committed themselves as a Conservative party for 30 years or more. But now they have played their card and so they cannot play it again. Trade policy, of course, may have to be altered, but I want to put this to the Committee: If a change in trade policy is to influence our revenue for good, I believe it would be found that it can be possible only by modifying and altering in some degree even the direction of our trade policy. We shall have to turn in the direction probably of freer international exchange of commodities. We Labour Members have frequently been accused, both here and outside, of being too doctrinaire. I cannot argue that point now, but it may well be that the Protectionists will suddenly become subject to the same criticism, and legitimately. Certainly, given a certain amount of open-mindedness on this matter of tariffs or Free Trade, a greater opportunity seems to me to be opening before the Government than has been available for a good number of years in the matter of assisting the development of international trade.
The hon. Member for Oxford University (Sir Arthur Salter), in a most interesting and stimulating speech this afternoon, pointed to that fact. The Protectionist 2034 oftentimes claims that once he has imposed these tariffs he is possessed of a specially useful bargaining weapon. Very well, now is the time to use it if there is any value in it at all; and I am quite sure that there is every reason to invite the Government to utilise to the full whatever benefit there may be attachable to this tariff procedure as a bargaining weapon with other countries. The second factor is a change in our tariff policy; and the third—I beg those who are so eulogistic of the work of the Chancellor in the last five or six years to keep it in mind—is that we have not provided for the Sinking Fund either this year or for several preceding years. Might I remind the Committee of the fact that the right hon. Gentleman the Member for Epping (Mr. Churchill), when Chancellor of the Exchequer in 1928, especially introduced into his Budget of that year the principle of Fixed Debt Charge, and that Fixed Debt Charge was to include interest and Sinking Fund. The figure laid down by the right hon. Gentleman was £355,000,000.
That principal was abandoned in the second Budget of 1931, and in the last four Budgets no provision has been made for Sinking Fund. My fourth point is that we have not had proper regard to certain external debt charges. The American debt, for instance, has not been disposed of, as far as agreement is concerned. The fifth item is that—I think it is since 1932—we have had the benefit of reduced interest charges. That has been a substantial benefit, but I cannot see the Chancellor of the Exchequer being able to repeat for some time to come what he did a few years ago in that respect. In the Defence Loan Debate I ventured to remind him that there is a body of some £350,000,000 of debt which will be convertible about 1940 or 1941, but he will not be able to convert it in 1941. I venture to prophesy that the rate of interest then will make it almost impossible to do so. The sixth factor that has been favourable is this measure of boom which we appear to be enjoying.
There are six factors which have helped the Government enormously. I am not now discussing what credit is due or is not due to the Government. Those six factors have been there, and I ask the Committee to bear in mind the fact that they cannot be counted upon in the 2035 future, and that we must leave them out of account when we have regard to the responsibilities of the future. Take the case of the boom. The Chancellor of the Exchequer rightly reminded us the other day that his Budget was overshadowed by the Defence commitments. The shadow of the gun, so to speak, is over these proposals. I admit that the present boom is not entirely due to armaments. Some of the improvement is due to causes which have already been mentioned, but a substantial benefit has undoubtedly accrued from the armaments campaign. I ask the right hon. Gentleman this question. How long can we count upon the boom in respect of armaments? Sooner or later, as everyone knows, the armaments campaign must come to an issue. It may end in a clash of the nations which we would all deplore and which we all hope may be avoided. Or better sense may prevail, in which case an agreement to disarm in some degree may be accepted by all the nations. But in either case it will be the end of the boom as far as armaments are concerned. That artificial prop of prosperity will go and when that adventitious aid has been removed, what will be the inevitable consequence? We know the sights which confronted us in the days immediately after the War. We remember the great factories and workshops which were built in various parts of the country and the moment the armaments campaign of those days stopped, those great factories and workshops became derelict. Now they offend the eye with ugliness and ruin in our countryside.
In spite of all those aids which I have mentioned, such as going off the Gold Standard, the change to a tariff policy and the rest, the Government have not been able to reduce our unemployment figures much below 1,500,000. When the armaments campaign is over and when we enter the slump, the unemployment figures are bound to multiply, and the problem which will then confront the country will indeed be most grave. There is one other point which I would mention in this connection, and that is the question of prices. I do not dwell upon it because other speakers have dealt with it. But it seems necessary to point out that one inevitable consequence of the present soaring prices must be that production will receive a special stimulus 2036 and that production under that artificial stimulus may, in the end, exceed demand. On the other hand, a decline in purchasing power will reduce the demand at the other end, and that, it seems to me, is bound to add to the conditions of slump in various parts of the country.
I recite these points because I consider it is the business of the Chancellor not merely to think in terms of this year or next year, but to anticipate the problems which will confront the country five or ten or even more years hence. We are, I submit, leaving far too much to posterity. This Budget errs on the side of making insufficient provision at this moment to meet the commitments into which the country has entered. My next point is not, I think, an unfair point to make on this occasion, because it was made by the famous May Committee in its report on the cost of the social services at that time. The more we avoid facing this problem., the more we throw upon future generations difficulties which it will be hard for them to surmount. Some weeks ago we had an important discussion here on the subject of population, in the course of which hon. Members pointed out that, assuming the birth rate and death rate to remain about the same, the population of England and Wales in 1940 will be 41,000,000. But in the year 1975 the population will have slumped to 31,000,000. More than that, the worst of it is that the balance as between the various age groups in the population will have been radically changed by 1975. The consequence will be that the burden which will fall on the active workers will he all the heavier because of that distortion of the balance. To that generation we are leaving a problem of the greatest possible perplexity. The Chancellor in his effort this year to deal with the nation's finances is not sufficiently courageously meeting these problems.
To turn to the Budget itself. The Chancellor assumed a little too lightly that hon. and right hon. Members have been completely reconciled to the arrangement which he made when he created the Exchange Equalisation Fund. This is the sixth year I have been chairman of the Public Accounts Committee of this House, and, although I do not speak for my colleagues, I believe that some of them will be in complete accord with what I say. We have had two years' experience 2037 of reports on this fund, and personally I hold that the concession which the Chancellor made two or three years ago is really almost useless. What happens is that the Comptroller and Auditor-General makes a report stating that he has examined the accounts and that on a certain date the fund stood at so-and-so. As chairman of the committee I cannot allow a single member to put any question beyond that. I ask the Chancellor what information is that at all. This fund has now been in operation some years, and I venture to say once again that even if the Chancellor allowed the fund accounts to be examined by the Comptroller and Auditor-General like other funds, they would not be examined by the Public Accounts Committee for another nine months at least in the financial year. What possible harm could there be to the interests of the fund to allow the Public Accounts Committee of this House to know all there is to know? I mean, to know what is the state of the fund at a certain date, and to be allowed to ask questions about it. I would not be foolish enough to ask what the transactions were on the date they were made, but months after the end of the financial year surely there could be no harm whatever in asking for information. It is not good for the country as a whole that a fund of £350,000,000 like this should be carried on without the Public Accounts Committee having access to more adequate information about it.
§ Sir Irving Albery
I am speaking only for myself as a member of the Public Accounts Committee, but I think if the Chancellor could assure the House each year that the fund had shown a profit in the year under review that would satisfy this House.
§ Mr. Jones
The Chancellor told us on Tuesday that he is willing for the Public Accounts Committee to know nine months hence. That is not treating the House in the way it ought to be treated. There was something to be said for the Chancellor's viewpoint when the fund was first established, but now that it has been in existence for three years I cannot see any reason for withholding the information for which I have asked.
The Chancellor took power on Tuesday to include £10,000,000 for Supplementary Estimates. Once again I must 2038 demur to that. From time to time representatives of Government Departments come before the Public Accounts Committee-and are asked to defend the action of their Departments in having incurred expenditure on a Supplementary Estimate. What is my Committee to do? If the House of Commons itself is going to encourage Government Departments in advance to incur Supplementary Estimates, how can we sit in judgment on the Government Departments if they do the same? You take away from the Public Accounts Committee the very ground on which it stands. The Chancellor is not entitled to ask for this £10,000,000 without the House of Commons knowing at least what the Supplementary Estimates are mainly for. I must protest against his action in this matter.
On the new tax, which has been discussed almost ad nauseam, I will confess to the Chancellor that on reading this scheme my first reaction was completely favourable. Even now I think the Chancellor's action and intention in seeking to obtain from industries which are deriving a special advantage this special contribution, is proper and wise. I agree with the general principle of what he has propounded, but although I am in favour of the principle as being a right one, what I have heard here to-day makes me believe that the incidence of this tax may be exceedingly unjust as between one individual and another, and one trade and another. The Chancellor is justified in seeking this special contribution somehow, but in doing it I think the whole Committee will agree that it must be done as equitably as possible, causing as little injustice as possible between one group and another. It is impossible to say that any given amount of profits is solely attributable to the armaments campaign. I think it was the Junior Member for the City of London (Sir A. Anderson) who said that the effects of the armaments campaign spread. As when a stone is thrown into a pond the circles go on expanding, so all sorts of trades benefit directly or indirectly from the armaments campaign. I am bound to say that I am very much impressed by the case of those who argue that, however right it may be to exclude certain individuals or certain trades, it cannot be right to exclude certain other individuals and certain other trades.
2039 Let me put another point to the right hon. Gentleman. There are in this country people who are called landlords. In South Wales recently a large tract of land was bought for the purpose of putting up a new aircraft factory. There are people who have pocketed, or are likely to pocket, vast sums of money because of the erection of new factories of that sort upon their land or near to it. Why should those people not be specially mulcted, just as much as the people who happen to be connected with the armaments industry? I am sure the Chancellor will agree that, however much he may desire to get this money—and I am happy that he is seeking to get it—the regulations or rules governing the application of the tax must be very carefully drafted. I have the greatest admiration for the members of the staff of the Inland Revenue Department, competent people as they are, but I am unwilling to allow the task of determining the rules for applying this tax to go outside the House if it can possibly be avoided. It is a House of Commons matter, and not a matter for any Government Dapartment to determine by itself.
Earlier in my remarks I suggested to the Chancellor that this Budget really avoids facing a problem that must be faced. We can go on borrowing for five years or for 10 years, but in the long run we shall have to start paying. I agree with the hon. Member for Camlachie (Mr. Stephen) that that is when the fight will develop. Another Committee such as the May Committee may be appointed. It will make recommendations as to where it thinks economies should be effected, and here and now I can say to the Chancellor and those who support him that we consider that those who profit most from this campaign should be called upon to bear the biggest burden. We cannot contemplate once more cutting down our social services, pensions and the like, because they are the essential comcomitants of a happy life for the people of this country. I therefore beg the Chancellor to keep this well in mind. It is not just or right or equitable to hand on to another generation, which will have problems of its own to confront, difficulties which it is our duty to shoulder.
§ 10.20 p.m.
§ The Chancellor of the Exchequer (Mr. Chamberlain)
Whatever may be the 2040 merits or demerits of the Budget, it has, at any rate, brought out to-day a number of speeches which, so far as they related to the Budget, have illuminated the subject. I could not help feeling when listening to the Debate how valuable it is to have the play of experience and of knowledge upon which one can always rely from Members of this House in pointing out what difficulties may arise in dealing with so complex a subject as that which has been principally spoken of to-day. The speech with which the Debate began, that of the right hon. Gentleman the Member for Hillsborough (Mr. Alexander), I am not classing among those which were relevant to the Budget. It proved entirely to his own satisfaction, and presumably to that of his friends, that my reputation, if I have a reputation, as a financier, was completely unfounded, and that, having found the finances of the country in complete apple-pie order, I have left them in a position of more or less confusion after having violated every canon of sound finance. His estimate of my tenure of office will not in the end be the deciding factor, and if that is his view and that of his friends, I know that nothing I can say in reply will alter that opinion.
We are discussing to-day things which are much more important than the reputation of an individual Member of this House, and it is very natural that the chief interest of the Debate has revolved round the novel and unexpected proposal which I made on Tuesday. Before I deal with that, however, may I say one or two words about the speech to which we have just listened, a speech which as we always expect on these subjects from the hon. Member was thoughtful and full of points which were relevant to the occasion. I do not disagree with a good deal of what the hon. Member said. Certainly I am not one to under-rate the gravity of a situation in which one has to deal with a Budget of between £800,000,000 and £900,000,000. Nor am I one in any way to minimise the difficulties which the necessity for rearmament is introducing into the economic situation of the country to-day, and perhaps still more in a few years' time. A recognition of those difficulties must always be borne in mind when considering the proposals which I have put before the Committee. I do not differ either from the hon. Member in 2041 the view that Protection is not an end in itself. It is a means to an end which has to be used with discretion and intelligence. The hon. Member says that now is the time to use it as a bargaining factor for reducing the tariffs of other countries. Surely he is forgetting that that is what we have been doing for years. We have already secured over 20 such bargains, even excluding those which were secured at Ottawa, and the results were quoted by my right hon. and gallant Friend the Financial Secretary and show how greatly we have benefited by the reductions in tariffs which we have been able thereby to secure.
The hon. Member returned once again to the Exchange Equalisation Account. He knows perfectly well that I have not concealed or attempted to conceal anything from the Public Accounts Committee because I wanted to conceal anything from them, but that, owing to the nature of the case, the very purpose for which the Exchange Equalisation Account was set up requires that utmost secrecy.
§ Mr. Morgan Jones
I hope I did not give the impression that there was secrecy for the sake of secrecy. I was questioning the wisdom of that secrecy.
§ Mr. Chamberlain
It might be a question of the wisdom of the information or the object of the information which the hon. Member desires to have, but I would say this, that I am quite ready to discuss the question again, and if there is further information which can be given to the hon. Member or to the Public Accounts Committee without prejudicing the objects for which the Account was set up, I shall be prepared to modify the arrangements I have made.
There are two other matters upon which, I think, I ought to touch. One was mentioned by my hon. Friend the Member for Huddersfield (Mr. Mabane) and was repeated by the hon. Member who has just spoken, and that was the advance provision for Supplementary Estimates of £10,000,000 for Civil purposes. The hon. Member has protested against my making an advance provision of that kind. I quite agree that one should not do it unless one has pretty clearly in mind the purposes for which it may be required, but if one has in one's mind something of the kind one would not be giving a true picture to the Committee and to the country unless one did put in some sort of 2042 figure which has a relation to the amount which it is expected will be spent. I need not specify all the things which I have in mind, but I will mention two, one of which, at any rate, might be of considerable importance. We have to provide an unknown sum, a sum of which we can make no precise estimate, for the Special Areas. A Bill is passing through the House at the present time, and we know that there will be new demands on the Exchequer under the provisions of that Bill, and it seemed to me that it was proper and right to make some provision for it. The other purpose perhaps might not have occurred to hon. Members, but it is a fact that the whole expense of our programme of Defence is not contained within the Estimates of the Defence Services. We have to consider air raid precautions, and whatever expense that may mean—and it looks to me as though it might reach rather formidable dimensions —will have to come out of the Civil Votes and not out of the Defence Votes, and that is another item which is included.
Then there was the question of the Miscellaneous Revenue. In my Budget speech I reminded the Committee that this Miscellaneous Revenue fluctuates very violently from year to year. For instance, in 1933 the total receipts were more than £22,000,000, but that was because there was a windfall of £10,000,000 available from the Depreciation Fund following the conversion of the 5 per cent. War Loan. There were other special receipts and with these, the amount actually received in 1933 was only a little more than £10,250,000. It was actually less than the estimate for the present year. I have already mentioned that we have to provide £5,250,000, or rather that we shall lose that sum which was provided last year from the Road Fund. There was also last year £5,750,000, which had accumulated as the result of the redemption of Victory Bonds which had been tendered in payment of Death Duties, and which had been paid for by the State in previous years. There were other small items, but perhaps these will be sufficient for the Committee.
Let me come back to the question of the National Defence Contribution. Many hon. Members must have asked themselves the question: "Why did the Chancellor think it necessary to bring forward a proposal of this kind when he was within 2043 £2,000,000 of balancing his Budget?" I am not surprised that hon. Members should put that question to themselves; I think it is a very natural one. I am surprised that my hon. and learned Friend the Member for Montgomeryshire (Mr. C. Davies) should think that I had been actuated by a desire to catch votes, a suggestion which seems to me on a par with that which was made by an hon. Member a little while ago to the effect that I was endeavouring to court an easy popularity. After basking all the afternoon in that easy popularity, I appreciate the value of that suggestion. Of course, I knew perfectly well, that in springing this surprise upon the Committee and upon the country, I was bound to come in for the most violent criticism and the most exaggerated ideas of the savage nature of the impost which I was proposing. I cannot help thinking that the hon. Member for North Tottenham (Mr. R. C. Morrison), in his witty and amusing speech this afternoon, must have very much bowdlerised the list of epithets which has been applied to me. I should be quite prepared to hear that something very much more violent than that will still come to my ears.
I wonder whether hon. Members have considered this fact about the deficit: It was reduced to £2,000,000 only by the fact that I was proposing to borrow £80,000,000 for the Defence Services this year. I tried to point out in the Budget Statement that, if I had fixed the amount which I was going to borrow this year in relation to the actual amount of expenditure this year, having regard to what the expenditure might be in future years, I should have put it much lower than £80,000,000, and that the only reason why I put it so high was that the particular proposal which I had in mind could not, I knew, give me any more than a very trifling sum this year, although it might be expected to produce a very considerable sum in future. It would have been very easy for me to have said nothing about it. Whatever the hon. Member for East Edinburgh (Mr. Pethick-Lawrence) might say, or, at any rate have in his mind, there has been no comment in this House upon the fact that I had begun by borrowing this £80,000,000, and it would have been very easy for me to have avoided the hornets' 2044 nest and to have gone on my way rejoicing, having balanced my Budget and not having given rise to any controversy whatever. Surely everyone must realise that no motive eithen of a personal or of a partisan character could possibly have actuated me, but only an overwhelming sense that it was necessary, in the general interest of the country, to look beyond this single year and see what we had in front of us, and to try to make the country realise that, unavoidable as may be the necessity for rearmament, we cannot expect to put the cost of it upon posterity. It was a sense of that kind that made me feel that I should not be answerable to my conscience if I had gone on and said never a word upon this matter.
In that statement relating to Defence expenditure, the programme was put at £1,500,000,000, of which £400,000,000 was the most that it was proposed to borrow; £1,100,000,000 was to be found out of taxation. Can we be sure that that is all? Every one of us must hope, none more than I, that some means may be found to put an end to this armaments race; but in the meantime we are absolutely bound to go on until we have put ourselves in a position in which we can feel that we have attained safety. If from time to time we have to put up the bar so that we must jump higher and higher, we must be prepared to face that rather than to leave ourselves defenceless in an armed world.
This country has got to find out of taxation very large sums during the next few years. As I said before, it is fortunate that at least we are in a far better position to meet those liabilities than we were a few years ago. When one considers the particular proposal which I have put before the Committee, and listens to the criticisms, or some of the criticisms, that have been made upon it, one must ask oneself what was the alternative; in what other way could these great sums be found? The hon. and learned Member for Montgomery would put the whole of it upon the Income Tax, and he thinks that that would be fairer than the plan I have proposed. There are many thousands of small Income Tax payers to-day who are no better off at all than they were a few years ago. Can it be said that it is fair to put the whole 2045 burden upon them when, looking at their paper, they see that others, more fortunately placed than they, are making increasing profits out of conditions in which they cannot share? I cannot but think that, if I had attempted to do that, I should, quite apart from any injurious effect which it might have had upon the progress of industry, have been condemned by the good sense and the sense of fairness of the country as a whole as having put an intolerable burden on the shoulders of those who were least able to bear it.
There have been some severe criticisms of my proposals to-day, but on the whole they have not gone further than I expected, and I would like to thank those hon. Members, not on one side of the House alone, who have declared their approval of the principle of the impost, even though they have felt some anxiety and some doubts as to the way in which it was going to be carried out. I think there is still a certain amount of misunderstanding as to the way in which I regard this National Defence Contribution. I do not regard it as a form of punishment or penalisation for profiteering. It is not directed solely against armament firms and I wish here to say, in spite of repeated assertions made by some hon. Members, without much evidence, that I do not believe that there is any considerable amount of profiteering among the main contractors for munitions, and I am confirmed in that view by the fact that the Select Committee on Estimates in its report published last month says, among other things, that they are satisfiedthat the methods followed are soundly conceived and are fair both to the taxpayer and to the contractor, and they are of opinion, so far as an estimate can be formed, that they have been effective up to date in preventing profiteering at the taxpayers' expense.You may make your contract with a great firm which is turning out your armaments. You may bring your accountants and your officials, you may check in every possible way the prices that they are charging, and you may succeed in your efforts, but, as my right hon. Friend the Member for Hillhead (Sir R. Horne) said, when you place these orders it is like throwing a stone into a pond. The effect grows in ever widening circles. I will add this to what he said, that the further the circumference of the circle is from the centre the more difficult it is to 2046 exercise control. It is the sub-contractors and the sub-sub-contractors whom it is impossible, however much you try, to control in the same way as you can control the main contractors. There is also this to be said, that most of these smaller firms who are sub-contractors to the large ones are doing not armament work alone but a great deal of other work as well, and that the task of distinguishing between what they make from armaments and what they make from their other commercial work would be impossible.
Here are a great number of firms which are doing a great deal better than they were. Since we have got to find this large sum of money in this short time, the fairest thing to do would be to go to those who are, in consequence of the prosperity of the times, doing better than they were before, and ask them to make a special contribution. I believe that principle to be fair and right, and one which will commend itself to, the majority of the people of the country. The difficulty is to put it into practice without creating hardship or injustice as between one firm and another. The disadvantage of a Budget proposal of this character is that, owing to the necessity of preserving secrecy up to the very last, you cannot make those preliminary soundings and have those preliminary consultations which you would do in the case of an ordinary proposal. One has to search for such safeguards as one can think of. One has to base oneself, as far as possible, upon past experience and, having described in outline form the project one has in one's mind, one must trust to have opportunities after that of consultation.
While I have been asked a great number of questions, and while I may perhaps give answers to some of them, I should like to suggest to hon. and right hon. Gentlemen that it would not be well, it would not be wise to ask me to pledge myself at this stage too specifically to particular answers to those particular questions. If I can be allowed in the interval which must now elapse before the Finance Bill can be introduced to make such inquiries as are open to me and to find out what are the possible dangers in the way of injustice or inequality contained in this proposal, then I had better have a certain amount of 2047 elasticity so that I can conform to what may come to my notice.
I have not quite as much time as I had expected and I must, therefore, ask for the indulgence of hon. Members, if I leave out some of the things upon which otherwise I should have touched. Let me, first of all, say a few words upon some of the general questions or dangers which have been suggested as likely to arise out of my proposal. The first one that has been mentioned is that the only result will be that firms will put up their prices, and in that way recoup themselves for whatever is going to be taken from them by the Government. I do not think that it is safe to assume that what went on in the time of the Great War will necessarily be possible to-day. The conditions are very different. At the time of the War, perhaps particularly in the latter part of the time, anybody could sell anything that was wanted for the War and almost get his own price for it. The demand was so great and the supply was always lagging behind it, and consequently it was the seller who had the whole of the cards in his hands. That is not so to-day. To-day there is the play of competition. I have satisfied myself that it would not be possible for firms to recoup themselves for the much more moderate slice of their profits which I am proposing to take, in the way that happened during the Great War.
Another suggestion made is that firms will put their profits—I think it was the right hon. Member for Hillsborough who suggested that they would do it in a way of which he had recollection in the Great War—into huge buildings, and withdraw them from the operation of the plan. To begin with, once the profits are made they will be subject to the charge before anything can be taken and put into buildings. There will not be the same opportunity, again, in this case, because where new buildings are wanted for the purpose of the armaments programme they are in the majority of cases being erected at the expense of the Government, and will belong to the Government at the end of the period. Seeing that this is a tax which is put on only for a time, it seems to me that for a manufacturer to withdraw some of his profits and put them into buildings or equipment in order to escape for a few years from this particular charge, with 2048 the risk that he might then find himself saddled, as many firms were saddled at the end of the Great War, with buildings which were only a liability and not an asset, is something which is not very likely to take place. Then there has been a great deal said about the position of firms who have not been doing well or have done badly during the three years which are to be taken as the standard as compared with firms who have never really suffered materially from the depression.
The proposal is that this is a charge upon the growth of profits, and it is extremely difficult to see how in such a case if there has been no growth of profits you can make a charge. I do not think it is the case that there will be no growth of profits, but I quite agree that in some of these cases the growth of profits will not be as much as in some cases where they start from a lower standard. That is one of the questions into which one must make a most careful inquiry.
§ Mr. Chamberlain
The result will turn very largely on the way in which capital is determined. That is a point to which particular attention will have to be directed. On that a number of questions have been asked, on which I will only make the most general form of reply. I have been asked, for instance, how depreciation—in the case which the right hon. Member for Hillhead gave on shipping, where shipowners have not been able to make sufficient provision for depreciation of their ships—is going to be treated. I said that losses which had been incurred during the last four years and had not been written off would be allowed as a set-off against profits before considering what was subject to the charge. I should consider that if there had not been sufficient profits to provide the requisite depreciation that unabsorbed depreciation of which the right hon. Gentleman spoke would be part of the loss.
Then I am asked whether goodwill will be included in the determination of capital. If the goodwill has been purchased for cash it must be taken in as part of the capital. If an individual simply turns his business into a limited company and puts down a large sum for goodwill in order to have a big capital 2049 for the purpose of the tax that would not be a case in which goodwill could properly be taken into account. Then there are all the complicated questions which arise under holding companies and subsidiary companies. These, I should imagine, would best be treated as one, treated as a whole. Their assets would be taken together. That was the plan which was followed, I believe, in the case of the Excess Profits Duty, and a plan which was adopted at the request of the industries themselves. There is one other question which has been repeatedly brought up. Again I am not expressing any surprise. I have been asked, Why is it that you are going to leave out of account of this Proposal such professions as that of accountants, who are likely to obtain special benefits from the necessity there will be to employ their services in estimating capital? That is a practical difficulty, and I agree that as far as equity is concerned I do not see why they should be excluded. My difficulty is that I do not see how to bring them into a plan of this kind for the reason that there is no capital standard that can be applied in their case. They are people whose capital is their brains, and I cannot see how to devise a way to deal with that factor.
I have explained why, in bringing forward this proposal, I have had to leave a good many details still vague and fluid. It is hardly in accordance with the policy I have followed ever since I have been at the Exchequer to impose a tax of such a character as to repress, hamper and check industry or drive capital out of the country. I have explained what was the idea in my mind in proposing this tax and the nature of the expenditure it was intended to meet. I would ask that no hasty conclusion should be come to until there has been more opportunity of seeing the proposals in their detailed form, and, particularly, I would ask hon. Members to bear in mind that it is not intended to be a crippling or penalising tax. It is, as its name implies, a contribution which, I think, may fairly be made by those who are earning increased profits, but it is not intended to do anything which will create injustice or inequity as between one class of firm and another, if it is possible to avoid it. Nothing in this world is perfect, and I do not pretend that in this, or in the Income Tax, or in any other form 2050 of taxation, absolute equality and justice are attained as between man and man, or between firm and firm. But I do say that the project which is before the Committee must be taken as an outline, the details of which will be filled in when the Finance Bill is before the House.
That it is expedient to amend the law relating to the National Debt, Customs and Inland Revenue (including Excise), and to make further provision in connection with finance.
put, and agreed to.
§ Resolution to be reported upon Monday next; Committee to sit again upon Monday next.