HC Deb 27 April 1937 vol 323 cc178-303

12. "That, in the case of any trade or business of any description (including agencies and, in the case of bodies corporate, the holding of investments or other property), there shall be charged, on the sum by which the profits arising in any period of account ending after the fifth day of April, nineteen hundred and thirty-seven, exceed such standard as Parliament may determine, a tax not exceeding one-third of the said sum."

First Resolution read a Second time.

Motion made, and Question proposed, "That this House doth agree with the Committee in the said Resolution."

Mr. Lees-Smith

I think it would be for the convenience of the House if the Financial Secretary would say a few words of explanation with regard to this Resolution.

3.23 p.m.

The Financial Secretary to the Treasury (Lieut.-Colonel Colville)

This Resolution continues for a further four years, from 16th August of this year, the Customs Duty of £4 per cwt. on imported hops. As the House will be aware, this duty was first imposed in 1925, and has been renewed from time to time. There is a preferential rate of two-thirds on Empire hops. As the House will be aware, the restriction of the import of foreign hops began during the War, as a corollary to the restriction on home production, and lasted until the Customs Duty was imposed in 1925. The duty has benefited the English hop growers without in our view injuring either the brewers or the consumers, and its removal would endanger stability in the home market.

The English hop market is now governed by an agreement made between the Hops Marketing Board and the Brewers' Society in 1934. This is administered by a committee consisting of representatives of the board and of the society, with three impartial members appointed by the Minister of Agriculture, and it provides that the average price of English hops until 1939 should be £9 per cwt. The brewers guarantee a secure market for the hop growers for all hops up to the total demand for English hops as estimated by the committee at the beginning of each season, and the brewers further undertake to limit their importation of hops to 15 per cent. of the total market demand for hops as estimated by the committee.

It will be remembered that in 1933 my right hon. Friend the Chancellor of the Exchequer said that, in view of the representations which had been made to him by users that difficulties might arise out of the co-existence of a duty and some form of quantitative regulation under the Agricultural Marketing Act, he was prepared to say at that time, in 1933, that if any such regulation should be introduced he would be ready to consider whether any modification of the duty was required. A similar undertaking can be given again on this occasion. With these observations I hope the House will be prepared to agree to the continuation of the duty, which has had a stabilising effect on the market without doing any harm to the consumers, as, in our view, it would be very unwise to remove it at this time, as such action would tend considerably to unsettle the market.

3.27 p.m.

Mr. Lees-Smith

We intend to divide against this Resolution, and some of our reasons for doing so are contained in the statement which the right hon. and gallant Gentleman has just made. He has told us that the duty on hops is going to be £4 per cwt., and that, under an arrangement made by the Board, the average price of hops is to be £9per cwt., so that we have here a duty which is, I should think, practically the highest in the whole range at present imposed —a duty of nearly 50 per cent., a duty quite twice the height of the average rate at which our tariffs are laid down, a duty practically as high as that given to the iron and steel trade in a special emergency. This duty is being imposed for an industry which has an extraordinary and unprecedented amount of protection in every other direction. The Financial Secretary himself has mentioned that it is protected by a quota by which the amount of hops allowed to be imported from abroad is quite insignificant—I think he said 15 per cent.—

Lieut.-Colonel Colville

Strictly it is not protected by a quota in the sense that a quota is laid down, but there is an agreement under which the brewers agree that they will limit their importation to 15 per cent. The point is as to the method by which the limitation is applied.

Mr. Lees-Smith

The industry has managed to make an agreement with its only customer by which in fact it is guaranteed 85 per cent. of the British market and, on the 15 per cent. which is allowed in, there is practically the highest duty in the whole range of the tariff. Moreover, this industry has been given by the Government almost the most complete monopoly, I should say, in the whole range of British industry. Under the Hops Marketing Board the small group of hop producers have the right practically to keep out all new entrants; they have the right to determine what the production of hops shall be; and they have therefore the right practically to determine the price which the public shall pay. The right hon. Gentleman referred to the imposition of the duty in 1925. I have read the Debate, and it was imposed under conditions which have not been maintained. Up to that moment the industry had been under control by the Government. In 1925 they proposed to remove the control and since the industry lost much of that control it was given in its place this duty. Now the right hon. Gentleman proposes to renew the duty. Meanwhile the industry has obtained through the Hops Board a power of controlling itself far more effective than it had before the duty was imposed. As a matter of fact, this industry is the most sheltered, the most protected and practically the most monopolistic in the country. I do not know what else could be done for it. What else can you do?

Mr. H. G. Williams

Drink it.

Mr. Lees-Smith

You give it a quota and a subsidy, you give it protection and you give it a monopoly. The only thing left is that suggested by the hon. Member for South Croydon (Mr. H. G. Williams), that the Government should compel us all to drink it as part of their scheme for better nutrition. This would be quite impossible if it were not for the fact that the industry happens to have only one customer—the brewers—who are able to give it this pampered and privileged position, because my experience has been that, whatever taxation you impose upon the brewers, whatever the price they pay for their raw material, they always have an effective method of protecting themselves by passing it on to the public at large. Of course, these privileges have been given to the industry without any injury to the brewers at all. The one group of people who have actually benefited as much as the hop-growers have been the actual landlords of the estates of the producers.

As a matter of fact this is in itself a small industry, but the issue behind it is a very large one indeed. The Government by this Measure, and by others of a parallel nature in the case of other industries, is gradually transforming the whole nature of our industrial system. I still hear hon. Members opposite defending the competitive system and private enterprise. Where is the competitive system? It is disappearing month by month. It is being killed by the Government itself. One small further blow against it is being delivered to-day. It is being killed by the elimination of competition and the concentration of power in the hands of the producers in each industry and, where the Government do not do so, the producers get together, and do it themselves. There is a very large issue behind this small facade. My hon. Friends and I are no more believers in the old competitive system than the Government themselves. We believe in organisation, but we do not believe in a system of oganisation which leaves the entire power in the hands of small groups of self-interested producers. That system gives no protection to the consumer and, for that reason, our whole object is to substitute for the present system an organisation but to protect it by means of public supervision, public ownership or public control.

3.35 p.m.

Mr. H. G. Williams

I am a little surprised at the right hon. Gentleman attacking the Resolution, not for what is in it, but because of certain other things which have happened in the industry. The hop industry was the first to come under the Agricultural Marketing Act. Fundamentally it all started with the Act of 1931, for which the right hon. Gentleman and his friends were responsible. When we debated the Hop Marketing Order, to the best of my knowledge I was one of the few who took part in the Debate and pointed out the dangers of this system of interference with private enterprise and freedom of contract. On the other hand, because we have been foolish enough to learn a trick taught us by the Socialists I do not quite see why we should object to having a protective duty, which seems to me a very fit and proper thing. I remember when my right hon. Friend the Member for Epping (Mr. Churchill) introduced this duty in 1925 in his first Budget at a time when we were not very Protectionist. My right hon. Friend said there were some who would say that this was a duty on food, but the only people who would say it were those who happened to be Protectionists. Free Traders took the view that hops were not a food and, therefore, both parties would be quite happy. Very largely by that device my right hon. Friend, who was then a Free Trader, persuaded the House to accept the proposal.

But why does this industry call for some special consideration? Surely the reasons are obvious. Here is an industry which has been contracted to about a half of its pre-war size by the deliberate act of the State for social reasons. Whether the drinking of beer is a good or a bad thing is a subject for argument, but a large number of people like it whether it is a good thing or not. There is no doubt that the enormous increase in taxation has reduced the consumption of beer to a half of the pre-war level and, accordingly, the consumption of hops has been reduced in the same proportion. If an industry, as the result of State action, if forced to retreat to the extent of a half of its output, surely it is entitled to some special consideration to avoid undue hardship, not falling upon a few landlords but upon very large numbers of people who at certain seasons in the year work in the hop fields.

Viscountess Astor

Is it realised that the trade has had a profit of £7,000,000 since 1933?

Mr. Williams

We are not discussing the drink trade. The Noble Lady suffers from such an obsession that she does not trouble to find out what we are talking about. I am discussing the question of the protection of a particular agricultural industry. I am not immediately concerned with what happens to the product of the industry. The high taxation of beer has brought about a large reduction of consumption. The hop industry is faced with the problem of producing far less than in pre-war days. Accordingly, a special measure of protection does not seem to me a thing against which anyone can protest. The difficulties have arisen as a consequence of State action, and it is the duty of the State to assist agriculturists—landowners, farmers and labourers. I hope the duty will be continued in order that the moderate measure of prosperity which the hop industry is enjoying may continue for many years to come.

3.40 p.m.

Sir Percy Harris

I can make one comment on one effect of this interesting experiment in tariffs. I am not talking as an expert on beer, but beer now is much less bitter than it was, because I am advised by experts on the matter that

much less of hops appears an an ingredient in good old English beer than in the days when hops were plentiful. The skill of the chemist has, I understand, largely taken the place of this interesting product. I remember the good old days before the War when this industry employed a large number of people and gave a living to many farmers in the County of Kent and the Weald of Sussex. Now, as a result of these experiments, comparatively few people are employed in the autumn in harvesting this valuable crop, and a monopoly has been given to certain farmers who happened to be in when land was controlled for War purposes, with the result that other farmers who put their land under cultivation, largely on an appeal by the State, are now the sufferers. There is great discontent among farmers and owners of land who are not in the privileged position of having cultivated this crop at the time when control was put on. I have been studying these tariff and protection experiments for many years. It is easy to put on a duty, but extremely difficult to take it off. Inevitably you create privileges and vested interests. This duty was put on to help the industry in a difficult time. What I expected has happened. After each experiment a hundred reasons are given for continuing the particular form of duty. As a consequence, all duties remain. If hon. Members above the Gangway decide to vote against this duty, I shall follow them into the Lobby.

Question put, "That this House doth agree with the Committee in the said Resolution."

The House divided: Ayes, 208; Noes, 110.

Division No. 163.] AYES. [3.43 p.m.
Acland-Troyte, Lt.-Col. G. J. Bowyer, Capt. Sir G. E. W. Courthope, Col. Sir G. L.
Adams, S. V. T. (Leeds, W.) Bracken, B. Critchley, A.
Agnew, Lieut.-Comdr. P. G. Brass, Sir W. Crooke, J. S.
Albery, Sir Irving Brocklebank, C. E. R. Crookshank, Capt. H. F. C.
Allen, Lt.-Col. J. Sandeman (B'kn'hd) Bullook, Capt. M. Croom-Johnson, R. P.
Anderson, Sir A. Garrett (C. of Ldn.) Burgin, Dr. E. L. Culverwell, C. T.
Anstruther-Gray, W. J. Burton, Col. H. W. Davies, Major Sir G. F. (Yeovil)
Assheton, R. Cartland, J. R. H. Davison, Sir W. H.
Astor, Viscountess (Plymouth, Sutton) Cary, R. A. Dawson, Sir P.
Atholl, Duchess of Castlereagh, Viscount De la Bère, R.
Baillie, Sir A. W. M. Cazalet, Thelma (Islington, E.) Denman, Hon. R. D.
Baldwin, Rt. Hon. Stanley Chamberlain, Rt. Hn. N. (Edgb't'n) Denville, Alfred
Baldwin-Webb, Col. J. Channon, H. Donner, P. W.
Barclay-Harvey, Sir C. M. Christie, J. A. Dorman-Smith, Major R. H.
Beauchamp, Sir B. C. Churchill, Rt. Hon. Winston S. Dower, Capt. A. V. G
Bernays, R. H. Clarry, Sir Reginald Drewe, C.
Birchall, Sir J. D. Cobb, Captain E. C. (Preston) Dugdale, Major T. L.
Bird, Sir R. B. Colville, Lt.-Col. Rt. Hon. D. J. Duggan, H. J.
Blair, Sir R. Cook, Sir T. R. A. M. (Norfolk, N.) Duncan, J. A. L.
Bossom, A. C. Cooke, J. D. (Hammersmith, S.) Edmondson, Major Sir J.
Bower, Comdr. R. T. Cooper, Rt. Hn. A. Duff (W'st'r S. G'gs) Elliot, Rt. Han. W. E.
Ellis, Sir G. MacAndrew, Colonel Sir C. G. Rowlands, G.
Elliston, Capt. G. S. M'Connell, Sir J. Runciman, Rt. Hon. W.
Elmley, Viscount McCorquodale, M. S. Russell, A. West (Tynemouth)
Emery, J. F. MacDonald, Rt. Hon. J. R. (Scot. U.) Salmon, Sir I.
Emrys-Evans, P. V. McKie, J. H. Salt, E. W.
Errington, E. Maclay, Hon. J. P. Sandeman, Sir N. S.
Evans, Capt. A. (Cardiff, S.) Macnamara, Capt. J. R. J. Sanderson, Sir F. B.
Everard, W. L. Magnay, T. Sandys, E. D.
Fox, Sir G. W. G. Maitland, A. Sassoon, Rt. Hon. Sir P.
Furness, S. N. Makins, Brig.-Gen. E. Savery, Sir Servington
Ganzoni, Sir J. Manningham-Buller, Sir M. Selley, H. R.
Gledhill, G. Margesson, Capt. Rt. Hon. H. D. R. Shakespeare, G. H.
Goldie, N. B. Markham, S. F. Shaw, Captain W. T. (Forfar)
Goodman, Col. A. W. Maxwell, Hon. S. A. Shepperson, Sir E. W.
Grant-Ferris, R. Mayhew, Lt.-Col. J. Simmonds, O. E.
Grattan-Doyle, Sir N. Mellor, Sir J. S. P. (Tamworth) Simon, Rt. Hon. Sir J. A.
Greene, W. P. C. (Worcester) Mills, Sir F. (Leyton, E.) Smith, L. W. (Hallam)
Grimston, R. V. Mills, Major J. D. (New Forest) Somerville, A. A. (Windsor)
Guest, Hon. I. (Brecon and Radnor) Mitchell, H. (Brentford and Chiswick) Spears, Brigadier-General E. L.
Guy, J. C. M. Morgan, R. H. Stewart, J. Henderson (Fife, E.)
Hannah, I. C. Morris, O. T. (Cardiff, E.) Storey, S.
Hannon, Sir P. J. H. Morris-Jones, Sir Henry Strauss, E. A. (Southwark. N.)
Harbord, A. Morrison, G. A. (Scottish Univ's.) Strickland, Captain W. F.
Harrington, Marquess of Morrison, Rt. Hon. W. S. (Cirencester) Stuart, Lord C. Criohton- (N'thw'h)
Harvey, Sir G. Muirhead, Lt.-Col. A. J. Sueter, Rear-Admiral Sir M. F.
Hellgers, Captain F. F. A. Nall, Sir J. Tasker, Sir R. I.
Heneage, Lieut.-Colonel A. P. Neven-Spence, Major B. H. H. Tate, Mavis C.
Herbert, Major J. A. (Monmouth) Nicholson, G. (Farnham) Taylor, Vice-Adm. E. A. (Padd., S.)
Holmes, J. S. Nicolson, Hon. H. G. Thomas, J. P. L.
Hope, Captain Hon. A. O. J. Orr-Ewing, I. L. Touche, G. C.
Hopkinson, A. Patrick, C. M. Tufnell, Lieut.-Commander R. L.
Hore-Belisha, Rt. Hon. L. Peako, O. Wakefield, W. W.
Hudson, Capt. A. U. M. (Hack., N.) Peat, C. U. Ward, Lieut.-Col. Sir A. L. (Hull)
James, Wing-Commander A. W. H. Penny, Sir G. Wardlaw-Milne, Sir J. S.
Jarvis, Sir J. J. Perkins, W. R. D. Warrender, Sir V.
Jones, Sir G. W. H. (S'k N'w'gt'n) Petherick, M. Watt, G. S. H.
Keeling, E. H. Porritt, R. W. Wells, S. R.
Kerr, Colonel C. I. (Montrose) Power, Sir J. C. Wickham, Lt.-Col. E. T. R.
Kerr, H. W. (Oldham) Pownall, Lt.-Col. Sir Assheton Williams, C. (Torquay)
Kerr, J. Graham (Scottish Univs.) Radford, E. A. Williams, H. G. (Croydon, S.)
Knox, Major-General Sir A. W. F. Ramsay, Captain A. H. M. Wilson, Lt.-Col. Sir A. T. (Hitchin)
Lamb, Sir J. Q. Ramsbotham, H. Wise, A. R.
Lambert, Rt. Hon. G. Rawson, Sir Cooper Withers, Sir J. J.
Law, R. K. (Hull, S.W.) Reed, A. C. (Exeter) Wragg, H.
Leckie, J. A. Reid, Sir D. D. (Down) Wright, Squadron-Leader J. A. C.
Leigh, Sir J. Reid, W. Allan (Derby) Young, A. S. L. (Partick)
Lewis, O. Ropner, Colonel L.
Liddall, W. S. Ross, Major Sir R. D. (Londonderry) TELLERS FOR THE AYES.—
Llewellin, Lieut.-Col. J. J. Ross Taylor, W. (Woodbridge) Mr. James Stuart and Captain
Loftus, P. C. Waterhouse.
Acland, R. T. D. (Barnstaple) Greenwood, Rt. Hon. A. Marshall, F.
Adams, D. M. (Poplar, S.) Grenfell, D R. Messer, F.
Adamson, W. M. Griffiths, G. A. (Hemsworth) Montague, F.
Alexander, Rt. Hon. A. V. (H'lsbr.) Hardie, G. D. Muff, G.
Attlee, Rt. Hon. C. R. Harris, Sir P. A. Paling, W.
Banfield, J. W. Harvey, T. E. (Eng. Univ's.) Parker, J.
Barr, J. Henderson, A. (Kingswinford) Pethick-Lawrence, F. W.
Batey, J. Henderson, J. (Ardwick) Potts, J.
Bellenger, F. J. Henderson, T. (Tradeston) Quibell, D. J. K.
Bann, Rt. Hon. W. W. Holdsworth, H. Riley, B.
Broad, F. A. Hopkin, D. Roberts, W. (Cumberland, N.)
Bromfield, W. Jenkins, A. (Pontypool) Rowson, G.
Charleton, H. C. Jenkins, Sir W. (Neath) Salter, Dr. A. (Bermondsey)
Chater, D. Johnston, Rt. Hon. T. Salter, Sir J. Arthur (Oxford U.)
Clynes, Rt. Hon. J. R. Jones, A. C. (Shipley) Sanders, W. S.
Cocks, F. S. Jones, H. Haydn (Merioneth) Seely, Sir H. M.
Cove, W. G. Jones, Morgan (Caerphilly) Sexton, T. M.
Daggar, G. Kennedy, Rt. Hon. T. Shinwell, E.
Davidson, J. J. (Maryhill) Lathan, G. Short, A.
Davies, R. J. (Westhoughton) Lawson, J. J. Silverman, S. S.
Dobbie, W. Leach, W. Simpson, F. B.
Dunn, E. (Rother Valley) Lee, F. Smith, Ben (Rotherhithe)
Ede, J. C. Leonard, W. Smith, Rt. Hon. H. B. Lees- (K'ly)
Edwards, Sir C. (Bedwellty) Leslie, J. R. Smith, E. (Stoke)
Fool, D. M. Logan, D. G. Smith, T. (Normanton)
Gallacher, W. Lunn, W. Sorensen, R. W.
Gardner, B. W. Macdonald, G. (Ince) Taylor, R. J. (Morpeth)
George, Major G. Lloyd (Pembroke) McEntee, V. La T. Stewart, W. J. (H'ght'n-le-Sp'ng)
George, Megan Lloyd (Anglesey) McGhee, H. G. Thorne, W.
Gibbins, J. Maclean, N. Thurtle, E.
Gibson, R. (Greenock) MacNeill, Weir, L. Tinker, J. J.
Green, W. H. (Deptford) Mander, G. le M. Viant, S. P.
Walker, J. Whitelay, W. Woods, G. S. (Finsbury)
Watkins, F. O. Wilkinson, Ellen Young, Sir R. (Newton)
Watson, W. McL. Williams, E. J. (Ogmore)
Welsh, J. C. Williams, T. (Don Valley) TELLERS FOR THE NOES.—
Westwood, J. Wilson, C. H. (Attercliffe) Mr. Groves and Mr. Mathers.
White, H. Graham Windsor, W. (Hull, O.)

Second Resolution read a Second time.

3.52 p.m.

Mr. Dingle Foot

I beg to move, in line 7, at the end, to add: Except in respect of Articles 3 and 15 of the Agreement made on the twenty-third day of February, nineteen hundred and thirty-seven. With the permission of Mr. Speaker, I am not moving the latter part of the Amendment as it appears on the Paper, namely, and Articles 3 and 8 of the First Schedule to the Ottawa Agreements Act, 1932, shall cease to have effect. I am also substituting Article 15 for Article 13.

The purpose of the Amendment is to refuse the assent of this House to Articles 3 and 15 of the new Canadian Trade Agreement. I will deal, first of all, with Article 3. The effect of that Article is to provide that for three years to come at least, the rates of preference granted to Canada in respect of a certain list of goods shall not be less than the rates set out in the Third Schedule. I invite the attention of the House to the Third Schedule. It is principally a Schedule covering foodstuffs, and some of the chief items are wheat in grain, butter, cheese, raw apples, pears, canned apples, eggs in shell, condensed milk, fresh sea fish, and so on. It contains also a number of commodities apart from foodstuffs, such as copper, unwrought, and timber of all kinds. Therefore, hon. Members will see that it is an exceedingly important Schedule.

The Agreement provides in respect of all the goods set out, that for three 'ears there shall be a margin of preference which we shall have no power to reduce, that is to say, there will be a minimum duty which we shall be unable to reduce for the whole of that period. That seems to me to raise rather serious considerations, particularly at a time such as this, and I think these are things which the House ought not to pass without a few words being said about them. As I have already pointed out, the Schedule includes a large number of essential foodstuffs. It has been observed a good many times in recent Debates, and I think it is generally agreed, that there is going on now a rise in the prices of essential foodstuffs in this country. I believe it is also agreed that that rise is likely to go on for some time to come. It might be that if there were a rise in the cost of living the House might wish, in the course of this year or at some time during the next three years, to take off some of the duties which are at present imposed upon food, but under this agreement we should be prohibited from doing so. I do not mean that we should be prohibited in a Parliamentary sense but we should not be able to do so without a breach of faith with the Canadian Government. Our hands are going to be tied in respect of these vital foodstuffs until 1940, at least.

Secondly—and this is perhaps even more serious—it means that in respect of the commodities set out in the Third Schedule our hands will also be tied in any tariff negotiations into which we may enter in the near future. There have recently been various moves, which I need not enumerate, in the direction of lower tariffs and fewer restrictions upon trade, notably among what are called the Oslo countries. Last week when the junior Burgess for Oxford University (Sir A. Salter) made his maiden speech, which impressed all of us very much, one of the most striking parts was the appeal to the Government on the subject of tariff reductions. I think most people will agree with the hon. Member that if we could get an all-round reduction in tariffs and restrictions on trade at this time it would be the greatest contribution that we could make towards ensuring the peace of the world. But here at the psychological moment for moving towards a reduction of the barriers to trade, the Government are tying our hands, by this Agreement, in respect of an important list of commodities, and are saying that we are not to be free to reduce our tariffs on these commodities below a certain figure until 1940. I do not wish to labour the point, but I would like to direct the attention of the House to Article 15 of the Agreement, which seems to me to raise issues which are certainly as important as those raised by Article 3. Article 15 deals with the system of Colonial preferences, and its opening words are: The Government of the United Kingdom will invite the Governments of the Colonies and Protectorates shown in Schedule VI appended hereto to continue in operation the preferences accorded to Canada on the commodities and at the rates shown in that Schedule, and the Government of Canada will continue in operation the preferences accorded to the Colonies, Protectorates and Mandated Territories by Canada as set out in Schedule VII appended hereto. There is a proviso regarding certain African territories, but I do not think that affects the main point. This Article provides for the continuance for another three years of the duties which were imposed on the Crown Colonies in 1932. I submit to the House that that is a very serious matter at the present time. A few days ago the right hon. Gentleman the Member for Bow and Bromley (Mr. Lansbury) went to Berlin and discussed with Herr Hitler the possibility, at any rate, of a world conference in which the questions of armaments and the principal grievances of the dissatisfied nations might be discussed. It is, of course, impossible for any of us to say whether such a meeting will be summoned or will even be feasible in the near future, but there is a possibility, and there is a great number of people who would like to see such a meeting take place. I do not know whether the question of the distribution of Colonial territories will be on the agenda. But does anyone really suppose that there would not be raised at any such conference the question of access to Colonial raw materials and also the question of how the countries needing those raw materials would be able to pay for them? It is inevitable that in any world conference or in any conference of the great Powers a question of that sort must be raised. Here, again, by the action of the Government in signing this trade agreement our hands are to be tied for three years.

I do not wish to labour the point, because I know hon. Members are anxious to get on with another subject, but I would say this: My hon. Friends and I were the principal opponents of the Ottawa Agreements which were signed in 1932. We put forward a number of grounds for our opposition at that time, none of which we would wish to withdraw in the light of subsequent events. If there is one criticism which we made at the time, and which has been amply justified by what has followed in the intervening five years, it is the criticism which we directed against the system of Colonial preference which was then instituted. The Colonial Empire was to be kept for the economic benefit of one nation, or at most, of one group of nations. We believe that that has been one of the principal causes of the tension and distress which have prevailed in Europe in the intervening years, and we think it would be a very bad day if this House were to consent to renew that system and to renew that impediment to the pacification of Europe for another three years.

4.3 p.m.

Mr. H. G. Williams

I would like to comment on the concluding words of the hon. Member who proposed the Amendment. He suggested that Imperial Preference was responsible for the distress in Europe. I think it is worth while to look at the facts. The United Kingdom alone imports more goods from foreign countries than any foreign country imports from the rest of the world. Our purchases from foreign countries alone, leaving entirely out of account every penny piece which we buy from the rest of the Empire, are more than those of any other foreign country. Our imports of foreign goods are rising. The people who ought to be attacked by the hon. Member are not the inhabitants of this country, but the inhabitants of the foreign nations. They are suffering from their own folly; why not tell them so?

Mr. Foot

If I may interrupt, the hon. Gentleman is not meeting the point which I endeavoured to make. I am sorry if I did not make myself clear. I was dealing with the psychological effect on certain European nations of our abandonment in 1932 of the open door.

Mr. Williams

The psychological effect does not interest me at all. The only countries about which I am worrying are those who are suffering from self-inflicted injuries. Those who undertake a gigantic scheme of rearmament are stimulating imports without stimulating exports. If the hon. Gentleman would preach that doctrine to the Germans and Italians he would be rendering a greater service in the interests of peace.

In Schedule 6, which he proposed to drop, there is an interesting item on which I would like to comment because of a question which was put at Question Time to-day by the hon. and gallant Member for Orkney and Shetland (Major Neven-Spence). He raised the point of the large imports of rubber boots and shoes from Canada and Hong Kong. When we adopted a protectionist policy, I regret that we did so, with Canada, on the Empire Free Trade basis, instead of the preferential basis under which we could have given ourselves a measure of protection against the competition of other Empire countries. We have not done it, and it is a great mistake, but we have asked the Colonies to do something rather different from that which we are prepared to do for ourselves. On page 45 of this Agreement in respect of a whole list of Colonies commencing with the Bahamas and finishing with Northern Rhodesia it says that they are to be asked to give a preference in respect of rubber boots and shoes and canvas boots and shoes with rubber soles to the extent of Is. a pair or its equivalent, that is to say, the general rate should be the preferential ad valorem rate, if any, plus 1s. per pair. We are not asking the Colonies to admit into their territories Canadian rubber footwear duty free. We are asking that there shall be 1s. a pair difference between the rate which is charged on foreign footwear and that which is charged on Canadian footwear. That is a reasonable and sensible proposal, because Canada is a very large consumer of the primary products of most of the Colonies mentioned.

My criticism is this: Why can we not afford our own manufacturers in this country the same consideration? I know that my hon. Friend the Parliamentary Secretary has heard this issue raised from a great many quarters. It happens that rubber shoes are an outstanding case, but there are a large number of other manufactured commodities which fall into the same category. If it is desired to set up irritation on the part of the manufacturers against our friends in the Dominions, we could do this by pursuing indefinitely the doctrine of Empire Free Trade instead of the doctrine of Imperial preference. At a later stage, when the matter becomes wider on the Motion that the Resolution of the Committee be ap- proved, there will be an opportunity for a wider Debate, but I think this is an appropriate occasion to emphasise the contrast between the want of protection for ourselves vis á vis Canadian manufacturers and that which we are giving to the Crown Colonies to retain for themselves. I only wish the President of the Board of Trade had been as solicitous for the United Kingdom manufacturers as he has been for the Crown Colonies.

4.9 p.m.

The Parliamentary Secretary to the Board of Trade (Dr. Burgin)

The House will understand that the hon. Gentleman who moved this Amendment has moved it in a slightly different form than that in which it was tabled on the Paper. However, there is no substantial difference. The Amendment relates to two articles of the new United Kingdom-Canada Trade Agreement, and it also refers to the corresponding two articles of the Ottawa Agreement of 1932. As the purport of the Resolution which will be moved shortly is to substitute the new Canadian Agreement for the old Canadian Agreement, it follows that the second part of the Amendment on the Paper was unnecessary. Then, of course, the correction of Article 13 to 15 was natural, because Article 15 is complementary to Article 3. Article 3 deals with the United Kingdom. The House will appreciate what it is we are really discussing. Is it ever possible in a trading agreement with the Dominions to give them a fixed margin or to have Imperial Preference where the article is not subject to a duty at all? I am not sure if the House appreciates that quite clearly. You cannot have a trading agreement for the lowering of tariffs without making concessions. The agreement which has just been concluded between the United Kingdom and His Majesty's Government in Canada is, in the opinion of His Majesty's Government, a useful and important negotiation. It is an agreement of very considerable advantage to the industrialists of this country, and in return it gives corresponding benefits to Canadian industrialists.

The hon. Member who moved the Amendment will perhaps look at Article 8. He has referred to Article 3 which deals with the United Kingdom market, and Article 15 which deals with the British Colonial market. Article 8 is the corresponding Article guaranteeing to British exporters to Canada fixed measures of preference. The first lesson to learn in connection with negotiations for the lowering of tariffs, for securing the free entry of merchandise and for the stabilisation of favourable conditions is mutuality in bargaining. When the Canadian negotiators come to us it is with a feeling of mutuality that agreement is ultimately reached. The hon. Member at one point in his speech seemed to suggest that this was a novel principle. Towards the end of his speech he realised that he was tilting at provisions which were in the Ottawa Agreement of 1932. I admit that this Amendment seeks to challenge the whole principle of the agreement, and the whole principle of Imperial Preference is modified, nothing more nor less. Wherever there is a duty on an Imperial product it is possible to have Imperial Preference in another manner.

If the hon. Member will look at Article 4 of this present Agreement he will see an alternative proposal with regard to tobacco, because tobacco is subject to duty. But where you are dealing with a commodity which, when it comes from the Empire, is not subject to a duty, the only way in which you can give to the Canadian producers a fixed degree of protection is by undertaking that the duty upon a corresponding foreign article shall he the minimum of the amount of that preference. There is no half-way house. Either it is proper in a trade agreement of this kind to give that guarantee or it is not, but if in a matter of bargaining the negotiators of the United Kingdom Government, in their negotiations with the Canadian Government, come to the conclusion that it is right to ask for that measure of protection and accord it in the United Kingdom markets, the only way to do it is in the manner set out in Clauses 3 and 15 in the Agreement. I should have thought it a little late in the day to challenge the whole texture of the Agreement. I should have thought that it is demonstrative that they have lowered the duty, and that this Agreement is highly advantageous to British industrialists as will be seen when the Motion takes place on the succeeding Resolution. I shall content myself by asking the House to reject this Amendment, because there is no method by which a fixed preference can be given to a Dominion exporter in respect of an article not itself subject to a duty other than by agreeing that the minimum duty on the foreign article shall be the figure of the preference which it is desired to give. There is no other method. It has been found in practice that that is a form of negotiation which is advantageous, and it would not be difficult to make the point that the present agreement is mutually advantageous. It secures free entry, it lowers tariffs over a very wide range and is mutual in its effects. In these days, when we want to encourage increasing manufactures, when we want to induce industrialists to expand, I cannot see why we should tell them that they are to have a preference in the United Kingdom market but not tell them whether it is to be a shilling or a penny. How can a producer in Canada expand his works and plan his output with the same facility if all that he is told is in general terms that he is to have a preference, compared with the position if he knows the extent of the preference that he is to have?

Those who have looked into the matter consider that the fixing of a preference, the giving of an assured margin, is a wise and proper negotiation lever. Until we had these duties on foreign products no method of procuring a trade agreement had succeeded at all. Remember the experience of the late Mr. William Graham. As long as we had not a lever, a bargain, no trade agreement was in effect made. Immediately you had a bargain, a lever, the whole series of trade agreements came into being. One of the levers and bargains is to accord a preference, a difference between the article coming from a foreign country and an article coming from within the Empire. To accord a difference in general terms is not of much use to a manufacturer, but if it be of a specified amount it is a definite bargaining counter. We have given that bargaining counter; we have received equivalent guarantees in return.

4.20 p.m.

Mr. Lees-Smith

I conclude that the hon. Member for Dundee (Mr. Foot) will go to a Division on this Amendment, in which case I and my friends will vote with him. As the whole subject will come up again in a few minutes on another Resolution I shall defer any further observations until that stage.

Question put, "That those words be there added."

The House divided: Ayes, 118; Noes, 225.

Division No. 164.] AYES [4.19 p.m.
Adams, D. M. (Poplar, S.) Harvey, T. E. (Eng. Univ's.) Ridley, G.
Adamson, W. M. Hayday, A. Riley, B.
Alexander, Rt. Hon. A. V. (H'lsbr.) Henderson, A. (Kingswinford) Roberts, W. (Cumberland, N.)
Anderson, F. (Whitehaven) Henderson, J. (Ardwick) Rowson, G.
Attlee, Rt. Hon. C. R. Henderson, T. (Tradeston) Salter, Dr. A. (Bermondsey)
Banfield, J. W. Holdsworth, H. Salter, Sir J. Arthur (Oxford U.)
Barr, J. Hopkin, D. Sanders, W. S.
Batey, J. Jenkins, A. (Pontypool) Sexton, T. M.
Benn, Rt. Hon. W. W. Jenkins, Sir w. (Neath) Shinwell, E.
Broad, F, A. Johnston, Rt. Hon. T. Short, A.
Bromfield, W. Jones, A. C. (Shipley) Silverman, S. S.
Buchanan, G. Jones, H. Haydn (Merioneth) Simpson, F. B.
Charleton, H. C. Jones, Morgan (Caerphilly) Smith, Ben (Rotherhithe)
Chater, D. Kennedy, Rt. Hon. T. Smith, E. (Stoke)
Clynes, Rt. Hon. J. R. Lathan, G. Smith, Rt. Hon. H. B. Lees (K'ly)
Cocks, F, S. Leach, W. Smith, T. (Normanton)
Cove, W. G. Lee, F. Sorensen, R. W.
Daggar, G. Leonard, W. Stewart, W. J. (H'ght'n-le-Sp'ng)
Davies, R. J. (Westhoughton) Leslie, J. R. Taylor, R. J. (Morpeth)
Davies, S. O. (Merthyr) Logan, D. G. Thorne, W.
Dobbie, W. Lunn, W. Thurtle, E.
Dunn, E. (Rother Valley) Macdonald, G. (Ince) Tinker, J. J.
Ede, J. C. McEntee, V. La T. Viant, S. P.
Edwards, Sir C. (Bedwellty) McGhee, H. G. Walker, J.
Fletcher, Lt.-Comdr. R. T. H. Maclean, N. Watkins, F. C.
Foot, D. M. MacNeill, Weir, L. Watson, W. McL.
Gallacher, W. Mander, G. le M. Welsh, J. C.
Gardner, B. W. Marshall, F. Westwood, J.
Garro Jones, G. M. Mathers, G. White, H. Graham
George, Major G. Lloyd (Pembroke) Montague, F. Whiteley, W.
George, Megan Lloyd (Anglesey) Morrison, R. C. (Tottenham, N.) Wilkinson, Ellen
Gibbins, J. Muff, G. Williams, E. J. (Ogmore)
Gibson, R. (Greenock) Paling, W. Williams, T. (Don Valley)
Green, W. H. (Deptford) Parker, J. Wilson, C. H. (Attercliffe)
Greenwood, Rt. Hon. A. Pethick-Lawrenoe, F. W. Windsor, W. (Hull, C.)
Grenfell, D. R. Potts, J. Woods, G. S. (Finsbury)
Griffith, F. Kingsley (M'ddl'sbro, W.) Price, M. P. Young, Sir R. (Newton)
Griffiths, G. A. (Hemsworth) Quibell, D. J. K.
Groves, T. E. Rathbone, Eleanor (English Univ's.) TELLERS FOR THE AYES.—
Hardie, G. D. Richards, R. (Wrexham) Sir Hugh Seely and Mr. Acland.
Harris, Sir P. A.
Acland-Troyte, Lt.-Col. C. J. Cazalet, Capt. V. A. (Chippenham) Emery, J. F.
Adams, S. V. T. (Leeds, W.) Chamberlain, Rt. Hn. N. (Edgb't'n) Emrys-Evans, P. V.
Agnew, Lieut.-Comdr. P. G. Christie, J. A. Errington, E.
Albery, Sir Irving Churchill, Rt. Hon. Winston S. Evans, Capt. A. (Cardiff, S.)
Allen, Lt.-Col. J. Sandeman (B'kn'hd) Clarke, Lt.-Col. B. S. (E. Grinstead) Everard, W. L.
Anderson, Sir A. Garrett (C. of Ldn.) Clarry, Sir Reginald Fox, Sir G. W. G.
Anstruther-Gray, W. J. Cobb, Captain E. C. (Preston) Furness, S. N.
Assheton, R. Colfox, Major W. P. Ganzoni, Sir J.
Astor, Major Hon. J. J. (Dover) Colville, Lt.-Col. Rt. Hon. D. J. Gledhill, G.
Astor, Viscountess (Plymouth, Sutton) Cook, Sir T. R. A. M. (Norfolk, N.) Goldie, N. B.
Atholl, Duchess of Cooke, J. D. (Hammersmith, S.) Goodman, Col. A. W.
Baillie, Sir A. W. M. Cooper, Rt. Hn. A. Duff (W'st'r S. G'gs) Graham, Captain A. C. (Wirral)
Baldwin, Rt. Hon. Stanley Courthope, Col. Sir G. L. Grant-Ferris, R.
Baldwin-Webb, Col. J. Critchley, A. Grattan-Doyle, Sir N.
Barclay-Harvey, Sir C. M. Crooke, J. S. Greene, W. P. C. (Worcester)
Baxter, A. Beverley Crookshank, Capt. H. F. C. Gretton, Col. Rt. Hon. J.
Beit, Sir A. L. Culverwell, C. T. Grimston, R. V.
Bernays, R. H. Davison, Sir W. H. Guest, Hon. I. (Brecon and Radnor)
Birchall, Sir J. D. Dawson, Sir P. Guest, Mai. Hon. O. (C'mb'rw'll, N.W.)
Bird, Sir R. B. De la Bère, R. Guinness, T. L. E. B.
Blair, Sir R. Denman, Hon. R. D. Gunston, Capt D, W.
Boothby, R. J. G. Denville, Alfred Guy, J. C. M.
Boulton, W. W. Donner, P. W. Hamilton, Sir G. C.
Bower, Comdr. R. T. Dorman-Smith, Major R. H. Hannah, I. C.
Bowyer, Capt. Sir G. E. W. Dower, Capt. A. V. G. Hannon, Sir P. J. H.
Brass, Sir W. Drewe, C. Harbord, A.
Brocklebank, O. E. R. Duckworth, Arthur (Shrewsbury) Hartington, Marquess of
Bullock, Capt. M. Dugdale, Major T. L. Harvey, Sir G.
Burgin, Dr. E. L. Duggan, H. J. Haslam, H. C. (Horncastle)
Burton, Col. H. W. Duncan, J. A. L. Heilgers, Captain F. F. A.
Butler, R. A. Edmondson, Major Sir J. Hepburn, P. G. T. Buchan-
Campbell, Sir E. T. Elliot, Rt. Hon. W. E. Herbert, Major J. A. (Monmouth)
Cartland, J. R. H. Ellis, Sir G. Holmes, J. S.
Cary, R. A. Elliston, Capt. G. S. Hopkinson, A.
Castlereagh, Viscount Elmley, Viscount Hore-Belisha, Rt. Hon. L.
Hudson, Capt. A. U. M. (Hack., N.) Morris-Jones, Sir Henry Shakespeare, G. H.
Hurd, Sir P. A. Morrison, G. A. (Scottish Univ's.) Shaw, Captain W. T. (Forlar)
James, Wing-Commander A. W. H. Morrison, Rt. Hon. W. S. (Cirencester) Shepperson, Sir E. W.
Jarvis, Sir J. J. Neven-Spence, Major B. H. H. Simmonds, O. E.
Jones, Sir G. W. H. (S'k N'w'gt'n) Nicholson, G. (Farnham) Simon, Rt. Hon. Sir J. A.
Keeling, E. H. Nicholson, Hon. H. G. Smith, L. W. (Hallam)
Kerr, Colonel C. I. (Montrose) O'Neill, Major Rt. Hon. Sir Hugh Somerville, A. A. (Windsor)
Kerr, H. W. (Oldham) Orr-Ewing, I. L. Southby, Commander A. R. J.
Kerr, J. Graham (Scottish Univs.) Palmer, G. E. H. Spears, Brigadier-General E. L.
Knox, Major-General Sir A, W. F. Patrick, C. M. Storey, S.
Lamb, Sir J. Q. Peake, O. Stourton, Major Hon. J. J
Lambert, Rt. Hon. G. Peat, C. U. Strauss, E. A. (Southwark, N.)
Law, Sir A. J. (High Peak) Penny, Sir G. Strickland, Captain W. F.
Law, R. K. (Hull, S.W.) Perkins, W. R. D. Stuart, Lord C. Crichton- (N'thw'h)
Leckie, J. A. Petherick, M. Stuart, Hon. J. (Moray and Nairn)
Lewis, O. Pickthorn, K. W. M. Sueter, Rear-Admiral Sir M. F.
Liddall, W. S. Pilkington, R. Tasker, Sir R. I.
Little, Sir E. Graham- Ponsonby, Col. C. E. Tate, Mavis C.
Llewellin, Lieut.-Col. J. J. Porritt, R. W. Taylor, C. S. (Eastbourne)
Lloyd, G. W. Pownall, Lt.-Col. Sir Assheton Taylor, Vice-Adm. E. A. (Padd., S.)
MacAndrew, Colonel Sir C. G. Radford, E. A. Touche, G. C.
M'Connell, Sir J. Ramsay, Captain A. H. M. Tufnell, Lieut.-Commander R. L.
McCorquodale, M. S. Ramsbotham, H. Wakefield, W. W.
MacDonald, Rt. Hon. J. R. (Scot. U.) Rawson, Sir Cooper Ward, Lieut.-Col. Sir A. L. (Hull)
McKie, J. H. Reed, A. C. (Exeter) Wardlaw-Milne, Sir J. S.
Maclay, Hon. J. P. Reid, Sir D. D. (Down) Warrender, Sir V.
Macnamara, Capt. J. R. J. Reid, W. Allan (Derby) Waterhouse, Captain C.
Magnay, T. Ropner, Colonel L. Watt, G. S. H.
Maitland, A. Ross, Major Sir R. D. (Londonderry) Wells, S. R.
Makins, Brig.-Gen. E. Ross Taylor, W. (Woodbridge) Wickham, Lt.-Col. E. T. R.
Manningham-Buller, sir M. Rowlands, G. Williams, C. (Torquay)
Margesson, Capt. Rt. Hon. H. D. R. Runciman, Rt. Hon. W. Williams, H. G. (Croydon, S.)
Markham, S. F. Russell, A. West (Tynemouth) Wilson, Lt.-Col. Sir A. T. (Hitchin)
Maxwell, Hon. S. A. Russell, R. J. (Eddisbury) Wise, A. R.
Mayhew, Lt.-Col. J. Salmon, Sir I. Withers, Sir J. J.
Mellor, Sir J. S. P. (Tamworth) Salt, E. W. Wragg, H.
Mills, Sir F. (Leyton, E.) Sandeman, Sir N. S. Wright, Squadron-Leader J. A. C.
Mills, Major J. D. (New Forest) Sanderson, Sir F. B. Young, A. S. L. (Partick)
Mitchell, H. (Brentford and Chiswick) Sandys, E. D.
Morgan, R. H. Savery, Sir Servington TELLERS FOR THE NOES.—
Morris, O. T. (Cardiff, E.) Selley, H. R. Major Sir George Davies and
Captain Hope.

Motion made, and Question proposed, "That this House doth agree with the Committee in the said Resolution."

4.28 p.m.

The President of the Board of Trade (Mr. Runciman)

The trade agreement under discussion is one of the most recent negotiated by the Government. We have all along regarded our trade with Canada as being of first-class importance, and everything that can be done to remove the obstacles to trade in and out of the two countries has been encouraged by us. The Ottawa Agreement of 1932 we found by experience was not entirely satisfactory, and indeed in many quarters it was regarded as one-sided. In the negotiations for the new agreement there were two alternative courses open to us: Either we could, in order to redress the balance, have imposed duties on Canadian goods entering this country, or the Government of Canada could have adopted a generally lower level of duties on United Kingdom goods entering Canada. As part of the general policy of reducing trade barriers wherever possible, both the Canadian Government and ourselves preferred the second course, namely, that of reducing the level of duties on United Kingdom goods entering Canada. We had long and detailed conversations with the representatives of the Canadian Government, and I should like to say how indebted we are to Mr. Dunning in particular for the care and trouble he expended over the detailed work of this agreement. I am glad to say that not only did he do this with meticulous care and detail, but he is a strong supporter of the general principle by which we were actuated.

If hon. Members have studied the Command Paper, they will have seen what steps were taken and what changes had been made with the object of making the course of trade between the two countries flow with as little obstacle as possible. Of course, whatever is done in negotiating a trade agreement of this nature, must of necessity be built up by concessions on both sides. We, for our part, have been anxious to reduce the disparity on our side, and at the same time the Canadian Government found that it was in harmony with their general policy. On our side, we have decided in general that we will continue the treatment guaranteed to Canadian goods by the old Ottawa Agreement, namely, free entry. It would be well that those who criticise the Ottawa Agreements should realise what a very large amount of trade receives the guarantee of free entry. Goods charged with duties known as the McKenna Duties, and goods subject to Silk Duties continue to receive the same preferential treatment as at present.

There are two exceptions to our undertaking to give the same treatment as at present. Those two exceptions are in respect of silk stockings, which are dealt with under Budget procedure in this and previous Budgets; and reed organs and harmoniums. It is a remarkable fact on the conclusion of our negotiations that these were the only two items on which new concessions were granted by His Majesty's Government—with the full good will of the Canadian Government. On the Canadian side, the British preferential duties were reduced on no fewer than 179 items. Free entry and existing duties are conventionalised for 246 items. Where the duties on United Kingdom goods are not fixed, they may only be increased after an inquiry at which the United Kingdom interests will have full rights of audience. I have heard criticisms from time to time of the working of the Tariff Board in Canada, and complaints were made to the Board of Trade by the representative organisations here at home as to the delays which took place. I am glad to think that if there is any resort to similar inquiry now—and the Canadian Government have undertaken that there shall be no increase without the fullest inquiry—there will be a renewal of confidence in the tribunal of which the present Canadian Government promises to make use. The duty reductions agreed upon were brought into force on 26th February. They cover—and here I should like to divide up the trades, so that the House may realise what a very large area is covered by this agreement—about 40 per cent., by value, of our trade with Canada which is subject to duty. The reductions and the conventionalisations together cover about 6o per cent. of our trade with Canada. Of the remainder, about 25 per cent. is already free of duty and likely to remain free of duty. That leaves only 15 per cent. subject to duties not covered by the agreement.

All these things, bald as they are when recited to the House, have a direct money value to two at least of our greatest trades, the cotton industry and the woollen industry. Some of the most important reductions are on printed cotton goods and other coloured piece goods. The total amount of these piece goods imported from the United Kingdom into Canada for the year including 31st March, 1936, came to about $3,250,000. The reduction in duty expressed as a percentage of the old duty is about 11 per cent. We have secured, therefore, for the cotton industry a considerable reduction of the barriers which they have to overcome and, taken on the whole, a very large amount of the imports from the United Kingdom will benefit by rather over 10 per cent. Certain woollen yarns account for about $2,250,000 of our trade into Canada, and the reduction in duty expressed as a percentage of the old duty is 14 per cent. In woollen textiles the reduction on a very large turnover is from 30 per cent. to 13 per cent. On woollen clothing it amounts to no less than 19 per cent., and on rayon piece goods to 9 per cent. So it proceeds down the list. Hon. Members will find that the reductions are really substantial, and I should like to thank the Canadian Government for having met us so generously over these most important trades.

When one comes to some of the items like hosiery, the reduction is no less than 35 per cent., and the new duties which are leviable give us a considerable advantage in that market which could only have been obtained by an agreement such as the one which I am now commending to the House. The additions to the free list include aircraft engines, files and rasps, ball and roller bearings, and the free list is continued for most linen and for table ware. The fixed margin of preference of 35 per cent. ad valorem for table ware is also continued. Finally, Article 12 contains provisions about the dumping of Canadian goods in this market, which has been a subject of controversy and discussion during the last four years. I hope that this provision will serve to meet the complaints which have frequently been made by the United Kingdom manufacturers.

On the general question of the agreement, I would point out this. We could not in any circumstances have succeeded in obtaining such generous terms from the Canadian Government unless we were ourselves prepared to make considerable concessions. My hon. Friend the Parliamentary Secretary has made reference to the negotiations which have been attempted in the past. He reminded the House of the efforts of my predecessor in office, Mr. William Graham. Mr. Graham expended his strength and energy over an heroic effort to bring about a reduction of duties. I had the pleasure of cooperating with Mr. Graham at the Economic Conference at Geneva. One reason why we failed to make any progress there was that neither Mr. Graham in his negotiations nor we at the International Conference had anything to give away. In the absence of that it was quite impossible for us to obtain concessions from the other side. In the case of Canada, with all the good will in the world, it would have been impossible to us to have obtained any substantial reductions which would be of so much moment to some of our major industries if we had not been in a position ourselves to grant concessions.

Anybody who has been through negotiations of this kind knows that they are usually most prolonged. They are carried out by officials on both sides, who know the details of their work, almost miraculously, and I join with those who have admired the skill with which our permanent officials have grasped the details of these large and important industries. But it is quite clear that it was alone by having this weapon and being in a position to make concessions to the other side that we were able to secure a reduction in the barriers which impede traffic between the two countries. That it was worth while I need hardly remind the House, and that it has been productive, even in its defective form, of good results is apparent from the achievements of the last four years. In 1932, we took £43,000,000 from Canada, and sent her £16,400,000; last year, the £43,000,000 had grown to 75,000,000, and the £16,400,000 had grown to 23,300,000. The new agreement should do something to increase still further the exports to Canada and the agreement itself aims at promoting this inter-imperial traffic and doing so without increasing a single duty on foreign goods on either side. For that reason, and because of the good results which I antici- pate will flow from this agreement, I commend it to the House.

4.43 p.m.

Mr. Lees-Smith

The right hon. Gentleman has given the House a clear and not too lengthy explanation of the agreement, for which we are obliged to him. As I shall in a moment have to criticise it, I will begin by saying that I quite agree with him that it is an improvement, especially from the point of view of this country, on the original Ottawa Agreement of 1932. As he has said, quite rightly, that agreement was a very one-sided arrangement, under which we in this country gave very considerable advantages to Canada and the other Dominions. In return, broadly all that we actually received was the setting up of that Tariff Board to which he referred, and of which, I think, one could see, from his own observations, that really he thought the result was a series of disputations and disagreements owing to the fact that the reference to the board and the instructions under which they acted were so vague, and indeed so unscientific, that it was quite impossible for any body of members really to come to a conclusion as to what their policy was to be.

I am ready to acknowledge the improvement. It was not clear from the right hon. Gentleman's observations, but looking at the Agreement it would seem to me that the tariff board is no longer there at all. It seems to have disappeared, and in its place we have a series of maximum tariffs and guaranteed preferences and the placing of articles upon the free list which, as the right hon. Gentleman told us, between them account for all but 15 per cent. of the value of our imports from Canada. All that is obviously an advantage to this country. Nevertheless, there is one factor in the final calculations which the right hon. Gentleman did not mention but which is essential. We have to recollect that only last year Canada entered into a reciprocity treaty with the United States, which I should say is really a breach of the spirit of the Ottawa Agreements although not of their text. It is impossible to say whether, taking into account the advantages of that reciprocity treaty to the United States, we are at present, in relation to them, better off than we were a couple of years ago.

The right hon. Gentleman continued some of the observations made by the Parliamentary Secretary. The Parliamentary Secretary said that it was demonstrable that the Agreement had enlarged Imperial trade and given advantages to British industrialists, and the right hon. Gentleman took it for granted that there was no dispute about that statement. He told us that in 1932 our exports to Canada were about £16,000,000, and that last year they had risen to £23,000,000. During the weekend I have been making a diligent study of the figures, and I confess that I do not think it possible to reach any final conclusions at all on the subject, and certainly not such positive conclusions as those stated by the right hon. Gentleman. I have been forced to that opinion by the simple fact that I find it impossible to isolate the effect of this preferential arrangement from the effects of other great forces which began to operate about the same time. About the time when this arrangement was entered into, we abandoned the Gold Standard, and the world was divided into two great groups, the sterling group and the gold group. Broadly, the result was that our trade with the gold group rather stagnated, while our trade with the sterling group progressed. Canada and the other Dominions are with us in the sterling group, and the figures which the right hon. Gentleman has just given of the increase of exports are not much greater than comparable figures relating to the sterling group as a whole. Therefore, I say those figures do not prove whether or not these results are due to the preferential arrangements or to the fact that Canada was in the group which was favourable to trade with this country.

My hon. Friends and I will vote against the Resolution on account of certain wider issues to which the right hon. Gentleman made no reference. This appears to us a very inopportune time to commit ourselves in advance to measures which will diminish our elasticity in dealing with our own tariffs. The Parliamentary Secretary used an adjective which I find rather useful—"demonstrable." It is a very good adjective. It takes a lot for granted but I think certain things are admitted. It is admitted, I believe, generally, that the political convulsions which have led to dictatorships and are endangering civilisa- tion have largely been due to economic misery, and that one of the main causes of that economic misery has been the accumulation of quotas, exchange restriction and tariffs which have prevented the wealth of the world from being distributed among the nations of the world. Our own Debates in this House give us an example of the consequences. We are supposed to be in the midst of a trade boom but our Special Areas are still in a state of the deepest depression. That is simply due to the fact that the foreign trade on which they depended has been held up by all the impedimenta placed in its way. I think that is demonstrable and that it is correct.

The Government are now seeking, by way of inquiries through M. Van Zeeland and others, to open out possible international agreements under which these difficulties might be overcome by other countries giving concessions to us, if we give concessions of a comparable character to them. In order that we may do so with freedom, we must have full elasticity in regard to our own tariffs. One feature of this Agreement, to which the hon. Member for Dundee (Mr. Foot) has called attention, is that we have, by guaranteeing margins of preferences and other devices included in the Agreement, largely placed control of our own policy out of our own hands, just at the moment when it is most necessary that we should be free. That is one large issue to which the right hon. Gentleman paid no attention.

There is an even larger issue, an issue on which, positively, the very fate of mankind may depend. This country has just initiated at Geneva an inquiry into the whole problem of the access to the raw materials of the world of the nations who do not possess the territories in which those raw materials are found. That inquiry is proceeding, and again I think it is demonstrable that certain arguments which have been put forward by Germany, Italy, and japan—the "have-not" nations—cannot be sustained, but that other arguments used by them can be sustained. They cannot sustain the contention that there is any unwillingness on the part of our Colonies to sell raw materials to them, because in fact our Colonies have an over-production of those raw materials, and would be glad to sell to anyone who was willing to purchase. That argument has been shattered already. But there is one contention which is correct. It is that if the "have-not" nations are to have the possibility of buying on the same terms as anybody else the raw materials which we possess more than any other nation in the world, in our Colonies and Protectorates, they must also have the possibility of selling to those Colonies and Protectorates on the same terms as anybody else.

If you erect a system by which you put those nations at a disadvantage in selling to the British Empire and particularly to the dependent parts of the British Empire where you control policy, you put them at a disadvantage in obtaining raw materials in return. That is a legitimate argument. It seems to me to be the one argument which is left at the back of all this agitation in Germany, Italy and other countries. We, who have initiated this discussion must be willing to face that argument and deal with any legitimate claims to which it may give rise. For that reason, at this moment of all moments in our history we should be perfectly free to go back if we wish particularly in our Protectorates, to the old policy of the open door and equal economic opportunities. When I was just entering politics that policy was explained by the late Mr. Joseph Chamberlain in words which so inspired me that I cut them out and kept them and I read them only this morning. It is the policy of trusteeship and equal economic opportunity. We ought to have a free hand, and to be able to go back to that policy, on which we were able to maintain the British Empire for so long with little or no complaint from any other nation in the world. But here we are asked to consent to an agreement which in advance prevents us from going back to that policy. That of itself is a sufficient reason why we cannot give our assent to the passage of this Resolution.

4.58 p.m.

Brigadier-General Spears

I take advantage of the fact that this discussion has become wider in character, to say something on the general principle of the Ottawa Agreements. It seems to me that the day has passed when this country can assume the attitude of the generous father who, whatever the circumstances, is always ready to assume the main burdens of responsibility. We are now living under the Statute of Westminster, which the Dominions were exceedingly anxious to have. This country now is one Dominion among several Dominions, and it seems to me that the burden as between the other Dominions and ourselves ought to be equal. Otherwise, the situation of British industry will become too difficult. We in this country bear the main burden of the protection of the Empire. That burden has to be borne by British industry and we have to safeguard the interests of British industry in order to make it possible for that industry to meet the enormous demands which are made upon it.

Perhaps I can best deal with the Ottawa Agreements by confining myself to their effect upon one industry and that is the industry of rubber boots and shoes. As regards Canada, our position vis-à-vis that Dominion does not seem to be fair. It is true beyond the shadow of doubt that Canadian rubber shoes are being dumped into the British market—that is they are being sold here at less than the price at which they are being sold in the Canadian market. [HON. MEMBERS: "That is not dumping."] It is one of the definitions of dumping which is generally accepted. [HON. MEMBERS: "No"] Canadian imports into this country of this class of goods have risen from 1,225,000 pairs in 1932 to 5,386,000 pairs in 1936. If that were fair competition, no one could complain, but those goods are being sold in this country at less than on the Canadian market. There are antidumping and ordinary duties imposed on certain classes of English goods on the Canadian market. We are told that if we complain of dumping we have now a remedy in our hands under Section 12 of this Agreement. This remedy is extremely unsatisfactory. If we can prove that Canadian goods are dumped in to this country, we are told the Canadian Government may exempt the same type of British goods from anti-dumping penalties in Canada. In other words, instead of reciprocity, all that has been clone is to introduce a form of retaliation. That is extremely unfortunate.

If the situation is serious so far as Canada is concerned, it is infinitely more serious so far as competition in the Eastern Empire is concerned. The imports in rubber shoes from Singapore and Hong Kong have risen from 47,000 pairs in 1932 to 3,523,000 pairs in 1936. What I understand is happening in Singapore and to a much greater extent in Hong Kong is that Japanese capital has been used to start factories within these British territories and, not even native labour, but emigrant Chinese are employed at very low rates of wages to flood our English market. Against this we have no means of retaliation or adjustment whatever. I believe the lowest paid classes of workers in those factories in Hong Kong begin at 4d. a day for a 10-hour day and a 60-hour week. We in this country simply cannot compete against goods produced under those conditions in the Far East. The position is an extremely serious one. I understand that if this industry had had some measure of protection in this country it would now be employing 3,000 more people than it is to-day, but there is actually danger of employment in the British boot and shoe industry going down. What occurs is that as soon as a shoe produced in this country has had time to be sent to the Far East it is copied there, and a similar shoe comes back to this country in hundreds of thousands. The British industry is being driven from pillar to post, and I am told on very good authority that, if this sort of competition goes on, employment in the industry will be greatly reduced and might entirely cease. I commend to the Minister's attention the urgent representations which I know have been made to him on this subject.

5.6 p.m.

Mr. Dingle Foot

To anyone who remembers the Debate which took place on the Ottawa Agreements of 1932, it was exceedingly interesting to listen to the review given by the President of the Board of Trade this afternoon. We can remember the enthusiasm and hopefulness with which he sponsored the Agreements five years ago.His tone to-day is in considerable contrast. He said that the working of the Agreements had not been entirely satisfactory; that they were regarded in this country as rather one-sided —a contention certainly borne out by the figures which he gave—and he referred to complaints frequently made by United Kingdom industry. Everybody—certainly anyone representing an industrial constituency—has heard those forms of complaint many times during the last five years, but when I heard the right hon. Gentleman's somewhat doleful review of the working of the 1932 Agreement I could not help feeling that he regarded that with about as much enthusiasm as he regarded the Cotton Industry or the Coal Mines Industry Bills last Session.

I wish to put forward one or two objections which my friends and I take to this Agreement. We admit it represents a considerable advance on the Agreement of 1932. It is an improvement on the Agreement presented to us as a result of the Ottawa Conference. There seems, however, to be some diversity of testimony between the two Parties as to its effect. On the 8th March of this year, the right hon. Gentleman the Secretary of State for the Dominions, addressing the Canadian Chamber of Commerce of London at luncheon, referred to the 1932 Agreement and said that: Subsequent years had shown that the experiment of 1932 was a success, and worth renewing, if possible on a wider scale. When Mr. Dunning referred to this Agreement in the Canadian House of Commons on 25th February this year the first thing he did was to deny that it was a renewal of the Agreement of 1932. He said: The new Agreement, however, was in no sense a simple renewal of the Pact signed at Ottawa in 1932, for the Canadian Government had insisted upon a broadening of the opportunities of international trade— I notice there the insistence came from the Canadian Government— without impairing the practical effectiveness of the British Preferential system, and endeavoured to apply within that system the principles of commercial policy which it hoped to see realised in the economic relations of Canada with the rest of the world. That is a long way removed from the declaration by Mr. Bennett five years ago, that in future no one would be allowed to trade with the British Empire except on payment of tribute. We welcome the change on the Canadian side. There are several considerable advantages in this Agreement as compared with the old one. In the first place, in the old Agreement the margin of preference that was to be given to the United Kingdom by the Canadians was in some cases secured, not just by lowering the Canadian duty on British goods, but by increasing the duty on foreign goods imported into Canada. That does not occur in this Agreement and in no single case is there an increase of duties on Canadian imports at all. Secondly, on our side in 1932 we undertook to increase certain duties, first imposed by the Impart Duties Act, but in the present case we are not undertaking to increase any duties at all. Thirdly, this Agreement is to run for three years instead of five.

I would like to ask the Minister a question regarding the position of the Tariff Board. The President of the Board of Trade used the term "Tribunal." I understood from reading this Agreement that the Tariff Board was in future to disappear. Article 6 provides: The Government of Canada undertake, as regards goods the growth, produce or manufacture of the United Kingdom other than those enumerated in Schedule IV that, under the British preferential tariff, no new protective duty shall be imposed and no existing protective duty increased except after an inquiry at which United Kingdom producers shall enjoy full rights of audience. It is not specified there what form the inquiry is to take, but, from the comments that have appeared in many newspapers, the impression prevails that the Tariff Board set up in 1932 is to go altogether. I think I am right in saying that what is here visualised is something quite different from the function assigned to the Tariff Board in the Agreement of 1932, because the board had to perform the very complicated task of deciding what was fair and reasonable competition between producers in one country and producers in the other, and there were many social and economic factors which they were expected to take into account.

If it be true that the system set up by the Agreement of 1932 has gone, that is also an interesting commentary on what was done. I can recall that the Tariff Board which was to do far more than undertake the inquiry that is referred to in Article 6 was held to be one of the great achievements of the United Kingdom negotiators in 1932. Lord Swinton, addressing this House on 26th October, 1932, said: I attach less importance to the immediate gain than to the principle on which the tariff hoards are to work, granting the minimum protection which an efficient industry needs as against an industry in this country."—[OFFICIAL REPORT, 26th October, 1932; cols. 1062–3, Vol. 269.] That was regarded as one of the major achievements, from our point of view, in the Agreement of 1932. Perhaps we may be told whether any of that system survives under this agreement. If the board has now disappeared, why has it dis- appeared? Did the British negotiators ask that it should remain, or did they think that it was so useless that it was not worth pressing for?

With regard to the Agreement, I have made it clear that there are one or two points to which my hon. Friends and I take serious objection. I will not go over the ground again now, except to say that we still think it is wrong that there should be in a commercial Agreement of this kind no termination Clause until the end of three years. In our view, that binds the hands, not only of the Government in any tariff negotiations that may take place with other countries; it binds the House of Commons. The one right which every private Member has is to move a reduction of taxation. Most of the power and influence of this House has been built up on our power to refuse to vote taxation. It is now sought to deprive us of that power in respect of these particular taxes for another three years. It will still be in order to move the reduction of these taxes or their abolition, but it cannot be done without involving a breach of faith with the Government of Canada.

A point has been made about Colonial preferences. When the Parliamentary Secretary answered me on my Amendment, he dealt with the objections I have raised to Article 3 of the Agreement, but he scarcely attempted to deal with the considerations I put forward arising out of Article 15. My argument was simply this—and it is very important in these days—that supposing negotiations with European countries take place in the near future with a view to settling some of the grievances of the dissatisfied nations, supposing His Majesty's Government come to the conclusion that, in order to bring about the pacification of Europe, they must return to the policy of the open door in our Colonial possessions, they are prohibited under this Agreement from giving effect to that policy for three years. It is that argument, which is in the minds of Members of all parties, to which the Parliamentary Secretary did not attempt any reply. We agree in other respects that this Agreement is much better than that of 1932. The reason is obvious, namely, that, although unfortunately we still have the same Government and the same policy, there has been an improvement very much for the better in the Dominion of Canada.

5.18 p.m.

Mr. Loftus

I confess that I find myself greatly impressed by the concluding portion of the speech to which we have just listened. I regret that this Agreement contains no clause which will allow an earlier termination than 1940. I was greatly impressed also by the argument which was used by the right hon. Gentleman the Member for Keighley (Mr. Lees-Smith) who said that the one argument which the so-called dissatisfied nations can put forward was that they must be able to purchase raw materials throughout the world, and it is no use our saying that they have the right to purchase those materials unless they have the free and equal right of paying for them, and the only way of paying is by the export of their goods. For two years I have felt the increasing tension in Europe, and I have stated on every possible occasion that there were economic causes which, though not entirely responsible, were very largely responsible. I admit that the greater part of the essential raw materials is not in the Colonial world, but there is a large percentage of them in the Colonies. We have to consider that raw material which is useless material now may, in years to come, be essential raw material owing to new discoveries and to new conditions. That is one of the arguments which the dissatisfied nations put forward in their demand for colonies.

Mr. Bernays

Will my hon. Friend bear in mind, in the interesting argument that he is putting forward, that on the committee that has been set up under the auspices of the League to inquire into the whole question of the availability of raw materials, the German Government declined to be represented?

Mr. Loftus

That argument, I suggest with respect, is not quite pertinent; but even if it were, I deplore that type of argument. I deplore the type of argument that because a nation may have started the trouble, or because its Press started the mutual abuse, or because it will not be good or play the game, we must cease all efforts at appeasement and do nothing but go on preparing for inevitable war. To return to my argument, it is a fact that there is an enormous expansion of population in Japan amounting to nearly 1,000,000 in a small area, and that the population of Italy has been increasing by 300,000 or 400,000 a year. If that increase goes on, it is obvious that those countries must, year by year, import more goods. Otherwise, their standard of living must fall. They can meet those imports only by more exports. We desire that the result of an international economic conference should be a settlement, and if these dissatisfied nations should put forward proposals for a general world settlement and we found our hands tied for three or four years ahead by this Agreement, it would be a deplorable position. I feel certain that we have to face the economic difficulties of the world and that it is dangerous in any way, however slightly, to give an impression to the world that the Colonial Empires are to be reserved in the first place for the Home and Dominion trade.

Mr. Deputy-Speaker (Captain Bourne)

The hon. Gentleman is getting rather wide of the Resolution.

Mr. Loftus

I bow to your Ruling. We hold the greatest Empire. The old idea of trusteeship was desirable in the past. We could give all men equal access. I think that in the immediate future it may be more than ever necessary as a safeguard and as a preventative against possible war.

5.25 p.m.

Mr. Wedgwood Benn

I should like to congratulate the hon. Member for Lowestoft (Mr. Loftus) on the remarkable and convincing speech which he has made. The President of the Board of Trade made some remarkable statements to-day. He said that this was a Government that stood for the policy of reducing trade barriers. This Government launched the country into a protective system and as a result everything that we have or use or see is taxed, and yet he says, "Our set policy is to reduce trade barriers." Then he said something about Mr. William Graham which I think was not justified. He said his efforts came to nothing. Did the right hon. Gentleman ever mention that the moment the Government of 1930, albeit in a minority, said, "We will do our best to reduce the tariffs which in fact launched Europe into a welter of economic restrictions," the present Prime Minister said "We give public notice that if this truce becomes effective we will repeal it the moment we are returned." I do not say that that is the only thing that destroyed Mr. Graham's tariff truce. He made a serious effort, and it is untrue and not in accordance with a right survey of the facts, to say that the tariffs in hand would have enabled Mr. Graham to carry it out. In this House day after day the tariff truce was attacked by the hon. Members with whom the President of the Board of Trade is now associated.

There is another thing about the Canadian Agreement which the President might have mentioned. It was denounced in the Canadian Parliament by Mr. King, because the Canadians did not approve of it. Mr. King has described the horrible family row that occurred at Ottawa so that people were hardly on speaking terms, and the British representatives had to deliver ultimatums to the Canadian Cabinet, which held special meetings to receive them. That is what the President of the Board of Trade used to tell us. He made many eloquent speeches, pointing that out. I still believe it and what was predicted has proved to be true. In any case, apart from this Agreement, I think it is safe to say that Mr. King would have reduced the Canadian tariffs. He was returned for that purpose, because, being a wise man, he believes in the reduction of tariffs which fall upon the consumer. The hon. Member for Lowestoft made a point which we have often tried to make. This Ottawa policy is creating in the world a number of enemies, and mention has been made of Japan and Germany. Anyone who has talked to the people of these countries knows that the justification for restrictive tariffs, and the attempt, often by armed force, to create and to retain economic reserves which are troubling the world, are justified by the countries responsible by the statement that they are doing only what we set the example by doing.

Mr. Loftus

That was not the argument I used. I must have put it rather badly.

Mr. Benn

I was venturing to put an argument of my own for a moment. What the hon. Gentleman said was that he regretted that we were tying our hands for three years. I am coming to that. It is not per incuriam that the Government are tying their hands, but because of the pressure of interests behind them which want it, so that, whatever the Germans propose, we shall not be in a position to make the required concession. The right hon. Member for Hillhead (Sir R. Horne), the leader of big business interests, made a speech the other day in which he gave public notice to von Rippentrop that nothing of the kind can come about. I do not share the Nazi desire that Germany should have more Colonies, because they have quite enough people under repression at home, and I do not want to see any more put under their rubber truncheons. But if you are earnest when you say you are prepared to redress the economic grievances of Germany it is folly to tie your hands in advance by an agreement of this kind, and to put your own Empire under forced tribute so that it cannot be brought into any more liberal system.

The demand for this policy of economic barriers was illustrated by the hon. and gallant Member for Carlisle (Brigadier-General Spears), who has tripped off. He wants dearer sand-shoes. At the very moment when everybody is going to the seaside he wants the price of sandshoes to be increased. At the moment when the Board of Education are telling us to undertake physical jerks in the morning he comes forward with a proposal to increase the price of sand-shoes. The right hon. Gentleman knows perfectly Well that once he starts a competition of interests of this kind every Member of this House is subjected to pressure—I am myself—from his constituents, who say, "Please raise your voice for a little more tariff here or there." Instead of our remaining a deliberative Assembly, considering the good of the whole, we are all being urged to push up barriers for private interests which hope to make something out of the Government's policy. If the labour conditions in Hong Kong are so bad—I have seen them in Shanghai, and if they are as bad in Hong Kong as they are in Shanghai they are a thorough disgrace—I would point out that we are in control of Hong Kong, and why do not the Government pass some labour legislation to prevent the people there working under such wretched conditions?

Finally, I want to say that there is not a Member of this House who has been in office and has not pledged himself up to the hilt not to impose taxes on the food of the poor. The Tory party and the Prime Minister himself, up to the time just short of the events of 1931, gave the most definite public pledges that they would not tax the food of the people. The rising prices are becoming serious. Mr. Rowntree made a survey the other day and he, who is an impartial and extremely experienced investigator, showed that the money which was necessary to buy the food to keep up a normal standard of health was not within the grasp of many people, perhaps a million of people, those, for example, who are subject to the means test. Their prices are rising because of the taxation of the Government and, more than that, they will be told, and told with truth, that they

have to pay more for their food because of the Canadian attitude. That is the way to break up an Empire. If we try to link the Empire together with taxes on the food of the people we shall shatter it. For these and other reasons I shall go into the Lobby in support of my right hon. Friend and against this Resolution.

Question put, "That this House doth agree with the Committee in the said Resolution."

The House divided: Ayes, 265; Noes, 126.

Division No. 165.] AYES. [5.33 p.m.
Acland-Troyte, Lt.-Col. G. J Donner, P. W. Hudson, R. S. (Southport)
Adams, S. V. T. (Leeds, W.) Dorman-Smith, Major R. H. Hunter, T.
Agnew, Lieut.-Comdr. P. G. Dower, Capt. A. V. G. Hurd, Sir P. A.
Albory, Sir Irving Drewe, C. James, Wing-Commander A. W. H.
Allan, Li.-Col. J. Sandeman (B'kn'hd) Duokworth, Arthur (Shrewsbury) Jarvis, Sir J. J.
Anderson, Sir A. Garrett (G. of Ldn.) Dugdale, Major T. L. Jones, Sir G. W. H. (S'k N'w'gt'n)
Anstruther-Gray, W. J. Duggan, H. J. Keeling, E. H.
Assheton, R. Duncan, J. A. L. Kerr, Colonel C. I. (Montrose)
Astor, Major Hon. J. J. (Dover) Eckersley, P. T. Kerr, H. W. (Oldham)
Astor, Viscountess (Plymouth, Sutton) Edmondson, Major Sir J. Kerr, J. Graham (Scottish Univs.)
Atholl, Duchess of Ellis, Sir G. Knox, Major-General Sir A. W. F.
Baldwin, Rt. Hon. Stanley Elliston, Capt. G. S. Lamb, Sir J. Q.
Baldwin-Webb, Col. J. Elmley, Visoount Lambert, Rt. Hon. G.
Balniel, Lord Emery, J. F. Latham, Sir P.
Barclay-Harvey, Sir C. M. Emmott, C. E. G. C. Law, Sir A. J. (High Peak)
Baxter, A. Beverley Emrys-Evans, P. V. Law, R. K. (Hull, S.W.)
Beaumont, Hon. R. E. B. (Portim'h) Entwistle, Sir C. F. Leckie, J. A.
Beit, Sir A. L. Errington, E. Leighton, Major B. E. P.
Bennett, Sir E. N. Evans, Capt. A. (Cardiff, S.) Lennox-Boyd, A. T. L.
Bornays, R. H. Everard, W. L. Lewis, O.
Blair, Sir R. Fildes, Sir H. Ltddall, W. S.
Boothby, R. J. G. Findlay, Sir E. Little, Sir E. Graham-
Bossom, A. C. Fox, Sir G. W. G. Llewellin, Lieut.-Col. J. J.
Boulton, W. W. Furness, S. N. Lloyd, G. W.
Bower, Comdr. R. T, Ganzoni, Sir J. Locker-Lampson, Comdr. O. S.
Bowyer, Capt. Sir G. E. W. Gilmour, Lt.-Col. Rt. Hon. Sir J. MacAndrew, Colonel Sir C. G.
Bracken, B. Gledhill, G. M'Connell, Sir J.
Brocklebank, C. E. R. Gluckstein, L. H. McCorquodale, M. S.
Brown, Brig.-Gen. H. C. (Newbury) Goodman, Col. A. W. MacDonald, Rt. Hon. J. R. (Scot. U.)
Bull, B. B. Gower, Sir R. V. McEwen, Capt. J. H. F.
Bullock, Capt. M. Graham, Captain A. C. (Wirral) McKie, J. H.
Burgin, Dr. E. L. Grant-Ferris, R. Maclay, Hon. J. P.
Butler, R. A. Grattan-Doyle, Sir N. Macnamara, Capt. J. R. J.
Cartland, J, R. H. Greene, W. P. C. (Worcester) Magnay, T.
Cary, R. A. Gretton, Col. Rt. Hon. J. Maitland, A.
Castlereagh, Viscount Gridley, Sir A. B. Makins, Brig.-Gen. E.
Cazalet, Thelma (Islington, E.) Grimston, R. V. Manningham-Buller, Sir M.
Cazalet, Capt. V. A. (Chippenham) Guest, Hon. I. (Brecon and Radnor) Margesson, Capt. Rt. Hon. H. D. R.
Chamberlain, Rt. Hn. N. (Edgb't'n) Guest, Maj.Hon.O. (C'mb'rw'll, N.W.) Markham, S. F.
Channon, H. Guinness, T. L. E. B. Mason, Lt.-Col. Hon. G. K. M.
Christie, J. A. Gunston, Capt. D. W. Maxwell, Hon. S. A.
Churchill, Rt. Hon. Winston S. Guy, J. C. M. Mayhew, Lt.-Col. J.
Clarke, F. E. (Dartford) Hacking, Rt. Hon. D. H. Mellor, Sir J. S. P. (Tamworth)
Clarke, Lt.-Col. R. S. (E. Grinstead) Hamilton, Sir G. C. Mills, Sir F. (Leyton, E.)
Clarry, Sir Reginald Hanbury, Sir C. Mills, Major J. D. (New Forest)
Cobb, Captain E. C. (Preston) Hannah, I. C. Mitchell, H. (Brentford and Chiswick)
Colfox, Major W. P. Hannon, Sir P. J. H. Moore, Lieut.-Col. T. C. R.
Colman, N. C. D. Harbord, A. Moreing, A. C.
Colville, Lt.-Col. Rt. Hon. D. J. Harvey, Sir G. Morgan, R. H.
Cook, Sir T. R. A. M. (Norfolk, N.) Haslam, H. C. (Homoastle) Morris, O. T. (Cardiff, E.)
Cooke, J. D. (Hammersmith, S.) Haslam, Sir J. (Bolton) Morris-Jones, Sir Henry
Cooper, Rt. Hn. A. Duff (W'st'r S. G'gs) Heilgers, Captain F. F. A. Morrison, G. A. (Scottish Univ's.)
Courthope, Col. Sir G. L. Heneage, Lieut.-Colonel A. P. Morrison, Rt. Hon. W. S. (Cirencester)
Craven-Ellis, W. Hepburn, P. G. T. Buchan Neven-Spence, Major B. H. H.
Critchley, A. Herbert, A. P. (Oxford U.) Nicholson, G. (Farnham)
Crooke, J. S. Herbert, Major J. A. (Monmouth) Nioolson, Hon. H. G.
Crookshank, Capt. H. F. C. Herbert, Capt. Sir S. (Abbey) O'Neill, Major Rt. Hon. Sir Hugd
Culverwell, C. T. Holmes, J. S. Orr-Ewing, I. L
Davies, C. (Montgomery) Hope, Captain Hon. A. O. J. Palmer, G. E. H.
Davison, Sir W. H. Hopkinson, A. Patrick, C. M.
Dawson, Sir P. Home, Rt. Hon. Sir R. S. Peake, O.
Denman, Hon. R. D. Horsbrugh, Florenoe Peat, C. U.
Doland, G. F. Hudson, Capt. A. U. M. (Hack., N.) Penny, Sir G.
Perkins, W. R. D. Sandys, E. D. Taylor, C. S. (Eastbourne)
Petherick, M. Savery, Sir Servington Taylor, Vice-Adm. E. A. (Padd., S.)
Pickthorn, K. W. M. Selley, H. R. Titchfield, Marquess of
Pilkington, R. Shakespeare, G. H. Touche, G. C.
Porritt, R. W. Shaw, Captain W. T. (Forfar) Tree, A. R. L. F.
Pownall, Lt.-Col. Sir Assheton Shepperson, Sir E. W. Tufnell, Lieut.-Commander R. L.
Procter, Major H. A. Simmonds, O. E. Wakefield, W. W.
Radford, E. A. Simon, Rt. Hon. Sir J. A. Ward, Irene M. B. (Wallsend)
Ramsay, Captain A. H. M. Smiles, Lieut.-Colonel Sir W. D.
Ramsbotham, H. Smith, L. W. (Halfam) Warrender, Sir V.
Rathbone, J. R. (Bodmin) Smith, Sir R. W. (Aberdeen) Waterhouse, Captain C.
Rawson, Sir Cooper Somervell. Sir D. B. (Crewe) Watt, G. S. H.
Reed, A. C. (Exeter) Somerville, A. A. (Windsor) Wayland, Sir W. A
Reid, Sir D. D. (Down) Southby, Commander A. R. J. Wells, S. R.
Raid, W. Allan (Derby) Spears, Brigadier-General E. L. Wickham, Lt.-Col. E. T. R.
Robinson, J. R. (Blackpool) Stanley, Rt. Hon. Lord (Fylde) Williams, C. (Torquay)
Ropner, Colonel L. Stewart, J. Henderson (Fife, E.) Williams, H. G. (Croydon, S.)
Ross, Major Sir R. D. (Londonderry) Storey, S. Wilson, Lt.-Col. Sir A. T. (Hitchin)
Ross Taylor, W. (Woodbridge) Stourton, Major Hon. J. J. Wise, A. R.
Rowlands, G. Strauss, E. A. (Southwark, N.) Withers, Sir J. J.
Runciman, Rt. Hon. W. Strauss, H. G. (Norwich) Wragg, H.
Russell, A. West (Tynemouth) Strickland, Captain W. F. Wright, Squadron-Loader J. A. C.
Russell, R. J. (Eddisbury) Stuart, Lord C. Crichton- (N'thw'h) Young, A. S. L. (Partick)
Russell, S. H. M, (Darwen) Stuart, Hon. J. (Moray and Nairn)
Salt, E. W. Sueter, Rear-Admiral Sir M. F. TELLERS FOR THE AYES.—
Sanderson, Sir F. B. Tasker, Sir R. I. Lieut-Colonel Sir A. Lambert Ward
and Major Sir George Davies.
Acland, Rt. Hon. Sir F. Dyke Grenfell, D. R. Potts, J.
Acland, R. T. D. (Barnstaple) Griffith, F. Kingsley (M'ddl'sbre, W.) Price, M. P.
Adams, D. M. (Poplar, S.) Griffiths, G. A. (Hemsworth) Pritt, D. N.
Adamson, W. M. Hardie, G. D. Quibell, D. J. K.
Alexander, Rt. Hon. A. V. (H'lsbr.) Harris, Sir P. A. Rathbone, Eleanor (English Univ's.)
Attlee, Rt. Hon. C. R. Harvey, T. E. (Eng. Univ's.) Riley, B.
Banfield, J. W. Hayday, A. Rowson, G.
Barr, J. Henderson, A. (Kingswinford) Salter, Dr. A. (Bermondsey)
Batey, J. Henderson, J. (Ardwick) Salter, Sir J Arthur (Oxford U.)
Bellenger, F. J. Henderson, T. (Tradeston) Sanders, W. S.
Bonn, Rt. Hon. W. W. Holdsworth, H. Seely, Sir H. M.
Broad, F. A. Hopkin, D. Sexton, T. M.
Bromfield, W. Jenkins, A. (Pontypool) Shinwell, E.
Buchanan, G. Jenkins, Sir W. (Neath) Short, A.
Burke, W. A. Johnston, Rt. Hon. T. Silkin, L.
Cape, T. Jones, A. C. (Shipley) Silverman, S. S.
Charleton, H. C. Jones, H. Haydn (Merioneth) Simpson, F. B.
Chater, D. Jones, Morgan (Caerphilly) Smith, E. (Stoke)
Clynes, Rt. Hon. J. R. Kennedy, Rt. Hon. T. Smith, Rt. Hon. H. B. Lees- (K'ly)
Cocks, F. S. Lathan, G. Smith, T. (Normanton)
Cove, W. G. Leach, W. Sorensen, R. W.
Cripps, Hon. Sir Stafford Lee, F. Stewart, W. J. (H'ght'n-le-Sp'ng)
Daggar, G. Leonard, W. Strauss, G. R. (Lambeth, N.)
Davidson, J. J. (Maryhill) Leslie, J. R. Taylor, R. J. (Morpeth)
Davies, R. J. (Westhoughton) Logan, D. G. Thorne, W.
Davies, S. O. (Merthyr) Lunn, W. Thurtle, E.
Day, H. Macdonald, G. (Ince) Tinker, J. J.
Debbie, W. MoEntee, V. La T. Viant, S. P.
Dunn, E. (Rother Valley) McGhee, H. G. Walker, J.
Ede, J. C. Maclean, N. Watkins, F. C.
Edwards, Sir C. (Bedwellty) MacNeill, Weir, L. Watson, W. McL.
Evans, D. O. (Cardigan) Mainwaring, W. H. Wedgwood, Rt. Hon. J. C.
Fletcher, Lt.-Comdr. R. T. H. Mander, G. le M. Welsh, J. C.
Foot, D. M. Marshall, F. Westwood, J.
Gallacher, W. Mathers, G. Williams, E. J. (Ogmore)
Gardner, B. W. Montague, F. Williams, T. (Don Valley)
Garro Jones, G. M. Morrison, R. C. (Tottenham, N.) Wilson, C. H. (Attercliffe)
George, Major G. Lloyd (Pembroke) Muff, G. Windsor, W. (Hull, C.)
George, Megan Lloyd (Anglesey) Owen, Major G. Woods, G. S. (Finsbury)
Gibbins, J. Paling, W. Young, Sir R. (Newton)
Gibson, R. (Greenock) Parker, J.
Green, W. H. (Deptford) Parkinson, J. A. TELLERS FOR THE NOES.—
Greenwood, Rt. Hon. A. Pethick-Lawrence, F. W. Mr. Whiteley and Mr. Groves.

Resolution agreed to.

Motion made, and Question proposed, "That this House doth agree with the Committee in the said Resolution."

Mr. Lees-Smith

The hon. Gentleman referred to this Resolution in his speech, but the reference was not very lengthy or very clear. It would be convenient if he would explain what it signifies.

5.46 p.m.

Dr. Burgin

This Resolution gives effect to an undertaking in the new Agreement with Canada, contained in Article 2 of Schedule 2, that the duties on Canadian silk stockings and socks shall not exceed 288/9, per cent. ad valorem, or 8s. per pound weight, which ever is the greater. The duty on Empire silk articles of apparel has hitherto been five-sixths of the whole duty. Under this Resolution that figure will be reduced to four-sixths, that is to say, to two-thirds. Imports of silk stockings from Canada have gone up from 24,000 dozen pairs in 1933 to 50,000 dozen pairs in 1936. The total revenue from silk goods in a year is about £6,000,000. The production of silk stockings in the United Kingdom is about 4,750,000 dozen pairs, worth about £4,500,000. These silk goods from Canada are manufactured in Montreal and Ottawa, and the demand for them is increasing. The revenue affected by the reduction is unimportant. This is a concession asked for from Canada, which we welcome.

5.48 p.m.

Mr. Lees-Smith

With the leave of the House, perhaps I may be permitted to say a word upon the hon. Gentleman's remarks. It is only that, as this is a reduction of duty, we shall raise no opposition to it. It may be useful to many of us in this House that there should be this reduction upon silk stockings in view of the Coronation.

Motion made, and Question proposed, "That this House doth agree with the committee in the said Resolution."

5.49 p.m.

Dr. Burgin

This is a very small matter. There is an undertaking in the Agreement with Canada that the duty on Canadian reed organs, including harmoniums, should be removed. The duty on musical instruments is at present 33⅓ per cent. on foreign, and 222/9 per cent. on Empire goods. In the 1933 Commercial Agreement made with Germany, the duties on musical instruments were reduced, but the duty on organs was not affected. The imports of these organs are small, but the Canadian Government attach a great deal of importance to this particular duty. There is a harmonium factory in Canada which used to send numbers of these instruments to this country before the fashion in harmoniums declined. The revenue affected by the removal of the duty is infinitesimal.

5.50 p.m.

Mr. Benn

This Resolution reduces in Canada's favour the duty on reed organs. The duty is part of the McKenna duties. I rise only to remind hon. Members that, when the duties were imposed, Mr. Bonar Law, who was then either the Leader or the Deputy-leader of the Conservative party gave an undertaking that these duties would in no circumstances (at the present rate) be continued at the termination of the War. They were imposed to save tonnage and for various other reasons, by Mr. McKenna, who was, I think, a very stern Free Trader. The pledge was given by Mr. Bonar Law, and I repeat it only to show what value is to be placed on pledges in reference to tariffs.

5.51 p.m.

Mr. Foot

May I ask how many of these harmoniums were, in fact, imported from Canada last year? I understand that in the last 12 months only one such organ was imported from Canada into this country. If my information be correct, we shall no doubt be informed by the Parliamentary Secretary in 12 months' time that, such has been the success of the Trade Agreement with Canada, that the imports of reed organs from Canada have gone up by 100 per cent.

Motion made, and Question proposed, "That this House doth agree with the Committee in the said Resolution."

5.52 p.m.

The Parliamentary Secretary to the Ministry of Transport (Captain Austin Hudson)

This Resolution is for the purpose of removing doubts as to what is unladen weight, in the case of certain types of vehicle. By Section 26 of the Road Traffic Act, 1930, the term "unladen weight" includes the body of a vehicle and all parts (the heavier being taken where alternative bodies or parts are used), which are necessary to or ordinarily used with the vehicle, when working on a road. That is the definition. The vehicles to which the Resolution refers are those which have removable bodies. The trouble has been that different views have been taken by different licensing authorities in different parts of the country as to what the unladen weight ought to be. We hope that the definition which has been included in this Resolution will clear up the difficulty.

5.53 p.m.

Mr. Pethick-Lawrence

This proposal, in the view of my hon. Friends and myself, seems to be common sense. Accordingly, we agree with it and have no intention of dividing against it. I would like to call attention to these words in the Resolution: If any goods … are loaded into, carried in and unloaded from the receptacle without the receptacle being removed from t he vehicle. I suppose that the receptacle could be removed in certain circumstances. I wonder whether these words cover the case of receptacles in general which were not moved from the vehicle except on certain occasions, and whether there is, in consequence, a loophole for evasion, particularly for owners of vehicles to be able to say: "On Monday, Tuesday, Wednesday, Thursday and Friday the receptacle is not removed, but on Saturday it is removed." In those circumstances it might come outside the Statute. I have no doubt that the point has been considered, but if it has not been gone into, I thought I had better call attention o it before the Resolution is agreed to.

5.55 p.m.

Captain Hudson

That point has been considered. For instance, one class of vehicle to which the Resolution applies is what is called a "lift van" used for the conveyance of furniture. Furniture is put in at the house of the owner of the furniture and the vehicle then goes to the railway station where the receptacle is lifted off and put on to a railway truck. If the receptacle were never removed from the vehicle, it would come under this Section, that is to say if it were used simply for the conveyance of furniture and was never lifted off. If the vehicle is once used in this way it comes under the Resolution. If not—in other words, the receptacle is always lifted off —the vehicle is in exactly the same position as it was before, and the Act of 1930 applies to it. I hope that that rather involved statement will explain the purpose of the Resolution.

Motion made, and Question proposed, "That this House doth agree with the Committee in the said Resolution."

5.57 p.m.

Mr. Pethick-Lawrence

Our point of view, common to all hon. Members and to the country, is that taxes are always a burden, and we view taxation with no great pleasure; but, in our view, of all forms of taxation, direct taxation is the fairest. In recent years, the Income Tax has been graded, and various allowances and exemptions which have been brought into operation have tended to make the Income Tax the most equitable of all forms of taxation. Therefore we agree, although we do not welcome an increase of taxation for its own sake. In the present circumstances, money has to be found, and it has not been easy for the Chancellor of the Exchequer to find a satisfactory method of imposing further taxation. We do not propose to vote against this Resolution.

5.58 p.m.

Sir William Davison

Before we pass this Resolution, I would repeat a question which I addressed to the Chancellor of the Exchequer at an earlier stage, when no reply was made. Now that the Income Tax payers provide a moiety of the revenue of the country, it is more than ever necessary that they should know the law under which the tax is levied. As is well known, the law is in a most confused state, and even the best lawyers are not able to understand it. When, in addition to the Statute law, one has also to understand the Rules relating to Income Tax, it becomes more difficult than ever for the ordinary citizen to understand the reasons and the way in which the tax is levied.

As hon. Members are no doubt aware, a committee to codify and simplify the Income Tax sat for many years, and it must now be nearly two years since the committee reported. So far as I am aware, nothing whatever has been done, and the law is getting more complicated by no step having been taken to simplify it. Many simplifications were suggested by the Committee, and I shall be glad if the Financial Secretary will tell us what is the present position. Are the Government not going to take any action on those recommendations, and do they not realise that, in view of the ever-increasing burden upon the Income Tax payers of the country, it is most desirable that the law relating to Income Tax should be made as simple as possible? I agree with the hon. Member for East Edinburgh (Mr. Pethick-Lawrence) that direct taxation is fair, but I have urged again and again that the basis of direct taxation should be made wider. In my view it is altogether wrong that so small a proportion of the people of this country as 3,500,000 should provide half the revenue of the country—

Sir Stafford Cripps

Those people have four-fifths of the total wealth of the country, so it does not seem hard that they should pay half the taxation.

Sir W. Davison

The hon. and learned Member will know that, as Lord Snowden pointed out in this House, the actual taxation on the income of a millionaire, if provision were made for some form of insurance against Death Duties, would be £3,000 a year more than he actually received. The interruption, therefore, is an absurd one, because that alone would wipe out a very large amount of the capital value of the country. It is most desirable that the basis of taxation should be widened. Even if only 1d. or 2d. in the £ were taken from the higher wage-earners, they would feel that they were bearing a part of every tax that was put on, and they would have more interest in the taxation of the country. I agree with the hon. Gentleman opposite that it is a fair tax, and that everyone should bear it according to his ability. I hope I may have a reply to my question as to the position with regard to the report of the Codification Committee.

6.4 p.m.

Mr. Boothby

With regard to the question of Income Tax, it is not so much the amount that is levied as the revenue that is going to be received that matters, and what troubles me is whether the Chancellor is going to get from the 5s. Income Tax the revenue that he estimates. Personally, I think that the figure of 5s. is a very reasonable one in present circumstances. Certainly it has the advantage of being easy to calculate. It is high, but, to use a colloquialism, it is O.K. by me provided that the Chancellor can collect the revenue. But there are one or two basic things which will have to be done by the Government of this country if we are to be able in future to depend on getting the revenue that the Chancellor estimates in the forthcoming year, and still more in the years that lie ahead.

I believe that an absolute condition of direct taxation bringing in the revenue that is estimated, and still more of its bringing in an increased revenue, is some revival in international trade. We do not know how long the rearmament programme is going on, but it may be that it will stop, and most of us, I imagine, on both sides of the House, hope that that day will be sooner rather than later. When it does stop, something will have to be found to take its place; something will have to be ready to take its place; and what worries me is whether the Government are paying sufficient attention at the present time to this grave problem of the revival of international trade. The prosperity of this country was built up by international trade, and in the end we shall survive or fall, whether we ultimately adopt a Socialist or a Capitalist system, according to our ability to sustain international trade—to make for the rest of the world goods of a kind and at a price that will enable us to purchase raw materials and food at reasonable prices abroad. The Financial Secretary should bear that fact continually in mind.

I desire to support with all the emphasis that I can the remarkable speech made by the hon. Member for Oxford University (Sir A. Salter) on this subject the other day. He laid the greatest stress upon the necessity for taking some steps to revive international trade, and I think he was perfectly right. He said at the conclusion of his speech that we could not expect a revival of prosperity, upon which this taxation entirely depends, without some steps to revive international trade, and I would impress upon my right hon. and gallant Friend the necessity for taking active steps in the near future in the direction of international co-operation, particularly with the United States of America. Until we do something to remove uncertainty, to continue the general trend upward, and to revive international trade, there can be no hope that we shall receive from direct taxation the amount of revenue which the Chancellor expects to receive this year, and which it is expected and hoped that we shall receive in the future.

Deflation and restriction of trade, both at home and abroad, will be the one thing that will ruin the right hon. Gentleman's estimates of the yield of direct taxation and upset the balance of his Budget. There is evidence that a certain urge towards deflation is going on now. It is somewhat sinister that the cash reserves of the banks at the present time are being reduced rather than increased. If we swing into what I call a deflationary spiral, and if we continue to slam the door on any form of revival of international trade, I submit to my right hon. Friend that there is no hope of our getting the revenue from Income Tax which the Chancellor of the Exchequer has estimated. Lately there have been rumours of all kinds in the Stock Exchanges of this country and of foreign countries, rumours that something is going to be done about the price of gold, rumours of this and rumours of that. They have created an atmosphere of uncertainty during the last few weeks, for the first time since the general world revival began, and, if something is not done to give a feeling of security to the business communities of the world, there is no hope of a strong continuance of the trade revival, and no hope of my right hon. Friend getting the revenue that he desires. Therefore, if the Income Tax is to be sustained, I would beg my right hon. Friend to follow the advice given by the hon. Member for Oxford University, and enter into negotiations at the earliest possible moment with the United States of America for the conclusion of an agreement on the subject of gold and on the subject of currency which will prove to be the basis for an expansion and revival of international trade, without which no permanent prosperity is possible, and without which no permanent security against war is possible.

6.10 p.m.

Sir John Withers

I should be glad if the Financial Secretary would give the House some explanation of a point that arises on this Resolution, and also on the following Resolution. On last year's Finance Bill the question of retrospective taxation arose, and I should like to ask the Financial Secretary whether any increase is now proposed in the retrospective taxation outlined by the Chancellor of the Exchequer last year. In one case I think he made some concession, and I should like to know whether that concession is to be continued this year.

6.11 p.m.

Mr. Peat

I desire to support the plea of my hon. Friend the Member for East Aberdeen (Mr. Boothby) for a revival in international trade to support our Income Tax. I want to draw the attention of the House to a sinister influence which is growing up to thwart that revival. I refer to double Income Tax. We are accustomed to refer to trade barriers, meaning the restrictions that we all know, like tariffs, quotas, and so on, but I venture to think that few Members of this House and few people outside it appreciate that behind these known trade barriers there is growing up a very considerable barrier in the form of an almost penal double taxation which is levied on anyone who tries to trade in more than one country—who tries to carry the products of this country into other countries. The height of taxation has increased steadily and very considerably over the last few years, and I think it is true to say to-day that, if anybody earns an income in the United States of America which is brought back to this country, the taxation upon it before he gets it out of America represents 25 per cent. of it, so that, with the 25 per cent. imposed in this country his income is immediately reduced by 50 per cent. before it gets into his pocket in this country. If he is subject to Surtax in this country, his income may be reduced to the extent of over 70 per cent.

There are two aspects of the case with regard to double taxation. In the first place, the tax which is levied on those people who have investments in the United States of America, if I may confine my remarks to that country, is at present 10 per cent. on the investment income which is sent over to this country, and there is a danger that that tax in the United States of America may increase from 10 per cent. to 15, 20 or 25 per cent., which would make the position almost intolerable for some of our great trading concerns that went over to that country 30 or 40 years ago and invested millions of our capital there, doing this country a very great service. That is one side of the question. The other side is the position of people in this country who are trying to sell our specialised products in America and do not wish to set up a business there, but wish to sell them through ordinary channels, perhaps doing a certain amount of manufacturing on the other side. People of that character have to suffer the American Income Tax, and also taxation in this country, which, as I have said, sometimes comes to 70 per cent., and always to 50 per cent. I only raise this subject with particular reference to America because of the efforts that are being made at the present time to bring our two countries into closer relationship through a trade agreement. I do not believe that any trade agreement can be brought into being between the United States of America and this country which does not have within it arrangements for reciprocal relief from double taxation. I very much hope that the Chancellor of the Exchequer will take some note of this, and let me know what is in his mind.

6.15 p.m.

Sir Francis Acland

Some rather interesting points have been made in the Debate. Doubt was expressed by one hon. Member whether we were likely to get the revenue which the Chancellor expects to get in by the increased Income Tax. It seems to me at present that the Income Tax, although very heavy, is yet an elastic tax and the Chancellor was not being unduly optimistic. But I very much agree with the point made by the hon. Member for East Aberdeen (Mr. Boothby) that he was afraid of what might happen when the slump in trade prosperity came not accompanied, unfortunately, by a corresponding diminution in the national expenditure. That is what I am afraid of, too. We cheerfully look forward to and talk about the armament boom being over, but we do not realise how difficult it will be to face the prospect of having to throw millions of men on to the unemployed list at a time when trade may be at the bottom of a slump and there will be an enormous increase of national expenditure at a time when Income Tax is likely to be gradually falling from its present elastic condition. However, that is taking us into gloomy times ahead, and I will not pursue it.

The speech of the hon. Member for South Kensington (Sir W. Davison) leads me to say that, as far as I can judge, I am fairly content with the incidence of the Income Tax as it is, and I do not think it would be a fairer tax if it were broadened and applied to new persons. After all, we raise half our taxation by Income Tax, Super-tax and Death Duties and the people from whom we raise it possess four-fifths of the wealth. Some people would think that those who possess four-fifths of the wealth might well be asked for four-fifths of the taxation and not only a half. They also pay their share of indirect taxation on cigars, whisky and that sort of thing and, when the hon. Gentleman claims that there should be a considerable broadening, there is that fact to be borne in mind. Generally it seems to me, although Income Tax at 5s. is high, yet it is fair and it is a wonderfully useful tax, and, of course, a stand-by for all Chancellors now as it has been for many years in the past. One feels, of course, that, with Income Tax so high, there will be less reserve to be called upon in the case of a disaster such as a war. That, again, one hopes is looking forward unnecessarily and, on the whole, I am obliged to support the increase in the tax this year.

6.20 p.m.

Sir S. Cripps

The hon. Member for South Kensington (Sir W. Davison) complained of the complexity of the legislation as regards Income Tax. He and his societies, and the individuals who pay Income Tax, or do not pay it, are responsible for the complexity of that legislation. It is because year after year Clauses such as are being added this year to the Finance Bill are put on to stop evasion that I am glad the Chancellor has had the courage this year to use the word "evasion." Last year we were told it was not decent to use it—

Sir W. Davison

I hope the hon. and learned Gentleman will not suggest that any society which which I am connected —the Income Taxpayers' Society, I suppose he has in mind—has done anything to encourage or bring about evasion. We are anxious that everyone should pay whatever the taxes are without evasion. What we want is that people should know what the taxes are that they have to pay.

Sir S. Cripps

The difficulty arises from the fact that in the past so many people have evaded what was the clear spirit of the law by ingenious devices, and that is why year after year new provisions have had to be made to try to catch a new set of offenders. We are repeating the pro- cess this year and, no doubt, we shall do it next year, and in that way we are bound to build up an extremely complicated net, because you must not allow any single hole to remain unstopped. If it is necessary for Income Tax payers to have their property protected by legislation, as regards their capital and so on, and many of them are going to take advantage of that protection by evading their obligations, you are bound to build up a very complicated system of law. It would be possible to put in a few clear Clauses the simple taxation which all of us would like to see if, as the result of having such a simple law, you could be certain that the simple law would be obeyed and not evaded.

The hon. Member for East Aberdeen (Mr. Boothby) pointed out the necessity for reviving international trade in order that when the armaments programme finished, there might be certain profits upon which Income Tax could operate. It seemed to me that he made rather a false comparison. The expenditure on armaments is not international. It is essentially national expenditure. It does not provide any goods for export or for exchange. It shows that very large sums of money can be expended in this country for the benefit of the people of the country, and at the same time there may be a very profitable business arising out of it. It is not necessary to look to international trade alone to replace the armaments trade when, happily, that ceases to exist. Why not look to a higher standard for the whole of the working class in the domestic trade of the country in order to replace the armaments manufacture, which in itself is a domestic trade. If the hon. Member is relying on the fact that the armaments manufacture is now producing a sufficient profit upon which Income Tax can operate to produce the sums that the Chancellor requires, the true analogy should be that we must look, when that armament trade ceases, to the provision of useful social services and useful social articles for the mass of the population.

Mr. Boothby

I do not dispute that contention, but equally I imagine the hon. and learned Gentleman does not discount altogether the value of international trade?

Sir S. Cripps

Certainly not, but at present we are able, by the trade that we are carrying on, to get the raw materials that we require to carry on this vast domestic trade. I should like to see the Government planning an equally vast expenditure upon social sxervices and the ordinary commodities required by ordinary people to take the place of the armaments manufacture as soon as that ceases.

6.25 p.m.

Lieut.-Colonel Colville

The hon. Member for East Edinburgh (Mr. PethickLawrence) gave what I may call a sorrowful welcome to the increase in the standard rate of Income Tax, but did not deny its necessity. I think that keynote has been evident in this Debate. While commenting on the rise that has taken place, hon. Members have felt that in present circumstances it was inevitable. The hon. Gentleman the Member for South Kensington (Sir W. Davison) asked a question about the codification of Income Tax law. All I can say is that the report of the Macmillan Committee and the draft Bill that they prepared are under examination and my hon. Friend can he assured that the matter is receiving close consideration. I am not in a position to make any further announcement on the subject. The Bill has not only to be examined by experts, but it is also necessary to consider representations on the question from various bodies representing taxpayers. I apologise for not answering the point the other night, but I was rather short of time and had a wide range to cover. The hon. Member for East Aberdeen (Mr. Boothby) was concerned about the yield of Income Tax in future years and spoke about the necessity for furthering international trade. I can assure him that, when I used the expression "all relevant considerations," I used it in no trite sense. International trade is recognised as of great importance, both from the point of view of revenue and from many other points of view as well.

The hon. Member for Cambridge University (Sir J. Withers) asked a question about retrospective legislation. These two Resolutions, 6 and 7, are the ordinary annual Resolutions imposing Income Tax and Surtax, and there is no question of retrospection here. No. 7 fixes the Surtax rates for 1936–37. The Surtax for 1936–37 is, of course, the Surtax payable in this current year. The hon. Member for Darlington (Mr. Peat) must not expect me to enter into the difficult question of double tax on this Resolution, but I have noted his views on the subject, and also on the subject of extending international trade by means of trade agreements with certain countries. The right hon. Gentleman the Member for North Cornwall (Sir F. Acland) emphasised the point made by the Member for East Aberdeen in reference to international trade, but did not offer any criticism of the principle of the Resolution. The hon. and learned Gentleman the Member for East Bristol (Sir S. Cripps), who dealt with the question of evasion, was in a philosophic mood and bemoaned the frailties of human nature, from which he and his friends feel so immune. Beyond that I do not think he offered comment on what we are proposing to do in the Resolution. I hope that with this explanation the House will be content to pass the Resolution.

Motion made, and Question proposed, "That this House doth agree with the Committee in the said Resolution."

6.30 p.m.

Mr. Pethick-Lawrence

I imagine that the House will agree with this Resolution. We are all agreed that if taxes are to be paid then those who by various means are evading taxes are imposing a heavier burden on those who are fulfilling their duty in this respect. I only rise, therefore, to ask the precise effect of this proposed legislation. As I understand it, it is to bring home to the individual who is in fact the owner of the security the whole time the income which is derived from the security, whereas under the present system the income derived from the security has gone nominally to the person to whom the security has been transferred for a brief period of time. What will be interesting to the House is to know whether in all cases this device has enabled the real owner to escape Surtax and Income Tax. I think it is clear that he has escaped Surtax, but I do not know whether he has escaped Income Tax where the tax is not levied at the source, and it will be interesting to be told whether this device has enabled him to escape Income Tax even where it is levied at the source. That is a point on which we should like some information.

The second point is with regard to the precise meaning of the word "agreement" at the beginning of the Resolution. I take it that it does not necessarily imply that the agreement must be in writing, and that a verbal or gentleman's agreement would be enough to bring the transaction within the ambit of the Resolution. If that is not the case I can see opportunities for evasion, and I hope the Chancellor of the Exchequer will be able to assure us that the Resolution is sufficiently wide to cover a gentleman's agreement or a verbal agreement made, in fact, to rob the Exchequer. We shall support the Resolution and hope it will achieve the purpose in view.

6.33 p.m.

Lieut.-Colonel C. Kerr

I rise to relieve the mind of the hon. Member for Edinburgh, East (Mr. Pethick-Lawrence). Last year I put down an Amendment to the Finance Bill to carry out what is now to be in the Finance Bill of this year. I do not consider that I am of sufficient importance to believe that my Amendment has had any effect on the Treasury, but I am pleased indeed that the matter has been taken up. My Amendment last year was out of order, probably through my own stupidity, but I thank the Chancellor of the Exchequer for having taken this step to close every door through which these unfortunate evasions have so far taken place.

6.43 p.m.

Lieut.-Colonel Colville

This proposal, I am sure, will meet with the general acceptance of the House, and we shall be able to discuss the matter more closely when we have the details of the Finance Bill before us. The hon. Member for East Edinburgh (Mr. Pethick-Lawrence) asked whether Income Tax as well as Surtax has been lost by this practice. The answer is "Yes." Where the owner of the security is a company and not an individual only the standard rate of Income Tax is involved. The hon. Member asked whether the word "agreement" would cover all kinds of agreements. The answer is that it covers every form of pre-arranged contract, whether written or verbal. I may say that the Budget proposals for dealing with this method of evasion have been the subject of discusion for some time past with financial authorities in the City, and the Clause which will appear in the Finance Bill will be drawn up in consultation with them. We hope it will be quite satisfactory for the purposes of checking this kind of evasion.

Mr. Silverman

The Financial Secretary has said that it would apply wherever there was a pre-arranged agreement, whether verbal or in writing. May I ask whether it would be necessary for the Treasury to prove such pre-arranged agreement before they can impose the tax?

Lieut.-Colonel Colville

I think such proof would be necessary, but perhaps the hon. Member will wait for the provisions of the Bill on that point.

Motion made, and Question proposed, "That this House doth agree with the Committee in the said Resolution."

6.38 p.m.

Lieut.-Colonel Colville

I think a word is necessary on this Resolution. The Finance Act of last year included provisions relating to the avoidance of Surtax by one-man companies, and there was a special provision with regard to investment companies. An investment company is a company created by the Surtax payer to which he undertakes to pay an annuity, the amount of which is allowed as a deduction in computing his income. Since the Finance Act was passed last year some of the experts engaged in preparing methods for lightening the burden of taxation have proposed a new device, and it is proposed in the Finance Bill to check this. I hope the House will support the action we are taking.

Motion made, and Question proposed, "That this House doth agree with the Committee in the said Resolution."

6.41 p.m.

Mr. Pethick-Lawrence

This is one of the matters to which the Chancellor of the Exchequer did not refer in his Budget speech. As drafted it is rather a complicated matter. I have made some investigations and I am not quite clear what it means. I rather imagine that it is the corollary to the action taken last year in the Finance Act, but I am not sure, and I should like to have a short explanation.

6.42 p.m.

Lieut.-Colonel Colville

The Resolution is drawn in fairly wide terms and only when we come to the Finance Bill and the precise proposals shall we be able to discuss the matter in detail and give explanations as to how it will work. But let me make one or two remarks to reassure the House as to what our intentions are. The Resolution is to enable legislation to be included in the Finance Bill to prevent the inflation by certain methods of the existing allowances given to owners of mills and factories. It is not intended to withdraw or diminish existing allowances. Hon. Members will be familiar with the method of assessment of mills and factories where certain allowances are given for the effect of the operation of machinery on the life of the factory. It is not intended to detract from the proper effect of these allowances, but there has crept in a method of inflation which we wish to check, and the Resolution gives us power to frame a Clause which we shall be able to place before the House in the Finance Bill for due consideration when the time comes.

Motion made, and Question proposed, "That this House doth agree with the Committee in the said Resolution."

6.46 p.m.

Mr. Pethick-Lawrence

I wish to ask for an explanation of this Resolution. On a first common-sense reading of the Resolution, it would appear to be unnecessary, since it would seem that va priori any such part of a wife's income could not possibly be earned income. Nevertheless, I presume that there is a Statute which raises doubts on this question, and that it is for that purpose that it is introduced.

6.47 p.m.

Lieut.-Colonel Colville

The purpose of this Resolution is to enable a Clause to be included in the Finance Bill dealing with a small point relating to the personal allowance which arises out of the provisions of the Superannuation Act, 1935, the object being simply to prevent a taxpayer obtaining an additional personal allowance in respect of earned income through the device of surrendering part of his pension in favour of his wife. The point arises for the following reason. The Superannuation Act enables a civil servant who retires to surrender a part of his pension in return for a pension to his wife actuarially equivalent to the amount surrendered. Pensions are earned income, as the hon. Member knows, for Income Tax purposes, and a wife's pension granted under the Act would therefore be earned income of the wife. The Finance Act, 1920, in the Section dealing with the personal allowance given to a married man whose wife is living with him, provides that if the total income of the claimant includes any earned income of his wife, the allowance shall be increased by four-fifths of that earned income, subject to a maximum of£45. The justification for this was that in the normal case the income earned by the wife caused her to be taken away from household duties, and that the expenses of the household might consequently be increased.

No similar factor exists in the case which is now under consideration. Here the earned income of the wife really arises from a transfer, deliberately made, of the earned income of the husband, and that is the reason for the Resolution which has been brought forward. I would add, in order to reassure any hon. Members who may have doubts on the point, that any pension received by a wife in respect of her own past services is unaffected by the Resolution. It will continue to rank as earned income of the wife, and the additional personal allowance in respect of the wife's earned income will be made in respect of it. I would also like to emphasise that even where the pension payable to the wife is in respect of her husband's past services, it will continue to be treated as earned income of the wife for purposes other than Section 18 of the Finance Act, 1920, to which I have referred.

Motion made, and Question proposed, "That this House doth agree with the Committee in the said Resolution."

6.50 p.m.

Lieut.-Colonel Colville

I do not propose to speak at any length on this subject, as my right hon. Friend the Chancellor of the Exchequer will speak later in the Debate. Moreover, I understand that there are several hon. Members who wish to make observations. The subject is one which has already been debated, and the general lines of the National Defence Contribution have already been explained to hon. Members. The broad principle that at a time when very heavy national expenditure is falling upon us there should be a contribution from the increased profits of industry, is one which, I think, has not been generally opposed, but questions have been asked with regard to the details of the proposals. A number of those questions were asked during the Debate last Wednesday, and in my reply I attempted to answer them, and was able to clear up certain misapprehensions about the way in which profits and capital are to be computed. No doubt there are other questions which hon. Members have in mind, but since my right hon. Friend proposes to speak later, I will say no more at the moment.

6.51 p.m.

Mr. A. V. Alexander

Although I do not wish td press the right hon. Gentleman the Chancellor of the Exchequer to speak at a very early stage in the Debate, I think it is a great pity that the House has not been given a greater measure of guidance at the opening of this very important Debate on the Report stage of the Resolution than has been given by the Financial Secretary. Having regard to the very tentative way in which the matter was left by the Chancellor of the Exchequer at the close of the Debate last Thursday, I think we might at least have had some guidance at the opening of the Debate with regard to some of the main questions addressed to the Government, not only during the Debate last Wednesday, to which the Financial Secretary replied, but during the Debate on Thursday. Nevertheless, I do not wish unduly to embarrass the Chancellor in dealing with what is obviously a very difficult problem for him, as well as an appalling maze for those people who have to make plans for carrying on industry as a result of this new impost of the Government for the purpose of their armaments pro, gramme.

It does not matter in what part of the House one sits, in dealing with a question such as this, no one can close his eyes to the actual financial effects of the Chancellor's proposal upon business in general. This morning the "Financial News" drew attention to a fact which those who observe operations in the City had expected after the Budget statement, and it is that the position on the Stock Exchange in dealing with industrial equities is worse than it has been on any day since August, 1931. That in itself leads those who study Exchequer finance to begin to consider whether or not the method which the Chancellor has adopted in dealing with this problem of preventing an undue rise in profits at a time of national emergency is a correct method. As soon as one begins to consider whether the balance, on the basis of the revenue to be yielded, will be in favour of the proposal, one certainly has serious misgivings because of the nature of events in the financial world during the past week.

If one considers, for instance, the question of what is to be the price level which is likely to be maintained for industrial equities in the course of the next year or two if the National Defence Contribution is to be levied on the basis explained to the Committee, I believe there must be severe misgivings as to whether the net yield to the Exchequer, after allowing for the cost of collection, is likely to be worth the sort of disturbance to industry which has been prophesied in many quarters. Taking the estimates of the financial Press and the statements made by people of great authority and holding important positions in the financial world, the total sum of the depreciation in the values of these securities and equities during the last week reaches a figure of approximately £300,000,000. I have seen higher figures given, but probably they are hardly to be justified. I know that the Chancellor of the Exchequer will say it is imponderable at the present moment whether the fall in the prices of securities is likely to be more or less permanent over a period of two or three years, but if there is to be a substantial fall in the prices of securities and equities, the Exchequer will lose a very substantial yield from Estate Duties.

Recently I was reading references which have been made on a number of occasions to the effect upon Estate Duties of the falls in the values of securities which occurred for some time after 1931. If the exceedingly heavy fall were to be maintained at anything like the rate at which it has been going on during the last week, the Chancellor would have seriously to consider what would be the net result on his "windfalls." I hope he will tell us whether that side of the matter has occurred to him. I take it that in giving his estimates of the yield of the new tax—approximately £2,000,000 for a part of the present financial year and a much larger sum next year—he had already taken into account the procedure in working out the new duty in relation to Income Tax. I think we ought to have some assurance on that point, because if the statement made in the course of the Debate last week is going to establish the procedure, and if the National Defence Contribution is assessed on the basis stated and the actual sum to be paid upon that assessment is to be taken into account as an expense to be charged against the assessment for Income Tax, then there is bound to be a very considerable effect upon the net yield of Income Tax.

Considering these two factors, I think there is something to be said for those critics of the Chancellor's policy who begin to wonder whether the disturbance to industry has been justified in view of the dangers to the ultimate yield in net revenue to the Exchequer. On the other hand, I think the Chancellor was entitled to say in the course of his reply last Thursday that there was at least support not for this tax necessarily, but for the principle which the right hon. Gentleman is said more or less courageously to have adopted, and that a levy on rising profits at such a time of increasing expenditure on National Defence is approved. On the other hand, the House needs to be assured of what will be the effects of putting that principle into operation. I ventured last Thursday to make some remarks on this matter, and my own view about the right hon. Gentleman's method of carrying out the principle which he has at heart is that it is at least open to the charge of being somewhat vicious in its effects. I was glad that on that occasion, at any rate—it does not happen often—I was not very much in disagreement with the right hon. Gentleman the Member for Hillhead (Sir R. Home). I am convinced that a method of dealing with profits which first allows of a very large rise in profits—profits which in many instances might be regarded as excessive and in some instances might be made directly out of the national need at a time of rearma- ment—and thereafter takes either one-fifth, one-fourth or one-third of those profits, is really not to be justified. I think my hon. Friends on these benches would hardly regard that procedure as likely to meet their views of how excessive profits, especially in the realm of armaments, secured in a time of national emergency should be taxed. In our view, if we are going to embark upon a large armaments' programme, with control of prices for armaments, it would be preferable to do it in accordance with the recommendations of the Royal Commission on Armaments rather than to carry on with a method by which the Government first allow the community to be exploited and then take back from the profiteers a little of the yield of that exploitation.

I listened carefully to the Chancellor's answer to that general argument put up in criticism of his proposals. He said that we can hardly compare present circumstances with the actual wartime period, in which the Excess Profits Duty undoubtedly led to almost an orgy of extravagance in industrial circles, and had a very adverse effect upon the price level for the community. While the Chancellor is entitled to say that, from the outlook possible to the House at the moment there is a vast difference between the actual view of demand at the present time and the last three years of the war I am convinced, if traders and manufacturers are now working with much larger profits that once the basis of computation is revealed and they know roughly what their contribution to the Exchequer will be under the new tax, they will avail themselves of every device which is legal and legitimate to escape paying the contributions assessed. They will launch into expenditure which will not only be of a wasteful character in some instances but will have an adverse effect upon the general price level to the community and the general consumer, through the high price of commodities will by and large pay the National Defence Contribution.

While we on this side feel that taxation should always be adjusted to meet the liabilities of the individual citizen to the State, we are very much concerned that any tax of this kind should not be such as to impose palpable injustices upon those who are to pay. In fact, one can take it as a general principle that no tax can ultimately yield that measure of revenue to the Exchequer which is requisite and necessary unless it is found in practice to be fair in its incidence and not applying unequally among sections of the community who are competing on the same level. In view of the examples given to the Committee last week by the hon. and learned Member for Montgomeryshire (Mr. E. C. Davies) of company after company finding themselves in different positions as regards this new tax if the period to be taken for the average of profits is from 1933 to 1935. I think it is clear that something will have to be done by the Chancellor to put matters right.

Although in his speech last Thursday the Chancellor revealed his anxiety in this matter, and promised to look into it, we are entering this Debate on the Report stage of this important Resolution without any real guidance from the Government, after five days have been available to them for cogitation, inquiry and consultation as to how they propose to deal with the obvious inequities which were revealed from all parts of the Committee in the Debate on Wednesday and Thursday of last week. I will not press that matter, since, as I said at the outset of my remarks, I do not wish to embarrass the Chancellor in dealing with the difficult problem which is before him to-night. Nevertheless, if it comes to the point that he considers that public feeling in the country is such that the Exchequer must do something, first, to prevent profiteering at the expense of the general community at a time of national need and, secondly, to ensure that the whole expenditure must not remain to be collected, I will not say from far-off posterity but from posterity near or far, then in our view it would be preferable if the Chancellor would say that, after inquiry, his approach to the problem has been found to be inequitable, has been found in some respects to be unjust and has been found to be full of dangers to the general consumer in the level of prices that will have to be paid, and that he prefers to reconsider the question. Then, from the dual point of view, first, of having much more adequate control over the possibility of profiteering at the national expense, and, secondly, adopting methods which would be effective in preventing either a rise in prices or a rise in profits, he could seek other methods of direct taxation which have been well tried and, as my hon. Friend the Member for East Edinburgh (Mr. Pethick-Lawrence) said, have been graded and worked out with due allowances for all who are likely to suffer hardship.

On Thursday the Chancellor made a reference which seemed to leave the impression that he thought it would have been unfair at this juncture to collect more under Income Tax for the purposes he has in mind than he proposes to do at present. He said the poor Income Tax payer would have been likely to suffer undue hardships if he had taken that course. He might consider that that point has largely been met already by the carefully built-up system of abatements and allowances under Income Tax; in the case of the majority of the small Income Tax payers that argument would, no doubt, hold good. I have felt considerably handicapped in opening this discussion on the Resolution because we start practically blind from the position where the Chancellor left it on Thursday night. From the kind of comment in the "Financial Times" this morning it is likely that the Chancellor has lost his financial lustre in the City, and he would be well advised to take the advice which we have given him, I hope in a temperate spirit, from this side of the House, and I trust that he will at once indicate that he will reconsider the whole position. It is only right, however, that we should warn him that we do not want it to be reconsidered with a view to continuing the form of taxation which he is proposing on a basis which will so whittle it down that it gives practically no yield. We want him to reconsider the matter from the point of view of taking effective control of those conditions which lead to rising prices and heavier profits at the expense of the country in a time of need, and we think that if he moves to alternative forms of taxation he should do so upon the well-known and tried lines of direct taxation.

7.13 p.m.

The Chancellor of the Exchequer (Mr. Chamberlain)

I had not intended to speak so early, because I thought it possible that hon. Members would desire to put some further views before the House and then to give me an opportunity to reply to them; but since the right hon. Gentleman has represented that he felt handicapped in this discussion through having had no further guidance, and as a good many other hon. Members, I gather, feel they would like to have some words from me, I have decided to intervene at the present time. It would be idle on my part to seek to deny or even to minimise the extent of the disturbance which has been created by the proposal covered by this Resolution, but when the right hon. Gentleman ascribes to it the whole of the fall which has taken place in securities I think he is giving it an importance even greater than it deserves. We have only to look at the papers this morning and see what is going on in the Stock Exchanges of other countries where there is no National Defence Contribution to see how, as it so happens, a number of incidents or events have coincided. It is necessary to look at the markets of the world at the present time in order to assess the position correctly.

While, as I say, I am fully aware of the very great anxiety which exists in many quarters, and of the disturbance which has manifested itself in this fall of securities, I am bound to say that I think the disturbance has been very greatly exaggerated, and that it is based to a large extent upon insufficient information. Of course, it is always possible to say if there is insufficient information "That is your fault." That is right. I cannot deny that I am the only person who can give information, but I have already explained in Committee of Ways and Means the peculiar difficulty in which I found myself, namely, that owing to the ordinary necessity of keeping the proposals in the Budget secret up to the last moment, I did not feel that I had sufficient data to enable me to fill in some, perhaps important, details of the scheme, although I was sufficiently convinced that the outlines were right and that I could advance with confidence in proposing the general idea.

The right hon. Gentleman opposite was good enough to propose that I should withdraw these proposals altogether and try something else. I do not think that the time has come for that. We do not withdraw proposals before we have formulated them, and the parts of this proposal which are not yet formulated are suffi- ciently important to justify me in saying that no accurate or sufficient judgment can be formed upon them until the House and the country have full information. I would like to make one or two general observations first, and then to address myself to certain particular points. I must say that I have been surprised at the weight which is put upon these proposals and the extent of the damage which it is, apparently, conceived possible may be done to particular industries by what I myself regarded as a somewhat mild and moderate proposal. Of course, the actual yield which is to be obtained from the tax must depend upon the growth of profits, because this is essentially the taxation of growth of profits, and if the growth of profits should be very much larger than anything which had hitherto entered my mind, then, obviously, in that case the yield too would be very much larger.

But, after all, the information at the disposal of the Treasury and the Board of Inland Revenue is fairly comprehensive and, while I do not say that in a case of this kind we can make absolutely accurate estimates, I do say that we have sufficient general information to enable us, at any rate, to frame a good idea of the scale on which a proposal of this kind is likely to have effect. I have intimated that I expect to get practically nothing this year. I put it at £2,000,000, but, in any case, it can only be what I called, I think, a trifling amount. I gave a rough estimate of what I thought might be expected next year. I must say that I did not think an impost of the order of £20,000,000 to £25,000,000 was going to impose any intolerable burden on industry. I am quite sure that industry in its present condition is well able to bear that impost. Then I am told that suggestions have been made outside that that is altogether a miscalculation and that the yield is much more likely to be—I have heard different figures—420,000,000, £60,000,000, £100,000,000 or even £250,000,000. I can only say that figures of that kind appear to me to be altogether fantastic. They are certainly far beyond anything I myself had in mind.

Mr. G. Hardie

They know the profits.

Mr. Chamberlain

As I have already said on another occasion we have not in front of us here an unlimited expenditure to face. We are not in the position we were in in the Great War, when nobody knew what was going to be the end of it, and all we knew was that we had to raise every penny we could collect. We can see the end of this exceptional expenditure. [Interruption.] Some hon. Members opposite seem to think that we shall go on rearming for ever. If they had their way, perhaps it might be necessary to consider something of the kind, because no one is so bellicose as the pacifists opposite. If one is really to talk seriously about this matter we are not seeking to dominate the world. We are only seeking to make ourselves and our Empire communications safe. Therefore, I feel justified in saying that we are not faced here with an unlimited or indefinite amount of expenditure. There is a limit to it and there is, therefore, a limit to the amount which we have to raise, and I hope that judgment upon the particular proposals will not rest itself on any such grossly exaggerated ideas as those to which I have referred.

I am sure that the great majority of hon. Members in the House have made themselves fully acquainted with the proposals I have made so far as I have described them. But there may even now be some in the House—and I am sure that there are many outside the House—who are still under certain misapprehensions, and I think perhaps it might be useful if I were to draw attention to some of them, although I am afraid that my corrections must seem very obvious to those who have already mastered the subject. I have found, for instance, in correspondence that in some cases people imagine that the whole of the growth of profits above 6 per cent. on the capital is to be charged at 33⅓ per cent. Of course, that is a mistake. The actual charge appropriate to the profits depends upon the region, as I described it, within which the profits lie. Where profits are in the lower region and the firm cannot be said to be over-prosperous, the charge is only one-fifth, and it is only in a condition in which the growth of profits represents something over 15 per cent. on the capital that the higher charge comes into operation.

There is another point on which, I believe, quite a lot of misunderstanding has arisen outside, and that is upon the way in which capital is to be computed. Some people seem to think that when I speak of 6 per cent. on capital I mean 6 per cent. on the share capital. I am certain that that cannot be a widespread misapprehension here. It is, of course, the case that the capital, as I have conceived it for the purpose of this contribution, is not the share capital; it is a computed figure representing the cost of the assets, subject, as I said, to certain adjustments. Therefore, when I have heard it said that it was very unfair that you should treat in the same way, let us say, one firm that in the past had written down its capital and another firm which had distributed bonus shares and so increased its capital, that seems to be based on an entire misapprehension as to how the capital is to be computed, because it is quite clear that there is no necessary relation between operations of that kind and the capital which is computed. When I spoke last upon this subject I tried to explain that I regarded the scheme as an outline only with many things to be filled in afterwards, and that I had deliberately abstained from filling them in because I wanted to inform myself further before deciding what particular form these details should take. That, of course, is to a large extent still the case, and I thought that I obtained a considerable measure of assent from hon. Members the other night when I suggested that it would not be wise at this early stage to ask me to pledge myself to specific figures or to specific answers to questions as to how certain difficulties were going to be dealt with, because that would mean that I give the decision first and get the information afterwards.

But if the decision is to be a wise one and one which can be adhered to, and is not likely to give rise to further confusion, it is surely desirable that before giving it I should inform myself as completely as possible. Let me say that I am now in the process of obtaining that information. I have already placed myself in touch with certain persons of great experience and position in the financial and industrial world. As I said, I am in personal contact with them. In addition to that, I have had already communications from a number of important bodies, for instance, the Associated Chambers of Commerce, the Chamber of Shipping, and others which I need not run through; and I under- stand that the Federation of British Industries also is collecting a large body of information which it proposes to submit to me.

Mr. Charles Brown

Why not the Trades Union Congress?

Mr. Chamberlain

I intend to take every opportunity of enabling these bodies to put before me in such detail as they choose all the information that they have upon the difficulties which they see in these proposals, and it is my intention to examine these proposals in the most sympathetic manner possible, and to do my best, in the light of what they can tell me, to meet such difficulties and to prevent the inequities and injustices which the right hon. Member for Hillhead (Sir R. Home) said that something must be done to remove. I fully appreciate that, parallel with that necessity for giving as full information as possible, it is also very desirable that there should not be too long delay. No one is more conscious of that than I am, and therefore there will be no delay that can be avoided, and I shall acquaint myself at the very earliest moment with what these representative bodies wish to say to me and, as soon as possible, I shall endeavour to make up my mind as to what can be done.

In the meantime, however, I think perhaps there are two points on which I can add something to what I said the other day, which may perhaps help to reassure to some extent those who fear that the proposal I have made is something much more rigid, much more unfair and much more severe than anything that I had ever intended. My attention has been particularly directed, both by hon. Members of this House in the last Debate and also by a selection from a large number of letters which I have received on the subject, to the way in which the profits standard is to be fixed. The profits standard, as I described it, was to be based on the average profits of three years—1933, 1934 and 1935. It has been represented that a too rigid adherence to those three years forming the basis of the profits standard would act unevenly as between one firm and another, and that it would introduce an element of luck, of good luck or bad luck, according as the concern had fared in those three years, which ought not really to form so important a basis for proposals of this kind.

Of course, the profits standard is a very important factor in the operation of this tax, and I quite see, therefore, that it is important that the standard upon which we are going to ascertain the growth of profits should not be open to the charge of having any element of luck and thereby, perhaps, prejudicing one of two firms which might otherwise be in the same position. Let me say that I never, in my own mind, have considered that that was an item on which it would be necessary to be immovable. I am quite well aware, for instance, that in the old Excess Profits Duty there was a certain elasticity in the standard that was taken at that time; and although I mentioned those three years, as one must mention something in describing a scheme of this kind, I do not think that that is a point on which I need be too insistent. I am quite prepared to reconsider that point either by way of some choice being given to the taxpayer to choose between different years, or by adding other years to the years already taken, or, possibly, by a combination of both. I do not want at this stage to commit myself to any one of those three methods, or to any combination of them; all I want to say is that I am open to consider representations on the subject, and I have no doubt I shall have them, and I shall give due weight to them.

I have said that there were in this matter two standards—the profits standard and the capital standard—and that there would be a large number of cases in which the profits standard would not be applicable and where recourse would have to be had to the capital standard. The determination of capital will be one factor which will require very careful examination. Hon. Members are aware that it is not at all difficult to find cases of extreme complexity, because not only are the concerns in question of less size, but frequently they have undergone various transformations in the past; and to trace through the various transformations to the original costs of the assets and such adjustments as have become necessary since those assets were acquired, is going to be an intricate and involved process. There, again, all I want to say upon that is that I am not going to commit myself to any further statement to-night as to how capital is to be computed; that is a point on which I hope to have valuable information from those whom I am consulting, and I believe that that information will enable me to deal satisfactorily with a difficult and involved problem.

I come to a matter which is of some importance. Once the capital standard has been fixed, the base that I described in the Budget statement was to be formed by taking, in the case of companies, 6, and of earning individuals, 8 per cent. of their capital. I did not, in the course of my statement, say anything to indicate that that rate of 6 or 8 per cent., as the case might be, will be subject to any variation, but of course I was aware that in the case of the Excess Profits Duty there was a very wide range of variation, a variation which is applied not to individuals but to different classes of industry. If I did not say anything about it, it was because I did not feel in a position to give any definite information as to how a variation should in fact be arranged, but I did anticipate, even in making that statement, that it would be necessary to go beyond the flat rate which I had laid down, because I could see that circumstances of different classes of industry were such that what would be a fair return in one case would altogether fail to attract capital in another where the circumstances were entirely different. You have, of course, what I might call the bread-and-butter industries, which jog along and in which one year is much like another although, of course, subject to the general cycles. Then you have another class of industry, where the assets are wasting assets, assets which have no long life and of which in many cases even the life cannot be determined. These seem to me to be in a different position from what I call the bread-and-butter industries.

Then, again, there is another class which I think may be said to be on a different footing. Take, for example, the mining companies, especially the mining companies overseas, which do not always know what their assets are. They have got to find the assets, and they have to sink a large quantity of capital to find their assets. They may fail to find them altogether, or if not that, they may have two or three tries before they come upon what they want. I must say that if you are to say to them that the rates which are applicable to one of the ordinary in- dustries, that are engaged, let us say, in the home market here, are to be equally applied to them, they would have a justifiable ground for saying that a like treatment was being applied to very different circumstances. Therefore, I am prepared to say now that I will provide for a variation of the rate of interest which is to form the base in relation to the capital standard. I do not commit myself, until I have further information, either as to the machinery by which this variation is to be brought about or to the limits within which this variation is to occur.

I do not think there is anything really that I can add to that statement. There is a general agreement, of which I have much evidence from the country, that the principle of my proposal is approved. It is considered right and fair that where industry has increasing profits it should make a special contribution to the cost of National Defence, but, as I expected, difficulties have already arisen in the application of the principle. Of course, I knew that such difficulties were bound to arise, and I expected that my proposals would not be received with enthusiasm in the City. I quite frankly admit that their reception there has been much worse than I expected, but nevertheless I believe, as I said at the beginning, that that reception was largely based upon a premature conception of what the proposals are. I have thought that perhaps I depended too much upon my past record to protect me against the idea that I would willingly impose on industry anything that was likely to cripple it, or decide on an imposition which would act with grave unfairness as between one industry and another. Well, when we get frightened we do not always stop to think of all the palliating circumstances, and there is no doubt that the City has been frightened. Perhaps what I have said to-night may go some way, at any rate, to show that it has been frightened unnecessarily.

As I said before, I have established contacts with those who can, I think, give me the information required to enable me to see what further modifications of the plan as I described it, are necessary. I have confidence myself that, in the end, it will be found that not only is the principle right and not only is the tax one which will be tolerable to industry, but that the details themselves will be found not to bear that construction which has been put upon them.

Sir Percy Harris

When will the right hon. Gentleman be in a position to give the House and the country the necessary information as to the final form and character of the tax?

Mr. Chamberlain

There will be no delay.

7.46 p.m.

Sir Robert Horne

I am sure the whole business world will be grateful for the statement of the Chancellor of the Exchequer. I know that there will be considerable relief at some of the announcements which the right hon. Gentleman has made. He has told us that the standard will not be rigidly computed upon the basis of the three years 1933 to 1935. That will be a relief to many industries. Since coming into the House to-day I have received a telegram which indicates the anxiety felt in many industries on this matter. It is a telegram from Newcastle, and it is as follows: This meeting of the North of England Shipowners' Association, representing approximately 1,000,000 gross registered tons of shipping, believing that the prosperity of shipping and of the heavy industries is essential to the economic welfare of the nation views with the utmost dismay the proposed National Defence Contribution and is of the opinion—

  1. (1) That such taxation takes insufficient account of the grave conditions that these industries have suffered during the last decade when capital invested therein has received little or no return;
  2. (2) That the incidence of the tax on the shipping industry in particular, far from encouraging the rebuilding and expansion of the present merchant fleet, is tantamount to discrimination by the British Government against British shipping and in favour of foreign shipping."
Now we have had an announcement which gives some encouragement to believe that account is going to be taken of the conditions which obtained during these years 1933 to 1935, and of the fact that it would be unfair to make those years the basis for estimating the profits which may be obtained in the heavy industries and in the shipping industry in the years immediately to come. But I hope the Chancellor of the Exchequer is not reproaching the industries of this country with having made an und tie disturbance about this matter. Up to this moment, the information given to the industrial world has been such as is indicated in the telegram which I have just read. That telegram shows what was understood by the business world. How was the business world to know anything else? They could not know that any alteration was to be made in respect of the years upon which this computation is to be made. They could not know that the 6 per cent. in the case of companies and the 8 per cent. in the case of private firms was not to be applied as a rigid datum line. I beg the House to remember that business goes on from day to day. People in business have to estimate their position from day to day. It is impossible to conduct business upon uncertainty. The late Lord Melchett frequently said that business could get on in good times and it could get on in bad times but that the one time in which it could not get on was an uncertain time. For the last week there has been a perfectly justifiable confusion in the business mind as to what was going to happen in connection with this tax.

The confusions have not all been cleared up by the Chancellor's statement. In the first place, we do not know what basis is to be substituted for the basis of the years 1933 to 1935. We do not know to what extent the rate of computation of profits is to be made elastic or within what limits it is to be able to expand. These things are left in doubt and uncertainty still. We do not even know now how capital is to be computed. The Chancellor says that it will be upon the cost of the assets subject to adjustments but we do not know what those adjustments are to be. The Chancellor is not prepared to say, for the reason no doubt that the adjustments must be infinite in their variety over a vast category of businesses which possess capital structures of differing forms.

The embarrassments of business, therefore, are still very great. Many firms have to decide upon an interim dividend. How are they going to decide when they do not know exactly what their position is? Again, firms may have to decide upon final dividends and upon the reports which they issue periodically to their shareholders. None of these things can be done until this matter has been cleared up finally. I am grateful therefore to the Chancellor of the Exchequer for saying that there will be no delay in coming to decisions. I ask the House to believe me when I say that every delay will be a check to the free flow of business. The sooner these decisions are taken, the sooner will business again begin to progress and to be prosperous.

I wish to remove a misapprehension which appears to exist in reference to the business world in this matter. The trade and industry and commerce of this country are perfectly willing and ready, and always have been willing and ready, to contribute £20,000,000 or £25,000,000 to meet the extra expenditure which the armaments programme involves. There has never been the slightest hesitancy about that. The only question is as to the method and incidence of this taxation. The taxation must be reasonable and it must be fair as between one enterprise and another and also as between different classes of shareholders. But this taxation as announced—and that announcement is all that we have had up to to-night—was neither. It fell with undue severity upon people who had been struggling through difficult times and were only getting their heads above water. It discouraged new enterprise, and if new enterprises are to receive any encouragement, the Chancellor of the Exchequer will require to extend that elastic rate of 6 per cent. to a much higher figure in the case of those enterprises. No new industry is going to start with the chance of having 20 per cent. of all its earnings over 6 per cent. taken away from the reserves which a new business must build up. I hope that the case of new businesses will be taken into account, as well as the fact that this would be a complete check to businesses which have been going in for expansion.

Let me give the House an illustration. I know a large business in Glasgow which has nothing to do with armaments and is concerned only with the food of the people. This company four years ago decided to raise a great deal more capital and increase its distributive agencies, and it went in for very large expenditure accordingly. In 1933 the result of that new expenditure on the overhead charges was that the company earned £18,000 less than it had earned in the previous year. In 1934 the figure of the deficiency was about the same, and in 1935 it has come out at about £6,000, showing that the business is beginning to reap some advantage from that expenditure. The result of these proposals upon that expanding company would be that their enterprise would be a cause of injury to them. If they had not expanded, if they had been content to go on as they were going, this tax would not fall upon them. This was a company which carried on successfully in good times and bad times, and a tax of this kind would not have affected them in the ordinary course. But because they were enterprising and looked ahead and, incidentally, employed twice as many men as they had employed before, then they became liable to suffer.

That kind of thing cannot have been meant, and I hope the Chancellor of the Exchequer will have regard to such cases. The right hon. Gentleman's past reputation and conduct may, as he said, have entitled him to suppose that people would never regard him as such an evil ogre as to be capable of an act of the kind I have indicated in the case of that company. But, again, people will look at the legislation which is proposed and the terms in which it is put forward, and will act accordingly. The confusion which exists to-day has been accompanied by a great deal of discouragement and frustration. I have a telegram from a responsible business man in Glasgow informing me that certain contracts have been suspended and others cancelled as a result of the prospect of this taxation. The business world requires to be reassured.

I am not sure that there has not been considerable confusion, also, in the minds of those very expert people at the Treasury. We were told that a tax which only meant an extra £20,000,000 could not matter very much to industry, but we know that it means immensely more than £20,000,000. Any person who is associated with the accountancy of large companies must have, at least, the definite apprehension that £20,000,000 is by no means the limit of this charge even in the year to come. May I give the House one instance? The Treasury estimate that they will get £2,000,000 in the present year from the proposed tax. Judging it on its incidence as announced, I have seen the estimate of a group of four companies as to the liability of firms which make up their accounts to 30th June. This group of four companies has given me the figure which they estimate they would pay in the present year. It is rather over £1,000,000 sterling. How silly does that figure make the Treasury estimate appear, and how ridiculous even in relation to the estimate of £20,000,000 next year.

I venture to think that this situation must be revised, and that the Chancellor's legislation must be framed on a more accurate view as to the way in which he is going to get his £25,000,000. I would suggest that in connection with some of the alleviations there should be an alternative to taking other years than those which have been previously suggested. My Keynes, in a valuable letter, showing what are the views of an expert economist, in the "Times" of last Saturday, suggested that since 6 per cent. is being looked upon as a standard; if in any of the past six years less than 6 per cent. has been earned, the amount by which the earnings are less than 6 per cent. should be regarded as a deficit, and that such deficit should be carried forward and put against the profits of subsequent years before the amount is computed for the purposes of the National Defence Contribution. That is a fair suggestion. It means that the datum line over which you pay should be fixed upon the normal level of the business that has been done in any particular industry. There ought to be a discovery of normal earnings before you begin to say what tax is put on for growth. That is a suggestion which might he carried out.

There is a second suggestion. It is an idea which I got from the old Corporation Profits Tax. That tax provided that the equity shareholder should, of course, pay the tax. It seems rather ridiculous to say in the matter of Defence obligations that if you hold preference shares you should pay nothing to the contribution which is being exacted from the rest of the community. But the Corporation Profits Tax provided that while the impost should be 1s.in £ the on the profits, it should never rise above 2s. in the £ on the equity shareholders. The Chancellor of the Exchequer should consider making an arrangement that the impost should never go higher than 10 per cent. on the total profits of a company including the growth. One of the things that is disturbing business to-day more than anything else is the impossibility of fixing any sort of limit to what people may be called upon to pay. If you fix a maximum of 10 per cent. on the total earnings that would reassure a great many people, and give you at the same time a good yield on your tax.

The Chancellor of the Exchequer mentioned mining companies. The four companies to which I referred are a group of mining companies with shareholders who have risked large sums of money in them for many years and earned very little on their capital until the present year or last year. I am glad that the Chancellor should think it right to make some provision in order to alleviate the tax on those companies. Indeed, it would seem absolutely necessary that we should do so if he proposes to keep those companies in any position to pay tax to the British Exchequer. After the Great War many of us interested in undertakings working abroad endeavoured to bring as much of that business to this country as possible. We were all enjoined and encouraged in Government circles to do so. The result has been that many companies have been brought to London whose whole operations take place outside Great Britain—either in the British Empire or in foreign countries. You will find many a company whose whole activities are outside this country but whose board of directors sits in London, and because the head office is in London the company becomes liable to Income Tax in this country, and will now become liable to pay the new contribution. But the Income Tax runs so high in this country that from time to time there are serious head shakings by the shareholders, in the places where the companies work, against the propriety of keeping the companies here.

Mr. Gallacher

Good old patriotism. Profits not patriotism.

Sir R. Horne

The hon. Member entirely misunderstands me. I can give you an example of a company whose operations are in another part of the British Empire. It seemed convenient to transfer the company to London so far as control was concerned. It became liable to Income Tax here and the Dominion might be said to that extent to be deprived of revenue. It is perfectly easy without any lack of patriotism at all to shift back the sittings of the board to the place where the company operates. It is purely a matter of business. To give another example, there are in another Dominion four or five companies all operating in one place. Two of these are managed locally. Two others have their boards sitting in London. All the companies are conducted with skill, resource and good management, but a large number of the shareholders of the two companies operating in London are in the Dominions, and it is difficult to resist the pressure of those shareholders to have their company managed elsewhere when they find that their profits are depleted to a great extent by taxes in this country in which they do not in any way share. I am sure that great difficulty will be raised in connection with the carrying on of these businesses if taxation in this country is of such kind as to drive them away.

But the situation does not end there. If you have a board sitting in London—certainly in all the boards with which I have been connected—you strive by every effort to buy all your plant and machinery in this country. I can say for the combination with which I am connected that never have we given an order for goods abroad, except in the British Empire, as long as we could get those goods here. In many cases this policy has resulted in paying much higher prices and in many cases we have suffered delays. But if your board is sitting in South Africa, Canada or Australia and travellers from Germany and other countries are seeking their orders, do you think that you are in as good a position to obtain all this machinery in this country?

These are matters which I venture to bring to the notice of the Chancellor of the Exchequer. I am convinced that something of a serious order has to be done to mitigate the burdens on industries, which, so far as they are concerned, need not be here at all. They can move without any great difficulty, and it may be regarded as being to the undoubted interest of the shareholders to make these changes. I would make one further suggestion. The Chancellor of the Exchequer has said that the £2,000,000 which he proposes to raise in the present year is a bagatelle, and that the £25,000,000 is the amount which he expects or wishes to raise from this tax in the next year. I doubt very much, in spite of all his energies, whether he can between now and the time when the Finance Bill is prepared meet and discuss all those matters with the deputations from a great variety of industries, or that he can sufficiently elucidate matters in that time. But if we say we recognise this obligation and the principle on which the Chancellor is proceeding, would it not be possible for him to investigate, over the year to 31st December, what is going to be the exact out-turn from his new tax? I suggest that he should do everything now to get rid of all the anomalies and inequalities which exist in the proposed legislation. Having done that, the Treasury should apply their minds in the course of the following months to a discussion of the amount which they would be likely to raise.

In my view, if all these inequalities were cut out the Chancellor would still easily get his,£25,000,000. Supposing it should be found after careful investigations that that amount could not be raised, I am certain that the industry of this country would be willing that the rate should be raised in order to insure the £25,000,000. I hoped that it might have been said to-night that all these fears could be allayed. Nobody wishes, least of all I or the Members on these benches, to be critical of the Chancellor of the Exchequer. We are all ardently in his support. He commands our enthusiastic loyalty, and if any of us have ventured to be critical in the course of these discussions, it has only been because we are deeply anxious for the fate of industry and for a continuance of the prosperity which we have begun to enjoy.

8.16 p.m.

Mr. Assheton

I am sure the House will have felt very grateful to the right hon. Gentleman the Chancellor of the Exchequer for the substantial crumbs of comfort which he has offered to us. I feel confident also that the business community, when they read his speech tomorrow, will be relieved of some, at any rate, of their anxieties. There is no doubt that there is a good deal of public sympathy with the idea which the Chancellor has in his mind. There has been a good deal of feeling that a tax somewhat on these lines would not be unfair, but I suggest that we have to ask ourselves how far the proposals will have the effects which the Chancellor intends. The anxieties and fears in the minds of business people have been engendered by the fact that they have been in great doubt whether the intentions of the Chancellor can be realised. I should like to illus- trate from an example the effect which the proposals will have. The hon. Member for Mansfield (Mr. C. Brown) will be interested, I feel sure, in what I am going to say, because it has reference to an example in the county of Nottingham. There was a manufacturer in that county who built up a big business. He left a considerable fortune when he died. He left four sons, who received the property of their father. The eldest son received his real property. The second son received the investments which his father had in gold mining shares. The third and fourth sons were left their father's shares in the family business.

On the day after the Chancellor's Budget speech, these four brothers met in Nottingham to discuss the proposals. The eldest brother, Arthur, who had been left the real estate, started the discussion, which turned on the new Defence Contribution, and said that, as far as he had been able to understand the proposals, he would not have to contribute to the new tax. One of the brothers said, "But you are the one whose revenues have increased most as the result of the Government's policy. On your land have been built, thanks to the action of the Government and the activities of the Corporation of Nottingham, a great many houses, and now that this new factory is to be put into use, you will benefit still more from the Government's activities." The second brother was a solicitor, and he had devoted his attention chiefly to company business, and, as a result of the activities of the last few years, his business had flourished considerably. He had been engaged in a considerable amount of work in connection with finding new capital for industry, and his business as a company solicitor had increased out of all bounds during the last few years. He also had been fortunate, for he had received his father's investments in the gold mining shares, and he rightly pointed out to his brothers, "Here am I with my gold mining shares, in receipt of greatly increased revenues due entirely to the fact that the Government increased the price of gold when we went off the Gold Standard."

The two younger brothers, Charles and David, who received the family business, turned to their elder brothers, and said, "It seems to us that you who have done best out of the growth of profits which have arisen from the Government's policy are going to pay nothing, whereas we who have been left the family business are going to pay it all." "Wait a bit," said the youngest brother, "I was left the preference shares in the business and you were left the ordinary shares. Very soon after our father died, the preference shares went into default and dividends are in arrear. Fortunately, this year we are going to make good profits, and we shall be able to pay the preference dividends which are in arrears. So you, at any rate, will benefit from the growth of profits in the business, because you will receive your arrears of dividend, but you and preference shareholders will pay no contribution to the Government. I and the owners of the ordinary shares who have had to bear all the burden and heat of the day, who have been striving to get back prosperity, find that upon us falls the whole burden of this tax, although up to now we received no part of the prosperity due to the Government's activities."

The four brothers went away and they met again on Friday and discussed the matter once again. The three elder brothers felt relieved when they had read the speech because they had seen that the Chancellor had said he was going to make this tax fair and equitable. And they went off to catch their trains. The youngest brother was not quite so sure because he was the one who would have to pay the tax. He spied his Member of Parliament sitting in the corner of the room, and he found he was asleep because he had been up all the night before, at the all-night sitting. The Member awoke instinctively when he was approached by his constituent. He listened to the anxieties of the youngest brother, who communicated his anxieties to his Member of Parliament, and I am communicating those anxieties through you to the House and to the Chancellor.

8.25 p.m.

Mr. Ede

It is quite evident that the retreat is now being conducted with as much rapidity as possible, and if the right hon. Gentleman the Member for Hillhead (Sir R. Home) and the forces co-operating with him only keep up the pressure, there is very little doubt that within a few days it will develop into a rout. I am bound to say I thought, in view of the way in which the Chancellor of the Exchequer was scuttling away from his original proposals, he was somewhat harshly treated to-night by the right hon. Gentleman, who showed very little gratitude indeed for the substantial concessions that appear to have been made. I very much doubt whether it is worth while continuing the Debate this evening, because it is clear that until the right hon. Gentleman has had further opportunities of consulting with the big bodies representing the various vested interests concerned, he will not be in a position to make any statement to the House which can be regarded as a definite or final pronouncement on the subject. I recall that five or six years ago it was sometimes said that one of the disadvantages of having a Labour party in office was that one could never tell what their policy was until they had consulted the Trades Union Congress. We now know it is impossible for us to know what the financial budgets of the Chancellor of the Exchequer are until he has had an opportunity of meeting in secret conclave with the Federation of British Industries and the Associated Chambers of Commerce. He has asked this evening that we shall not regard these matters as final until he has had further opportunities of consulting with those people.

I have one considerable grievance against the Government, because I am a member of the Estimates Committee. I see one or two hon. Members of the Committee sitting on this side of the House. Earlier this year the representatives of the three Service Departments tendered to us very careful and detailed evidence as to the way in which they were so watching and controlling the efforts of the firms in the armaments industry that it was impossible for them to make an improper or undue profit. After very considerable discussion the Committee met in secret and considered the evidence which we had heard. We unanimously produced the report which was quoted with considerable glee just before the Easter Recess by our Chairman the hon. Member for Harrow (Sir I. Salmon) in the discussion which then took place, and it was demonstrated clearly that profiteering in armaments was impossible. I was, therefore, somewhat astonished to find that the Chancellor of the Exchequer in his Budget speech did hint that arma- ment expenditure was one of the things with which he hoped to deal through this tax, but I will give him the credit that in one of his replies he did quote the document to which I have referred, the report of the Estimates Committee, as a proof that there was no undue profiteering taking place in regard to that particular expenditure at the moment.

I am very much concerned with the effect that this tax may have upon those people who, during the past few years, in spite of great discouragement, have been endeavouring to establish new industries in the Special Areas. I represent one of those areas, South Shields, and according to some figures given by my hon. Friend the Member for Houghton-le-Spring (Mr. W. Joseph Stewart) the other night, there still remains in that county borough a percentage of unemployment of 33. One of the problems with which we are confronted on the North East Coast is the absence of any suitable employment for young women; in fact, the whole tradition of the area has been against the employment of women in industry at all. I have received a letter from an enterprising group of people who started a biscuit factory in my constituency. I sent a copy of it to the right hon. Gentleman last week, and I suppose he has had such a great amount of correspondence that my letter has not yet been reached, because up to the moment I have not yet received any acknowledgment of it. However, I hope within the course of a few days, when he has dispensed with his conversations with the Federation of British Industries and those people who are important, because they are outside this House, that he may have time to send me, at any rate, an acknowledgment of the letter which I sent him. In fact, I shall want something more than an acknowledgment in the course of the next two or three days. Since I wrote that letter to the Chancellor I have received another letter from the firm, and because it illustrates so well the difficulties which confront these firms, I hope I may be pardoned for reading a relevant extract from this communication to the House. The writer says: The following facts may help you in the action which you have taken. In July, 1933, my partner, then 58 years of age, and the writer gave up sound salaried positions and came to South Shields to buy a factory which had been idle for over three years. We put all our savings into it and borrowed a further £43,000 to develop it, therefore taking the full responsibility for profit or loss. We have trained and found permanent employment directly for 500 people"— Far more than the Government have ever done— apart from being users of vast quantities of coal, gas, etc., making indirect employment in this same area. Our railway account is £400 monthly. But labour was so inexperienced that for a long time it took 12 girls to do what six experienced girls could do in the competitor's factory we had come from. From 1933 to 1935 there followed a period of constant development and extension, during which period the working partners were unable to take very much out of the business, sacrificing holidays and working 14 hours daily, feeling that the results in future years would bring its reward. In 1936, when labour was getting more experienced and output per person was becoming more normal, profits commenced to expand as they should and arrangements were made to issue preference shares to pay off the money borrowed on debentures. But the two active directors, still full of confidence, retained all the ordinary shares behind a much larger preference issue and, as a matter of fact took a very nominal salary under this arrangement, relying on ordinary dividends largely for our remuneration. Now that substantial profits are being made we are going to stand all the racket after making sacrifices and still having all the responsibilities and worries. I do suggest to the right hon. Gentleman that in the consideration which he gives to this matter he should bear in mind the efforts of enterprising young firms like that who have risked a very considerable sum of money and devoted a great amount of personal energy to establishing businesses in areas where the Government have been saying during the last five or six years that it is the patriotic duty of people to go and establish businesses. Men like these are not very often active or prominent or influential in the great associations which I have mentioned. I do not imagine that from the large profits which they talk about they will be one of the four firms who are going to provide half the total tax which the right hon. Gentleman expects to receive during the year. I am sure that on this side of the House there will be no feeling that these people, whose great investments in this country are being maintained in security by vast armament expenditure of the Government, should escape their proper contribution towards the means that are being devised to defend their interests. If the country is to be defended, the expenditure which that involves should come from those who are in a position to meet it, but at the same time we ask that justice should be done between one firm and another. People who believe in private enterprise should not penalise other people for being enterprising. From the little I have read about the tax that is one of the worst condemnations which could be made of it, in the form in which we have seen it up to the moment.

I hope that the right hon. Gentleman will not accept the final suggestion made by the right hon. Gentleman the Member for Hillhead that this matter should be postponed for 12 months. Had he remained in the Chamber I should have liked to ascertain from him how he had got a week's advance information about the tax. [An HON. MEMBER: "Where is he now?"] The right hon. Gentleman only comes here to deliver lectures. I have given up expecting him to remain for many minutes in the House after he has spoken. He told us that this tax had been causing dismay and discomfort for the last fortnight. The first I heard of the tax was a week ago, when the Chancellor of the Exchequer opened his Budget. Judging by the way in which the announcement was received, I would say that it came as a complete surprise to other Members of the House also. How the right hon. Gentleman heard of it a week before I do not know, but after the fate that overtook certain people last year it might be advisable for him and for some other people to say very little about it.

Mr. George Balfour

I believe it was a slip of the tongue on the part of the right hon. Gentleman.

Mr. Ede

I suppose the week has been such a nightmare to him that it seemed a fortnight.

Mr. Boothby

I think that the right hon. Gentleman said there had been great disturbance for a fortnight. We had had one great disturbance about gold, and had only just recovered from that when this one came on the top of it.

Mr. Ede

On this side of the House we think that excessive profits out of armaments should be stopped, but in another way from that proposed in the Budget. If excessive profits are being made out of armaments it is further proof of the necessity for stopping the private manufacture of armaments. Where enhanced profits are being made beyond what would be regarded as the normal return on industry, it is our feeling that any tax levied should be absolutely fair between one firm and another. No firm should feel that in making excessive profit they are justified because they are going to share it with the Government. It is wrong to give people a feeling that it does not matter very much if they make excess profits, and thereby put up the cost of living against other members of the community, because the profit will be shared with the Government.

Although this is the one feature which appears to have attracted interest in the Budget, we regard only with dismay the levying of such a large sum of money in time of peace and raising part of the expenditure through a loan so that the real expenditure is concealed from the people. I hope that the feelings which have been evinced here to-night will bring home to every hon. Member the fact that we cannot have a huge armament programme in this country without seriously dislocating the ordinary ways of the people and inflicting upon business and other interests an amount of injury such as we have been debating.

8.41 p.m.

Mr. Silverman

I intervene in what is something like a family dispute on the other side of the House, in order to make two short comments upon the amazing speech of the right hon. Gentleman the Member for Hillhead (Sir R. Horne). I am sorry that he is not in his place. I have not been a Member of this House for long enough to know whether the suggestion made just now by my hon. Friend is justified. The right hon. Gentleman said that he and his friends were enthusiastic supporters of the Chancellor in this matter, but, having listened for some 40 minutes to his enthusiasm, one thinks only with alarm of what would be the fate of the Chancellor if the right hon. Gentleman the Member for Hillhead became critical. He said that the Chancellor had very seriously under-estimated the proceeds of the new tax this year, as well as in subsequent years, and that whereas the Chancellor expected to get only £2,000,0000 this year he was able to assure the Chancellor that the tax, applied only to four companies of which he was aware, would produce £1,000,000. I am not in a position to judge whether the Chancellor or the right hon. Gentleman is nearer the truth, but assuming that the right hon. Gentleman the Member for Hillhead is right, and that the four companies would produce half the total proceeds expected from the tax by the Chancellor, to what an appalling degree must the Treasury be unaware of the profits now being made and likely to be made out of the rearmament programme? If the estimates of the proceeds of the tax can vary so widely, it looks as though the Treasury do not know what colossal profits are being made out of the programme, and are likely to continue to be made. If that be a correct deduction from what the right hon. Gentleman said, surely the argument of hon. Members on these benches for a much stricter control of prices and profits is very substantially reinforced by what the right hon. Gentleman said.

Mr. Wragg

I did not understand my right hon. Friend to refer to armament firms at all, and I think the hon. Member is wrong in assuming that these large profits have been made out of the Government's programme.

Mr. Silverman

I quite agree; I understood the right hon. Gentleman the Member for Hillhead in the same sense as the hon. Member did; but the whole moral basis, as I understand it, of this new tax, is that increased profits in these years when we are coming out of the period of depression are due, in the last analysis, to the programme of the Government, and, although the profits are not being made solely in the armament industry, it is so very difficult, nay, impossible, to draw the line between increased profits in the armament industry and in industries further afield, that you cannot distinguish between armament profits and other profits. It was for that reason that the Chancellor told us that he proposed to apply this tax to increased profits anywhere in industry, and not to confine it to armaments. I suggest that hon. Members opposite would be the first to try to convince us that increased prosperity, returning trade, and so on, came at the inspiration and as a result of the policy of the Government. It comes back to this, that if the profits which are going to be subject to this tax are to produce so very much more than the Chancellor expected, it can only be because the Treasury is totally inade- quately informed as to the profits that are being made as a result of this expenditure.

My second comment is with regard to the really astonishing threat which the right hon. Gentleman the Member for Hillhead threw at the Chancellor of the Exchequer. He said—I think I am quoting him correctly—that it is not a matter of patriotism; it is purely a matter of business. What was it that was not a matter of patriotism, but purely a matter of business? It was that, if the tax was to bear more hardly upon industries in a position to make their own arrangements than those industries themselves thought just and equitable, it would be perfectly easy for them to take the registration and control of their companies outside this country, either into the Dominions or into some foreign country, and so escape the tax altogether. What does that mean? Would it then be morally right or patriotic to evade the taxation to which they would be subject if they remained here?

Mr. Boothby

Taking the case of two companies mining lead in Australia in the same field, the one with its registered office in Australia and the other with its registered office in London, the shareholders being possibly Australian and largely the same, why should the shareholders of the company with its registered office in London pay this extra taxation when, by merely transferring the registration, they can pay the same rate of taxation in Australia as the other company?

Mr. Silverman

Business being business, there is no reason in the world why they should not; but I was not discussing business—I was discussing patriotism. I am not going to say that there are not abnormalities about this matter. There are plenty of abnormalities in our social system, but we do not expect, and if we did we should be disappointed, that they will all be cured by the Chancellor's Budget this year. If, however, a company is registered in London, and always has been registered and controlled and managed in London, I say that for it to transfer itself to Australia merely for the sake of evading a tax to which it would be subject if it remained where it always had been, is in the highest degree unpatriotic.

Mr. Wragg

Surely that must be entirely wrong. The assumption of the right hon. Member for Hillhead was that the majority of the shareholders were Australian, and therefore they would be acting as patriotic Australians by transferring the registration to Australia.

Mr. Silverman

I did not understand the right hon. Gentleman to mention Australia at all.

Mr. Wragg

He mentioned the Dominions.

Mr. Silverman

I know he did, but he did not mention Australia. I would ask the hon. Member to do me the justice of recollecting that, although the right hon. Gentleman the Member for Hillhead mentioned the Dominions, he did not confine his argument to the Dominions; he also spoke of foreign countries. I was simply dealing with his argument in two stages. I am dealing with the question of the Dominions first, and I hope to say a word about foreign countries afterwards. If the whole of this rearmament policy is being devised, as the Chancellor said in his speech, for the protection of two things, the one this country and the other our communications with the Empire, then for the right hon. Gentleman the Member for Hillhead, who has held high office under the Crown in this House, to suggest the transfer of a company and the incidence of taxation upon it from London to one of the Dominions, in order to escape a tax designed as a contribution to the cost of defence of the Dominions as well as of this country, is in the highest degree unpatriotic, and will be received, not merely in this House but in the country, with the greatest astonishment.

The right hon. Gentleman's other argument went even further. He said that, if they were still not satisfied, and could not gain sufficient protection by their agitation in this House and in the country, they would not only take their capital and their companies to the Dominions, but would take them abroad to foreign countries. Which foreign countries, may one ask? [HON. MEMBERS: "Russia."] Is it one of the foreign countries the fear of which is causing the rearmament programme to take place at all? Is it suggested, by those who say that this is not a matter of patriotism but a matter of business, that it is a patriotic thing, in order to escape what this House may decide to be a fair contribution to the cost of rearmament, to take a company out of its London registration and transfer it to a foreign country, which may be the very country whose policy and programme have occasioned the rearmament programme? It is not too much to say that every word of the argument of the right hon. Gentleman the Member for Hillhead has reinforced the basic justice of, at any rate, the principle of the tax which the House is now considering.

If war ever comes to this country—which God forbid—if there is to be a tax on the lives of the people, they will not be able to say, "It is not just and equitable that we should suffer these burdens, because we did not desire or create a war, and We will transfer ourselves to the Dominions or a foreign country and will not render our contribution." They will not be able to do that. But if these right hon. Gentlemen who are associated with powerful companies, who are leagued together in strong financial interests, are able to threaten the Chancellor of the Exchequer as to what they will do with their money if what he proposes to do is not in their own judgment in their own case right and fair, one may say to the Chancellor of the Exchequer that, although the principle of his tax is right, the House and the country will stand amazed at the somewhat timid and inadequate application of it that he proposes. We would invite him, instead of this paltry application of a really sound principle, to address his mind to the problem of preventing profits in rearmament at all as far as that can be done and, in so far as it cannot be done, to tighten up the tax so that at long last we may take a step in the direction of international peace by taking the profits out of war.

8.56 p.m.

Mr. Owen Evans

Having had some considerable experience of Dominion companies, I am afraid that anyone who contemplated changing registration from this country to the Dominions would be jumping from the frying pan into the fire. I have not much sympathy with any suggestion that, in order to avoid any fair tax on industry, industrialists would evade the tax and be better off by removing their registered offices. I do not believe it would be very successful, because taxation of companies in the Dominions since the depression is greater than it is in this country. We on this bench do not object to raising as much money as is needed for the purpose of necessary Defence, and I think the House is convinced that money is required for the purpose of National Defence. Our attitude throughout has been consistent. We have deprecated borrowing as far as possible and have advocated raising as much as possible from taxation. Furthermore, we adhere to the view, which we have expressed time after time, that as regards any profits from armaments or anything directly connected with armaments we stand by the report of the Royal Commission, and also suggestions put before the commission by very distinguished and well-known industrialists, with a view to controlling the manufacture of armaments.

I am sure the House is grateful to the Chancellor of the Exchequer for giving some further explanation to-night of his tax. The opposition to it is due very largely to the fact that he made no disclosure of details in his Budget speech. If he had said what he has said to-night regarding the basis period, probably the feeling would not be so strong as it is. He told us that it was not intended to do anything which would create injustice or inequity as between one class of firm and another, if it is possible to avoid it. Surely his advisers at the Treasury must have known of the grave inequalities which would have resulted from adopting the arbitrary three years 1933, 1934 and 1935, and indeed the Chancellor himself realised it, because he said that those years might not be the fairest period to take as between one company and another. He said: I suspect that on the whole those profits still fall far short of the level of 1928 or 1929. The Treasury officials must have known that the selecting of these three years was bound to cause great disturbance of trade and dissatisfaction amongst industrialists. There was another sentence in his speech which indicated to me somewhat ungraciously his attitude towards the increase of prosperity in industry since 1932 or thereabouts. He said: Nobody can fail to be struck by the almost monotonous story repeated in their annual reports of increased business, record turnovers and larger profits."—[OFFICIAL REPORT, 10th April, 1937; col. 1615, vol. 322.] It is rather ungracious to refer to this return of prosperity as monotonous, something that bores one, instead of, as it should be described, rather an inspiring and cheerful story. It indicates that the right hon. Gentleman's mind was restricted by views put before him by his Treasury advisers and, if he had told us at the beginning what he has said to-night, that there would be some choice to the taxpayer in respect of those years, or some enlargement of the period during which the standard profit would be applied, it would have alleviated a good deal of the opposition. The same applies to what he said about the percentage profit standard. He said 6 per cent. He told us to-night that he recognised that that is bound to be unfair and inequitable as between classes of industry and he has indicated a departure from his original proposition. The Treasury must have known also that a percentage standard which was fair to one industry would be obviously unfair to another, such as mining, which has rapidly wasting assets.

We recognise that the money must be obtained. If the Chancellor of the Exchequer is consulting industry, as he has indicated he proposes to do, I say that industrialists as a whole are quite prepared to do their share in finding the money required. Would it not be possible even at this stage for the Chancellor of the Exchequer to consider a fair corporation tax levied on the whole of industry, regardless of any standards or datum line, which at the very best must lead to grave disadvantages for one company as compared with another. I make that suggestion to-night. I am certain that industry would be prepared to find the money or do its share towards finding the money if the tax was levied equitably and fairly as between all classes of companies and trades. It would satisfy industry; whereas this proposed tax, even if it is amended, is bound to leave considerable inequalities. There is another point. It is said that this is a tax on increment. We have had increment taxes before. An hon. Member opposite spoke of the increment value of land in Tottenham due to the activities of the corporation in building houses and erecting factories. He referred to the enormous increase in capital values to owners of the land, and the Chancellor of the Exchequer himself in this House, when the land taxes were repealed, indicated that he was not against a tax on the increment value of land. He said: The fact is, the argument in favour of an increment duty, asking the owner to make some contribution to the community in respect of the value of his property which has been brought about by the community, appeals to a great many hon. Members of whatever party they belong. I myself cannot see any unfairness in the application of such a principle, so long as it is fairly carried out. I must also add that I have not yet been able to see any practical way of putting it into operation. Many hon. Members are satisfied that it would be easier to levy a tax on the increment value of land than it is to raise money by the very complicated tax in the Budget. I do not propose to oppose the tax, but I do say that it would be a far better way and a more convenient tax, a tax more easily collected and fairer to industry, if some general levy was made by way of a general corporation tax.

9.10 p.m.

Mr. Clement Davies

With most of what has been said by the hon. Member for Cardigan (Mr. O. Evans) I quite agree but I cannot understand why he should have tailed off so much at the end. For myself, I repeat what I said last Thursday. I am opposing this tax, and if given the opportunity I shall vote against it. Every argument used by the hon. Member shows its deficiencies, and in those circumstances I should have thought he would have made a concrete proposal, with which I should agree, that he intended to oppose the tax and ask the Chancellor of the Exchequer to accept the alternative. I am sorry that the right hon. Gentleman the Member for Hillhead (Sir R. Home) is not present. I can quite agree with most of his speech. The only part with which I disagree is the first part, in which he uttered a eulogy of the speech made by the Chancellor of the Exchequer to-night and thanked him for clarifying the situation. To my mind the speech of the Chancellor of the Exchequer has left confusion worse confounded, and, honestly, I do not know even now what the tax is going to be. I do not know how the profits are to be assessed, I do not know the standard years or what the capital is going to be.

The Chancellor says there is a principle in this matter. Let us clear our minds with regard to it. Let us admit that it is necessary to raise revenue, let us admit that prosperity has come and that everyone is sharing in that prosperity. [Interruption.] At any rate, let us admit that they are sharing and that those who are sharing in the prosperity should also share in the increased burden. I hope hon. Members opposite will agree with that sentiment. What is the principle underlying this tax? Our quarrel is not with the raising of the money or with the amount, but with the incidence of the tax, the way it is to be levied. The position is not that the £2,000,000 which is being asked for this year or the £20,000,000 which will be raised by the tax next year, has upset trade. Industry can, of course, find an extra £2,000,000 this year or another £20,000,000 which is estimated next year. What has upset industry is the uncertainty in which the Chancellor of the Exchequer has left everybody since last Tuesday. Uncertainty breeds confusion, confusion breeds panic, and if you get panic you get people trying to get rid of shares and put their money into something else, with the result that there has been a loss, so we are told, of about £200,000,000 or £300,000,000 since last Tuesday. I should like to challenge the Chancellor of the Exchequer to say how much he has lost in Income Tax and Super-tax and possibly Death Duties since last Tuesday. I am sure it would outweigh anything which he can recover by this tax this year or from the tax next year. Our quarrel is not with the amount of money, but with the incidence of the tax.

I have been trying to find out what the Chancellor of the Exchequer meant by the principle of the tax. Some of the supporters of the Chancellor of the Exchequer in the Press have been saying that they are in favour of the principle. I have heard one or two hon. Members say that they are in favour of the principle. What is the principle? Wherein lies the principle?

Mr. Quibell

There is not one.

Mr. Davies

It is not a tax on high profits. Last Thursday I gave the House one instance after another of high profits, cases where dividends of 80 per cent. had been paid steadily. There will be no increased taxation upon those profits. I could have given the House instances where 100 per cent. dividends had been paid. They will bear no extra burden this year or next year, provided they do not go beyond 100 per cent. It is not a tax on profiteering. If it were a tax aimed at profiteering, I do not believe there is an hon. Member who would vote or speak against it. All hon. Members ought to be in favour of such a tax. Profiteering is when a man takes unfair and undue advantage of another man's needs. When there has been profiteering, this House has intervened in the past to stop it, and it would do so again. The Chancellor said that he would like to hit at firms benefiting from the rearmament programme, but having said that, he confessed immediately afterwards that he was completely unable to do so. Therefore, because he cannot get at the armaments contractors, he hits as best he can. He does not hit at all, but only at a selected few. Where is the principle of a tax of that sort?

Moreover, what I object to in this tax is the enormous structure which is being built up, and which will produce pretty nearly nothing this year and I prophesy precious little in coming years. All hon. Members know that the profits that are being earned by a company are not the profits that are accepted by Somerscet House for the purpose of assessing Income Tax. They are on an entirely different basis. Income Tax has been in being for a great number of years, and a system has been built up which is well understood by the accountants and by the Inland Revenue authorities at Somerset House. There are certain principles which they follow. The principles followed at Somerset House are different from the principles which are carried out by a particular firm in its own particular circumstances. I will give the House one instance. The board of a company or firm may come to the conclusion that it ought to provide for depreciation every year at a certain amount. Somerset House will say that that is not the amount that they will allow for Income Tax purposes and that they will take a fictitious amount and will allow upon that. Consequently, two sets of figures are being built up in every office in the land to-day, one for the purposes of the company, which I regard as the correct one, and the other for Income Tax, which has to be based upon the rules and regulations laid down and admitted by Somerset House.

Those sets of figures have taken years to construct. Now the Chancellor says that they will not do for his new purpose; he must begin an entirely fresh system, and he cannot honestly tell us on the Floor of the House to-night what the fresh one is to be. He cannot tell us with regard to profits; he certainly cannot tell us with regard to capital—to use his own phrase, which I think I remember, it is going to be intricate and involved. He is building up a sort of Chinese pagoda in order to produce a toy. What will happen? Every office will be upset, and all the brains will be turned on to finding out what is the best way of dodging. That is not a proper attitude to force the country to take up. It is encouraging immorality, and immorality ought not to be encouraged. Companies will be trying to find out dodges by which legally they can pay the least amount. When these figures have been obtained and when they have been well thrashed out by the company and its accountants, they will be sent to Somerset House, and there they will be challenged. An over-worked body of civil servants will have to go through the whole system once again. When will there be a settlement? We know something about the settlements under the Excess Profits Duty. Not only did it take years to arrive at the settlements, but by the time they were arrived at there were no companies there to pay, for they had gone into the bankruptcy court. They also upset the calculations of Somerset House and of the Treasury, because in any number of instances the Treasury had to repay money which it had already taken. This is bound to upset calculations from year to year.

Why does the Chancellor of the Exchequer want to build up such a system? It is to this system that my real objection is directed. It has nothing to do with the amount of money. I had hoped that the Chancellor would come to the House to-night with an open mind. He had told us already that he had made up his own mind with regard to this tax and that he had not consulted anybody outside. That is a tremendous confession for a Chancellor of the Exchequer to make with regard to a new tax, a confession which I do not think any other Chancellor has ever made. The right hon. Gentleman said that he had to do that because of the necessity of maintaining secrecy. What secrecy was required with regard to this tax? Nobody can avoid it. It is not the same as a tea duty or an increase in the duty on goods coming into this country from abroad. One cannot anticipate this tax or run away from it when it is there. I understand that in the past when a new tax was suggested by a Chancellor of the Exchequer, not only did he consult outside bodies, but his colleagues in the Cabinet; Cabinet committees were held, papers were sent backwards and forwards, there was consultation after consultation, until at last the Chancellor of the Exchequer was ready with his scheme before Budget Day. In this case the Chancellor of the Exchequer says that he did not consult anybody because he was afraid that somebody might happen to hear about the tax, but he says that he is going to consult somebody between now and the time when he has to produce the Bill. I completely fail to understand the position.

Nevertheless, it is not right to criticise the Chancellor unless one can suggest some alternative. Apparently the alternative I suggested last Tuesday is not acceptable; I suggested to the right hon. Gentleman that if it were necessary to raise more money, he could do so by increasing the Income Tax. To my mind that would be the fairer method, for that is where the burden falls fairly. However, that is not acceptable. The right hon. Gentleman turned that suggestion down, and I think he did so on wrong grounds. I am very much obliged to the right hon. Gentleman the Member for Hillsborough (Mr. Alexander) for correcting him with regard to the small taxpayer. Nobody suggests that the small taxpayer should have an extra burden placed upon him, but that there should be a better gradation and that there should be a heavier tax placed upon those who can bear it, I think everybody will be prepared to face.

But there is another way in which this money could be provided without causing any disquiet, and it is the way which was suggested by the hon. and learned Member for East Cardiff (Mr. T. Morris). It is a method which was introduced during the War and continued for some time, and it is known as the Corporations Profits Tax. It is a tax which is easily ascertainable, for it is based upon the amount for which the corporation is assessed for Income Tax, so that one would not have to go through any fresh calculations, the calculations being there already. It is a tax which is paid before the Income Tax, and the amount can be varied according to the requirements of the Chancellor of the Exchequer. I do not know what the corporations have been earning during this last year, but the sums assessable to Income Tax of the corporations which might be liable to this tax were, 1933–34, about £681,000,000. In 1934–35 that figure went up to about £712,000,000, and I assume that for 1935–36 the figure approaches the neighbourhood of £800,000,000. If it is £800,00o,000, then 2½ per cent. on that, 6d. in the £ would produce £20,000,000. There is the money, from a simple straighforward tax, upsetting no one, certain in its object, and easy in its collection—and none of us would have been upset.

I wonder whether it is even now too late to appeal to the Chancellor of the Exchequer to consider this suggestion, or has he made up his mind finally, without consulting anybody, and therefore will say, "Having made up my mind finally I am not going to alter it. I will trim the tax a little to meet this or that hard case, but I am going to stick to it"? Surely the Chancellor of the Exchequer can reconsider this matter, and if he does so and comes to the conclusion that he has made a mistake, surely he is a big enough man to say, "I have made a mistake; there is a way out, and an easier way, and I shall accept that way." I trust that that is so. We have before seen a Minister make a mistake, and when mistakes have been made we have known some Ministers big enough to admit it, and they have lost nothing in the esteem of the country and nothing in popularity. I can assure the Chancellor that if, after having heard all these criticisms which are coming from all parts of the country —since I spoke on Thursday I have had letters from all over the country criticising this tax—he then comes to the conclusion that he has made a mistake, his position will be strengthened if he will admit it and carry out the wishes of the country by levying this tax in a simple way.

9.28 p.m.

Mr. Muff

I listened with great interest to the remarks of the hon. and learned Member for Montgomeryshire (Mr. C. Davies) and I could not help feeling glad that the Chancellor was having some much needed refreshment, because I have no doubt that his heart would have been wrung when listening to the mournful plaint of the hon. and learned Gentleman. I am glad that the right hon. Member for Hillhead (Sir R. Horne) is present. I differ from my hon. Friend the Member for South Shields (Mr. Ede) in describing him as a lecturer. I should say that he is a preacher, and that is natural, seeing that he is a son of the manse. I consider that the right hon. Member for Hillhead was most ungrateful to the Chancellor, and ungracious as well, seeing that the Chancellor almost, but not quite, capitulated before his onslaught and the vested interests which he represents in this House. Of course we cannot help the departure of the right hon. Member for Hillhead, and we do not mind, but there are people in this country not representing large vested interests. The right hon. Member for Hillhead is the almost perfect embodiment of a distinguished ornament of the 1918–22 Parliament: he looks the part, with his genial personality, radiating a smile almost from every mark of his features, a smile of Christian charity. We do not mind his departure, but I would remind the Chancellor that while the right hon. Member for Hillhead may represent the cosmopolitan crowd which takes up its abode in the narrow precincts of the City, what we call the City is not England and is not Britain. I hope that the Chancellor will call the bluff of the right hon. Member for Hillhead, because in the last analysis it is but bluff, representing as he does, as I wish to emphasise, not the great heart of England—I do not use that phrase in any rhetorical sense—but the comopolitan crowd in the City who are not England. An hon. Member opposite may laugh, but they do not represent the spirit of England and of Englishmen, and the Chancellor of the Exchequer need take no notice of them.

The right hon. Member for Hillhead threatens a flight of capital. I remember a similar threat in my salad days when the right hon. Member for Carnarvon Boroughs (Mr. Lloyd George) introduced his Budget in 1909. We were told then there would be a flight of capital. I have intervened in this Debate largely in a spirit of indignation, and to protest. After consulting with and speaking to all sorts and conditions of men and women I wish to tell the Chancellor that the men and women of England expect him to do his duty by preventing a recurrence of the profiteering which took place during the War years and after the War years, led by the cohorts of the right hon. Member for Hillhead, and I hope that the Chancellor will take no notice of his representations. The people of England expect a square deal from the Chancellor. They expect that there shall be no exploitation by vested interests, but that he will do his duty by seeing to it that they pay their share and their full share. He should not allow the ordinary folk of England to be exploited by the profiteers, whose motto, according to the right hon. Member for Hillhead, is "Business is business."

9.34 p.m.

Mr. Peat

I hope the hon. Member for East Hull (Mr. Muff) will forgive me if I do not follow him in his spirited appeal to the Chancellor to see that every Englishman does his duty in the way of making a contribution to the National Defence. I am sure that the hon. Member appreciates that the National Government have so far seen that every Englishman has done his duty, and the last proposal of the Chancellor of the Exchequer seems directed to that end. With regard to my hon. and learned Friend the Member for Montgomery (Mr. C. Davies), he ended his speech by suggesting that we should go back to the old Corporation Profits Tax. I know the tax and I had a little to do with it some time ago, and it was a thoroughly bad tax. It was given up because it was a bad tax and a tax of that character is not the right one in circumstances of this sort because we want a tax for a specific purpose, a tax which will come into operation for a specific purpose and end when that purpose is achieved. I do not think that if you had a Corporation Profits Tax, put up your Income Tax more steeply or graded your Surtax, you would have the same results as you would get if you came into the field and said, "I want a special tax for a special purpose which ends when that purpose is accomplished."

He said that he did not think the tax would produce anything and was not in close agreement with the right hon. Member for Hillhead (Sir R. Horne), who informed him that four companies in the half year before us were going to subscribe most of £1,000,000. If that is the case I cannot conceive that there will be any difficulty in a full year in collecting £20,000,000 to £25,000,000 from this tax. Then he dealt with the Stock Exchange and the panic which he suggested would come about because of the Stock Exchange transactions in the last few days. I must admit that I feel that these Stock Exchange panics are enormously over-rated. We are told that they are going to mark down their securities £200,000,000 to £300,000,000. In many cases these securities have been marked up higher than they should be by at least that figure.

When I look at some of the securities I am aware of to-day I see that they are still standing at a very fair price. I do not think that we need desert the ship and take to the boats because of a Stock Exchange panic which, as we have seen, is so readily manufactured and to a certain extent internally manufactured. I do not believe that the average industrialist is prepared to "panic" out of his contract and expansion, if necessary, by a threat that after he has received a certain percentage of his capital he will be asked to contribute a proportion to the State.

I am told that there is no principle behind this tax, and I heard many hon. Members applaud that statement. It seems to me that there is a very obvious principle in this tax, the principle that as we are approaching and are now within a period of probable heavy and considerable profits owing to the demand for rearmament and the Government's Defence programme, any increase of the profits over the normal profits should be subjected to a certain levy. That seems to me to be a perfectly clear principle. It is a principle which we accept in individual taxation to-day. In Surtax when you go above a certain point you find yourself in another area where your Surtax is higher and you are paying a considerable figure. It is a principle which is established and which can be introduced at a special time.

To-day any hon. Member who reads his newspapers and talks to his constituents appreciates the fact that many working men and many people in a small way of business are beginning to feel a certain amount of fear and suspicion about what may happen to the heavy profits which may be made in the course of this Defence expenditure. It is quite impossible, as any business man knows, to pick on any particular firm and say, "You are an armaments firm, what about your profits?" It is a widening circle, as the Chancellor said, which affects every single commodity, and a man who sells a drink or cigarettes and the man who has a cinema gets his improvement in profits and position from the same cause. If we accept the principle that there is definitely a standard of normal profit, we can deal with extra profit and call on those who make it wherever they may be to make a contribution.

There is one other angle and that is the angle of trying to iron out a slump and a boom. I have had the privilege of mentioning this to the House on other occasions. To many of us it is a nightmare when we see this boom accumulating and we think that there must be a definite repercussion if that boom goes unchecked. The industrial tree requires pruning unless we are going to allow it to grow extravagantly and finally bring upon itself its own doom. There must be pruning to keep that tree healthy and make its fruit of value to the community. We are approaching a period of extravagant growth and we ought to have a pruning knife in our hand and be prepared to use it to ensure that industry is healthy.

Mr. Boothby

Is the hon. Member now suggesting that there should be taxes imposed on industry to keep it healthy?

Mr. Peat

I do not want to hit up taxes, as he said, just for the fun of the thing. I tried to explain that if you have exceptional circumstances where the growth of industry may be exceptional, pruning is necessary. In the ordinary course of normal trade I do not think that it is necessary; in exceptional circumstances it is. In August, 1921, the price of No. 3 Cleveland pig iron was quoted at 297s. 6d. a ton. In September of that year they were hard put to sell it at 91s. 8d. That is a state of affairs we have to avoid at all costs, and if we check it in the way the Chancellor has in mind in the exceptional and abnormal circumstances which exist, we may achieve that object. The great problems that I see in connection with this tax are that, when we compare it with the Excess Profits Duty, the periods which precede it and which preceded the Excess Profits Duty are entirely and ab-solutely different. Before the Excess Profits Duty was brought into operation you had a period of normal and fairly successful trade, not a period, as since the War, when there has hardly been a normal year and boom has followed depression. The cavalcade of industry since the War has been one long up and down. The difficulty is, therefore, in the first place to get a profits standard. You have to face the lean years.

The next difficulty is to get a capital standard, because you have had your reconstruction, and writings down and loss of capital right and left. Then you have, in this period of improved trade, a great number of new businesses and exceptional circumstances. I should like to suggest to the Chancellor of the Exchequer that in dealing with this problem of the intensely different circumstances, into which he may be trying to bring the machinery for Excess Profits Duty, he should approach it with a most generous manner. He may say, "Very well, if you like take the preceding 10 years, and take the two best you like cut of them and make them your standard." He should give concessions from the point of view of the capital calculation. He should go to industries and accept what has already been done by the Board of Referees during the time of the Excess Profits Duty, and accept the percentages agreed upon at that time. I think that that would be accepable to industry, for any delay would be wrong.

The right hon. Gentleman should be lenient and very generous and, having done that and having satisfied the business community, as I believe it would easily be satisfied, he would be left with a residuum, a balance left over, which would be admitted by everybody to be over and above the ordinary trading results of business. I do not believe you could find a case, although there might be some, which, after the generous treatment I have suggested, would not be satisfied. The right hon. Gentleman would have these balances over, and he could then increase the percentage which he is going to take off the balance until he reached the figure he requires of between £20,000,000 and £25,000,000. I believe that in that way, if he satisfied the business community, he could take a larger share of what is left to make up the money he wants, rather than if he were cheese-paring, and said, "Here are three years or four, we are going to be careful and not too generous about the percentage of standard capital." The right hon. Gentleman, I believe, could cut out a tremendous lot of difficulties which he would otherwise meet in negotiations; he could avoid heartburnings and difficulties, and yet not sacrifice one penny which he would require. The tax, in my opinion, is sound in principle, it is necessary from the point of view of the desires and expressed wishes of a vast majority of the people of the country, and it must and can be made to work efficiently.

9.48 p.m.

Mr. Harold Mitchell

I think we have all enjoyed the speech of my hon. Friend who has just sat down. Everyone associated with industry would appreciate the generous concession which he suggests the Chancellor of the Exchequer should make, but surely the right hon. Gentleman could only adopt them if he had completely miscalculated the amount of money he expects to get from this tax. I have a feeling that the Treasury has a sufficient knowledge of the incidence of the tax to be able to make a good estimate of what it is going to bring in, without its being possible that it should be so out in its calculation that what my hon. Friend the Member for Darlington suggests could be done, very much as some of us would like to see it done. Where I differ with the principle of this tax is that it is a direct penalty on efficiency and progress and is going to check particularly new, young and growing firms. Old-established businesses in many cases will not be very much affected by it. The public utility companies in many case will pay little or nothing, but new industries, the very kind of enterprise we want to encourage if we are going to attack the hard core of unemployment, are going to be most heavily affected by the tax.

Therefore, I welcome very much the announcement of the Chancellor of the Exchequer to-day that he is going to consider making certain ameliorations and concessions in some directions. One point that strikes me in regard to the tax is the extraordinary difficulty which there will be in arriving at the capital of any particular industry. It seems to me that companies are going to be involved in an immense expenditure and very big costs in getting valuations done. I speak with some personal knowledge of this subject. It is a most costly business to arrive at the capital value say of a mining concern; and the same thing applies to a great many other industries. I am glad that some concession is to be made in the basis period of years to be adopted. If you adopt any particular three years, as for example the ones which have been suggested, it is far too arbitrary a method, especially as in the first of the three-year period the country was in a very severe depression indeed.

I would put in a plea for one particular kind of industry, and that is for new industries to be established and industries already established in the Special Areas. They are essentially industries in many cases of a somewhat speculative nature, and in many cases they are too small to be started by public subscription, say, on the Stock Exchange. At the same time, if they are large enough to have any appreciable effect on employment, they will if they are successful come within the ambit of the tax. I think the very fact that the Special Areas Reorganisation Association has been set up admits that it is difficult to persuade money to go into the Special Areas. There is therefore a very strong case for making a substantial concession to industries in those areas, because they are the very type of thing which will be discouraged by the tax. It is perfectly obvious that a tax on rising profits is the type of tax which will discourage people from investing money in industry, and I hope that will be borne in mind.

I am a little uncertain about the tax from another point of view. It is being put forward mainly as a tax upon armaments, and that is one of the big arguments in its favour. The argument is that the Government having created, very necessarily in the interest of national Defence, a large expenditure on armaments, many industries have thereby benefited. I would ask what proportion of this tax is to be borne by those concerns which we normally know as armament firms? I believe that the amount of tax which will be paid by what we commonly call armament firms will be very small indeed, because in many cases their capital is very large, even though it may have been written down; and that actually they will not be the biggest contributors to the tax. I hope, therefore, that my right hon. Friend will very carefully look into the various anomalies of the tax because I believe it is only by a very considerable modification of the proposals as already outlined, that it will be possible to arrange the tax in such a way that it will benefit industry rather than retard it.

9.55 P.m.

Mr. Gallacher

We have had to-night a demonstration of a very interesting and instructive character. It has been clearly demonstrated to the House and the country that when profits are at issue, patriotism fades away. It is the great god Profit that is the one concern of hon. Members opposite and the concern of the Chancellor of the Exchequer. How is it possible for the Chancellor to come to the House and say, "I have frightened the City"? It is significant indeed that yesterday and to-day—I do not know about the end of last week—the very weak representative of the City has not been present in this House. I do not know whether he is in the hands of the doctor or not, but it may be that the assurance given by the Chancellor to-day that he did not mean to frighten the City, will bring the hon. Gentleman back to his place once again.

The right hon. Gentleman frightened the City because he proposed a tax on profits. We have had a speech on that from the right hon. Gentleman the Member for Hillhead (Sir R. Home) who, as has been remarked before, speaks here and always speaks here only when the question of profits is at issue. Never has he been interested in anything else, never has he concerned himself with anything else. But he walks in here if there is anything under discussion affecting railway companies or shipping or anything with which profit is connected. (An HON. MEMBER: "Or distressed areas."] Yes, if there is an opportunity for tramp shipping in connection with a distressed area. The only distressed area in which the right hon. Gentleman has ever expressed any interest is South Wales, because he is interested in shipping. He told us that if the Chancellor was going ahead with this proposal he was going to play the part of the Artful Dodger. Other hon. Members have expressed a desire to emulate that character. But Fagin is after them, and Fagin is likely to catch them, no matter how much they dodge. All this talk about boards of directors now in London being transferred to the Dominions or elsewhere is all eyewash. It is all part of an attempt to stampede the Chancellor of the Exchequer. The right hon. Gentleman is expecting a measure of promotion soon and they are trying to frighten him with the thought that if lie does not come up to scratch on this holy question of profits, there may be a missed step during the next two or three weeks. It is quite on the cards that the group represented by some of the hon. Members who have spoken would use this proposal a s a weapon in that connection.

I am all for this tax and for increasing the tax. There is a principle in it, though some of the hon. Members opposite do not like the principle and do not want to face it. They say, "You can tax incomes, you can impose Death Duties, you can tax tea and sugar and all the rest of it, but when it comes to taxing profits that is dangerous." If you can take 10 per cent. off high profits then, the principle having been introduced, you can proceed to impose a 5 per cent, tax on lower profits and if you can do that you can on the same principle take 50 per cent. of profits, and eventually on the same principle you can take 100 per cent. of profits. That is what those hon. Members opposite see. They used to tell us in the old days that the Socialists would drive capital out of the country. Now apparently it is the Chancellor of the Exchequer who is doing it. Obviously all this talk about driving capital out of the country is nonsense. According to that story capital has been driven out of all the other countries, because in all countries the same developments are taking place. If some hon. and right hon. Gentlemen would make a study of Karl Marx they would begin to understand this question.

The question in which I am really interested, however, is that of Defence. This money is wanted for Defence. It is not for the defence of the people of the country, however. It is for the defence of profits. You will serve the people as you have done in the past and you will destroy the country as you have been destroying it in the past. It is only with the defence of profits that you are concerned. We tried to get a discussion yesterday on the case in which the police broke into a dance hall at Harworth and used their batons with the result that many people are in hospital. No defence is to be provided for these miners or for the unemployed. We have heard the Chancellor of the Exchequer to-day—and did one ever hear anything like his speech, it was so humble and so apologetic? The Golden Calf was before him and he humbled himself low and prostrated himself.

There are people in this country to-day starving because of the means test. Will the Chancellor of the Exchequer discuss the means test as he has discussed this tax. There is not a Member here who did not pledge himself at the General Election against the family means test. [HON. MEMBERS: "NO!"] Yes, every one pledged himself against the operation of the means test. [HON. MEMBERS: "No!"] It was admitted here by Member after Member, that changes should be made. What has been done about it? But here we have a proposal for a moderate tax upon profits and immediately hon. Members are all up in arms. No hon. Members here are likely to starve as a result of this tax. No big business men are likely to lose their corporations as a result of it. But people are starving as a result of the means test. Is there any sympathy for them or any proposals to meet their representatives and discuss how the means test is operating? Why should there not be such a proposal? Are the representatives of the unemployed and of the working-class who are suffering, not as important as the representatives of big business or are there two classes of human beings in this country, namely, big business and the ordinary people who have to keep big business going and work for it and fight for it? I ask hon. Members to consider the attitude of the Chancellor towards big business and to try to induce him to extend that attitude towards those people in the country who are suffering harshly and unjustly.

I ask the right hon. Gentleman to go ahead with his tax. I urge him not to soften or to weaken, but to stiffen his plan, to defy big business in the City and to place the responsibility for Defence, which is defence of profits, at the door of profits. The right hon. Gentleman the Member for Hillhead (Sir R. Horne) said that four companies with which he was connected would this year pay a £i,000,000 towards this small tax. What enormous profits! This is a sign of the prosperity that everyone is supposed to be enjoying. It is nice for him to make a speech like that in this House. I would like to hear him make it in the Rhondda or in parts of Bonnie Scotland. The hon. Member for East Aberdeen (Mr. Boothby) knows as well as I do that he could not go to Scotland and make that statement. There are masses of people in this country suffering most terrible poverty and hardship, and here you have the right hon. Member for Hillhead confessing that an organisation with which he is connected is making an enormous fortune. Wealth is piled up on one side while masses of people starve on the other. Is this House going to tolerate that? Is the Chancellor of the Exchequer going to bow in abject humility, not before the golden calf, but before the people of the country who need all his consideration? Will he not worry about the City or the men who are making profits, but about the people who need comfort and life and need it more abundantly? Let us support this tax and make it as strong as possible. You cannot go too far in taxing profits. Make the tax as wide and extensive as possible. I am certain that none of those making millions will be anxious to leave this country. They and their businesses will remain, but they will have the responsibility of meeting the cost of Defence, which is their defence, and not the defence of the people of this country.

10.9 p.m.

Mr. Boothby

The hon. Gentleman who has just sat down made a brilliant speech, but I am not sure that his ardent support of this tax makes me feel much more confidence in it. But the hon. Member will admit that we are trying the best we can, and in the face of considerable difficulties, to operate what is called the profit system as a means of conducting business. The hon. Member is determined to end the whole system as quickly as possible. He sees in this tax something which might be used as a wrecking instrument for smashing the system once and for all. That may be his objective, but it is not ours on this side of the House, and I doubt whether it is the Chancellors. The hon. Gentleman's support of this tax makes me feel a little more anxious about it.

In theory, I am a single taxer. I would like to see—though I am afraid it cannot come—the principle of a single tax introduced in this country, because it is fair. Multiplicity of taxes is, on the whole, a bad thing. The fairest taxation in this country is the Income Tax and Sur-tax falling on individuals according to means. I would have liked to see the Sur-tax increased in this Budget instead of this proposal which has been put forward. Many hon. Members on both sides of the House would subscribe to that view. The Corporation Profits Tax was not a satisfactory tax. The simplest and cleanest way for the Chancellor of the Exchequer to get another £25,000,000 through direct taxation and not indirect taxation, and the best way to get it with the least disturbance to business, would be to increase the Sur-tax and Income Tax, and, if necessary, the Estate Duties. You can obtain all that is necessary by those three taxes. But it is not of much use to expect the Chancellor in the near future to withdraw his proposals. All we can do is to try and see that he makes them, as I feel sure he will, as equitable as possible.

I do not believe that even the hon. Member for West Fife (Mr. Gallacher) wants to impose taxation on any class of the community that is palpably unjust between one section of the community or between one individual and another. I cannot see what justification there can be for taking the years 1933–4–5, as the standard, and I was delighted to hear the Chancellor practically withdraw that proposition. But, as my right hon. Friend thought the City was making too much profit and that it was taking an exaggerated view, I would point out that nothing kills business so much as uncertainty. If hon. Members opposite come into power they will get away with a good deal if they make it clear what they are going to do over a given period. The business community can adapt themselves if they are certain what is going to happen, but uncertainty kills business. Although my right hon. Friend the Chancellor of the Exchequer was inclined to be censorious of the City and the Stock Exchange for the so-called fright, he has left them for several days in a state of complete uncertainty; and while he has been cheerfully reassuring in his speech to-night, he has, as far as the actual facts are concerned, plunged them into greater uncertainty than ever. I can only say that the tone of my right hon. Friend's speech will certainly bring considerable reassurance to business interests, but nobody can say that we are not still plunged in as hopeless a state of uncertainty and mental confusion over these proposals as has ever been the case when fresh taxation has been introduced. I would reinforce the Chancellor's own plea for as much speed as possible in reaching some conclusion upon the general principles.

There are one or two points I would like to put to my right hon. Friend as he has asked us for suggestions. The mining industry was mentioned by my right hon. Friend the Member for Hillhead (Sir R. Horne) and criticised by the benches opposite. It must be remembered that an industry like the mining industry may have sunk millions of pounds in looking for their asset and never finding it. I know one company which spent between 40 and 50 million dollars before it started making a profit of any kind. You cannot put an industry of that kind into the same category as Lyons or Marks and Spencers or Woolworths, and as a great many of these mining companies operate abroad and are owned very largely by foreign or Dominion shareholders, it is natural that the shareholders should feel that they have been severely tried as against the shareholders of similar undertakings elsewhere, and that they would be fairly treated if the office is moved elsewhere. That is not lack of patriotism. It is business, for we are operating a business profit system. If the argument of hon. Members opposite is carried to its logical conclusion, it means that the directors of a company should go round the world searching for the country which penalises them most and sitting down in that country. You may get that in a Socialist Utopia, but you will not get it under the capitalist system.

I would like to point out another anomaly with regard to these companies. Take, for example, tin mining companies. During the years 1933, 1934, 1935 tin companies were restricted in their production and their profits reduced by the Government. These are to be their standard years when very low profits were imposed upon them by the Government. Who can maintain that that is fair? The same applies to the industries which were the worst hit by the system of Protection. Take the textile industry, or any industry largely manufacturing for export. Nobody denies that the system of Protection hit hardly at some of our exporting industries, but they accepted it for the benefit of the community. Their profits fell during those three years, when the export trade was reduced to the minimum. Now they are to be penalised because they made particularly low profits during those years.

The main complaint that one has to make against the general conception of the original proposals in the Budget statement is that they do in the end hit the producer and let off the rentier, and the interest-receiving man. That is wrong under any system, including a pure Socialist system. The House should aim at benefiting the producer of any commodity, raw or finished, and not letting off the purely interest-receiving man and the rentier class too lightly. Under these proposals as they were originally drafted, as Mr. Keynes pointed out, the margin between the profit of the entrepreneur and the interest of the rentier was being narrowed. That is wrong in principle from any point of view. Hon. Members on both sides will agree when I say that the producer is a man whose interests ought to be protected against the rentier and the parasite. There are parasites in our economic system, and they are the people who will get off scot free, just as the distributing trades and all the people who do not produce the stuff, but who made big profits during 1933–4–5, are the people who, under the original proposals, were to get clean off. The fellows who made losses or no profits at all in those years are the people who will be soaked. Who are the stockbrokers who during 1933–4–5 made the big profits largely owing to the activities of the Treasury? Those stockbrokers and jobbers in the gilt-edged market. They made enormous profits.

So far as a new firm which has just started in this country and depending not on large capital but upon initiative and capacity is concerned, what chance has it got? The less capital and the more enterprise and the higher the capacity, the higher the taxation—that is the principle. My right hon. Friend the Chancellor of the Exchequer referred in his speech to the growth of profits. It is not really highly undesirable to have a normal, healthy growth of profits in a time of expanding trade. We have been accustomed recently to hearing of the growth of profits as though they were a malignant growth. It is a healthy thing and it is not a thing to be struck down as unhealthy. Let us take the example of goodwill. What is the use of making goodwill a liability unless, of course, it has been purchased at an exorbitant price some time ago? I think there is no doubt that these proposals will not stand meticulous examination either by this House or by anybody else. The main satisfaction which we can derive to-night is from that which the Chancellor of the Exchequer has, in fact, admitted.

The last point I would like to put to the House is this: Do not underestimate the cost of these proposals. Every accountant in this country is searching the streets of London and the provinces for extra staff. People will be made to work so hard for no good purpose except to assess profits on yet another basis. Another Department of State will be created in order to handle this. It is a vast complication which, in my submission, would have been unnecessary if we had kept to the well-worn and well-tried methods of taxation. I would say to my hon. Friend who has just spoken and who seems to deride what he called this panic on the Stock Exchange, no one can say that a rise or fall of £300,000,000 or £400,000,000 in the value of ordinary shares is good for the trade or credit of this country. Violent fluctuations of this kind are good for nobody. That is the main criticism which has to be made of these proposals. In so far as they have had an effect up to date—and I fear the same of the future—these proposals are in effect deflationary. They hit the producer. I cannot believe that these proposals were really devised by the right hon. Gentleman the Chancellor of the Exchequer himself; I still have an idea that the Bank of England has had something to do with them.

When I think of the Bank of England I am reminded of a story which was told by the late Lord Fisher, the Admiral, who had served with a certain coxswain the whole of his life afloat. When the time came for the coxswain to retire, he said to Lord Fisher: "Goodbye—40 years in your employ and never done right yet!" That is roughly what some of those connected with the Bank of England will say when their 40 years are up. So far as this taxation is deflationary, it hits the pro- ducer and lets off the rentier, that is the complaint of the general principle which this House should make, and I do beg my right hon. Friend the Chancellor of the Exchequer in the weeks which lie ahead, when he is considering the proposals, to examine this matter so that it shall not be unfair to those investors in British ordinary shares instead of preference shares, who still have faith in the future industrial economy of this country.

10.25 p.m.

Mr. Beverley Baxter

This subject has been discussed from every angle, and I have only one or two small points to put to the House. The hon. Member for West Fife (Mr. Gallacher) spoke as though we on this side of the House objected to a tax upon profits, but that is not in accordance with the facts. The right hon. Gentleman the Member for Hillhead (Sir R. Horne) has said, in words which I think are of very great importance, that industry accepts the charge which the Chancellor of the Exchequer has suggested. That is a point from which we can move, with confidence that we are getting somewhere.

I would first like to express the view of many of my fellow back-benchers by saying how deeply we admire the courage and the self-sacrifice of the Chancellor of the Exchequer in bringing in a tax which may be most unfortunate in many of its applications. It was a brave thing to do on the eve of his promotion to some other office—according to the rumours in the newspapers. It has been denied that this is a tax upon armament shares, but from its nature it must have been inspired by that idea. If it is not a tax upon armament shares it may procure a refund of some of our expenditure upon armaments, which must be the same thing. It is not fair that armament companies should be specially taxed, unpopular as such an idea must be, especially to hon. Members opposite. Armament companies have expended money and energy to meet a situation which may end at any moment; and if there is any sanity in the world it must end quickly. Out of these clouded skies, and out of the threat which is upon the world at the present moment, I cannot conceive that there will not come spontaneously from two or three countries at once a cry that this madness must end and that there must be a halt and a truce in armaments production. If that happens, armament companies will be in a very bad way. I would regard any man who put his money into armament shares at the present moment as a fool, and any man who, as a trustee, advised his relatives to put their money into armament shares, would be giving advice which was as bad as possible.

Even if this be not a tax on armament shares, it goes much further. It is discriminatory, punitive and selective. I suggest to the Chancellor that he should accept the very important words of the right hon. Gentleman the Member for Hiahead at their value. To put it in the language of the American movies, why not call my right hon. Gentleman's bluff? If he says that industry is ready to meet this charge, why not commission him, or some industrialist of similar standing, to get the leaders of industry together and to submit to the Chancellor and the Treasury their plans for contributing this sum? I would not speak on the subject of finance unless I had talked at great length with many leaders of industry, and I will grant the Chancellor one success in this movement. Already industry and the City have been so frightened that they are ready to accept any alternative. Had the alternative been put first, I agree that there would have been some great wailing, but, now that industry and finance have been terrified into this acquiescent frame of mind, why not take the opportunity?

I have talked to many heads of industry and many heads of companies, and they have said they would gladly accept a per cent. tax upon profits. Under the present system there is no reason why a firm like Marks and Spencer should contribute to this tax; there is no reason why the co-ops should contribute, though I am sure, from what I know of them, that they would be most anxious to do so. There is no reason why a concern like the Imperial Tobacco Company should contribute a penny to this tax. Why should they not? Much of this money will go up in smoke. I commend this suggestion most respectfully to the Chancellor, whose administra- tion. After all, if he is the father and the mother of our good fortune, he must not mind if we quarrel with him about the way in which he is disposing of our good luck.

Therefore, I would strongly recommend that the Chancellor should say in his wisdom and in his patience, "We will forget this tax for this year. We will turn the red light into a green light. We will say to industry, 'Go ahead and have a grand year; build up all the profits you can'"; and that he should.then let the right hon. Gentleman the Member for Hillhead, together with three or four other giants of finance—provided that they have not made their headquarters in Borneo—go forward and produce their scheme for contributing the £25,000,000 in such a way as is best suited to industry, is fairest, and completely accomplishes the Chancellor's idea.

It may be said that the effect of the Chancellor's Budget has not been fair, has not been logical, has been unfortunately psychological. I do not know whether my right hon. Friend deals with brokers or not; I do not know how much he carries on margin; but, if he is like many other Members of this House, who believe in the future and are willing to carry a certain number of shares on margin, he will have realised that on the Wednesday following the Budget, when we were sitting reading the papers and admiring the details of the Budget, on that clay also there were on our desks the bills from the brokers. Believe me, that was as black a Wednesday as we have had for a long time. Psychologically we could not have had a worse Budget. It was the third of two or three movements which made the City's nerves collapse. Whether the City's nerves should have collapsed or not, they did. Nerves are illogical things. The Chancellor has it in his power, by an announcement somewhat on the lines that have been indicated to-day, to bring back to those faltering nerves of the financiers their buoyancy and their confidence. Let him leave it to his successor next year to suggest such extra taxes as we may need, and to-morrow the City of London will he preparing a spot on which to erect a statue to the right hon. Gentleman.

10.37 p.m.

Mr. Pethick-Lawrence

The amusing speech to which we have just listened is a fitting contribution to this extremely ironical Debate. I am sure, if the Chancellor of the Exchequer could get away from his immediate worries concerning the tax and sit a little back and get a perspective of this Debate, he could not but feel a considerable measure of amusement, because from different parts of the House we have had a number of speeches which have damned him with faint praises, and a number of speeches from other parts, or the same parts, of the House, which have praised him with faint damns. On the whole I think the most enthusiastic speech in his support came, not from his own side, not from hon. Members below the Gangway or from my party, but from the sole Member of the Communist party. His two most vigorous opponents have been his right hon. Friend the Member for Hillhead (Sir R. Home) and the hon. Member for Montgomeryshire (Mr. C. Davies), who have attacked the whole tax from every angle and every point of view. The hon. Member for Darlington (Mr. Peat) has told us, in words which I think will long be remembered, that the Chancellor of the Exchequer should have a pruning knife in his hand, for it is good for industry to be treated in that way. Had those words been uttered, let us say, by the hon. and learned Gentleman the Member for East Bristol (Sir S. Cripps), they would have been at once seized upon by the Conservative head office for use in every subsequent leaflet got out to impress the electors against the Labour party.

There is one other aspect of the Debate as a whole which I commend to hon. Members opposite. Some of them have a sneaking liking for dictatorships. They rather wish that we had a Hitler in this country and they imagine that, in those circumstances, they would get all their own way. My information is that sometimes the industrialists do not get all their own way even in Germany. There would be no opportunity, if they were living in Germany, to put forward the kind of criticisms they put forward the other day and this afternoon, and if they did they would probably find themselves restrained or the executioner's axe severing their heads from their bodies. Perhaps they are better off in a democratic country than in a dictator country.

A week ago, although I had a good deal of misgiving as to the practical and administrative difficulties which this tax involves, I could not withhold a measure of admiration for the courage of the right hon. Gentleman in introducing his proposal. After listening to his speech to-night I am wondering how far his courage was due to ignorance both of the administrative difficulties and the political repercussions which the announcement of the tax would bring forth. A week ago the right hon. Gentleman said that the disagreement with himself had been less than he expected, but I think he admitted to-night that the repercussions in the City were considerably more vigorous than he had anticipated. Not only has there been a change in my view as regards the courage of the right hon. Gentleman, but his speech this evening has filled me with bewilderment. Last week I thought the Chancellor of the Exchequer had a definite scheme, and I imagined that his competent advisers, at any rate, had prima facie answers to give to the major conundrums which were so apparent to hon. Members on both sides of the House. I quite recognise that there must be minor adjustments in any new piece of machinery, and I see no objection to minor adjustments to meet objections put forward in the House or to meet representations which might be made by outside bodies. But after his speech this afternoon I am bound to say that it seems to me that he has not now, and I am not sure ever had, any real definite scheme in his own mind. So far from having satisfactory answers of his own or from his competent officials to give to the conundrums which have been asked he really is an example of the saying, "Don't shoot, I reckon I'll come down," and after his speech this afternoon we find ourselves in the shifting sands of uncertainty. I quite agree that there is nothing worse for business than uncertainty.

I must blame the Chancellor of the Exchequer and the Parliamentary Secretary to the Treasury for the peculiar position in which we find ourselves. After the Chancellor of the Exchequer has opened his Budget the Committee stage of the Budget Resolutions are carried forthwith; as on this occasion. Then there is usually an interval of two or three weeks, certainly a fortnight, before the Resolutions are carried to Report stage, and if any major criticisms are made the Chancellor of the Exchequer has time in that fortnight to examine them and consult the people he wishes to consult. Before the fortnight is up there is time for the Chancellor of the Exchequer to make a statement which corrects any errors made in his original proposals. If the Chancellor will look back, he will find that something of that sort occurred when the right hon. Gentleman the Member for Epping (Mr. Churchill) introduced the Petroleum Duty. There was very considerable opposition in the House, and by the time the Report stage of the Budget Resolutions was reached—or at any rate at a very early stage—alterations were made and the matter was put right.

In this case the Report stage of the Budget Resolutions has followed almost immediately on the Committee stage, and I realise that the Chancellor has had no time in which to reconsider his position in the light of the criticisms that have been made. Therefore, we have to wait for this part of the Session to terminate. There has to be the long interval for the Coronation and Whitsun, and only after that shall we be in a position to know what this tax is to be. No one who heard the Chancellor this afternoon can have the foggiest idea of what this tax is really to be when it is put into final shape. I maintain that that position was quite unnecessary. The Opposition met the Government by agreeing to a single day for the Debate on the Report stage of the Budget Resolutions, and that Debate might well have been held next week in-instead of this week, and there would then have been an opportunity for the Chancellor to have put forward definite proposals on this matter. I think that the Government are very much to blame for the difficulty in which the House has been put in this matter.

Let me refer now to the great ambiguity underlying this tax. I raised this matter in my speech a week ago, it was raised by almost every other hon. Member who spoke in that Debate, and it has been raised by a great number of hon. and right hon. Gentlemen to-day. What exactly is to be the definition of capital? It is clear that on the precise definition of the capital the whole nature of the tax really depends. The value of the capital of the person who is going to pay the tax affects essentially the burden he is to bear. The Chancellor has told us that broadly it will be the value of the assets, with certain modifications. The "value of the assets" is a very vague phrase, and when they have been in existence for a considerable time, it is very doubtful what is their value. The modifications which may be made clearly introduce an element of the greatest uncertainty, which affects greatly the question as to what the tax is to be. The Chancellor gave, us practically no additional enlightenment, and I think more enlightenment ought to have been given to the House and the country as to what the definition of capital means, and how it is going to work out in the case of the taxpayers to whom it is to be applied.

I am bound to say that after the Chancellor's speech I can find very little in the main structure of the outline which he gave to his Budget a week ago which remains firm and intact. One of the great features of his speech a week ago was the choice of the basic years with which the profits made to-day and in years to come were to be compared. That was a definite statement; but in his speech to-day, the right hon. Gentleman said that that is just a detail and that all along he realised it might have to be altered. The tax which he brought in the other day is, therefore, going to be modified in one of its essential particulars, and the Chancellor now tells us that from the very beginning he anticipated that that modification might have to be made. If I understood him aright there is a more serious position even than that. I am not sure whether I interpreted the right hon. Gentleman accurately, but I understood him to say that not only may there be a general variation from these years to other years, or by an addition to those years, but that some groups of companies may take certain years as a basis and others have another basis. The Chancellor shakes his head and I am very glad to think that is not so, but that is what I had understood.

Mr. Chamberlain

I did say that one of the possible alternatives would be giving to the taxpayer the opportunity to choose between certain years, which was the way in which the matter was treated in the case of the Excess Profits Duty, but I did not say that one scheme was to be applied to one set of industries and another to another.

Mr. Pethick-Lawrence

I am very glad that my mistake has elicited that explanation, because I think other hon. Members may also have taken the same view, but I am glad to know that there is to be one definite proposal, and, though that may carry another option, the same option, as I understand it now, will apply to all. That, at any rate, gives a certain amount of assurance. But we do not know, even after the Chancellor's speech to-day, whether he will in the end stick to his particular basic years, or change them, and, if he does change them, what changes there are likely to be; and therefore I submit that we are still in a position of extraordinary uncertainty, and that uncertainty seems likely to remain with us for several weeks until the Finance Bill is actually before us. I imagined that at any rate we knew what were the rates of tax which those who made excess profits were to be called upon to pay, and that though they are limited by the terms of the Resolution before us, and cannot exceed one-third of those excess profits, that beyond that we had something like definite figures. Now the Chancellor tells us that there is no finality about that in any way, that he is open to review all those rates, and I think I am right in saying that he stated that from the beginning he realised there was nothing final about he figures which he put forward.

Mr. Chamberlain

Is the hon. Member suggesting that I said the rates of charge would vary?

Mr. Pethick-Lawrence

What I understood the Chancellor to mean was that whereas he said originally that below 6 per cent. there was to be no charge, and that between 6 and 10 per cent. there was to be so much per cent., and so on—that at the limit at which the charge may begin a certain fraction will be imposed, and that at other limits other fractions will be imposed—that these are all matters which may be varied, which is much the same as saying that the charge is going to vary, because it will affect the amounts which the various companies will be called upon to pay, and that is a matter of uncertainty which is most disquieting to all persons concerned.

There is another factor which is disquieting to the House of Commons. If the Chancellor had come to the House, heard certain criticisms and then had to how to the opinion of the House, that is constitutional and right. But, if I understand the Chancellor, that is not going to be really what is to guide the Chancellor. The Chancellor is going to meet the Federation of British Industries and the chambers of commerce, and he is going to be guided in the main by their attitude to this question. I have said that I have no objection to his receiving representations—it is a natural thing for a Chancellor to do—and making minor adjustments to meet the views of experts. But when we are given to understand that the main basis of alteration will depend not on criticism in this House but on the representations of these bodies, then the House has a right to object, because this is what it comes to. The Chancellor is going to get a voluntary contribution from big business towards the armaments programme. He goes to big business and says: "I must have some money to pay for this armament programme this year and next, and, you know, there will be a fuss in certain quarters if people make a big profit, and I invite you to make a voluntary contribution to the armament programme." The House of Commons will be called in to play the part of a rubber stamp in order to give effect to this bargain.

Sir Irving Albery

Provided the Chancellor gets the money he requires, what is your objection to it being obtained voluntarily?

Mr. Pethick-Lawrence

My objection is simply because that is not the Constitution of this country. The Constitution of this country is that this House shall have the decision in this matter. I have said perfectly frankly that I am not standing out for some meticulous procedure. I am quite agreeable to the Chancellor of the Exchequer seeing these important financial houses in the country, but it is this House that should have the real decision, and this House ought not to be called on to play the part of a rubber stamp. After all, little business will have to fall into line. It will not be consulted It will have to do what it is told and I rather object to big business laying down the lines and little business having to come into those lines willy-nilly. If this House makes the decision, big business and little business equally will have to follow the directions which this House imposes. The Chancellor tells us that he has already had a good many of these modifications, and modifications of this magnitude, in mind. If that is the case it is a peculiar method of budgeting.

It is the first time I have heard of a principal tax in a Budget scheme being made a kind of Dutch auction. The Chancellor puts forward a tax and one or two people in the House and the country object, and he alters it. It is something like what happens in an industrial dispute, where both sides put their terms a good deal higher than they are likely to obtain because they think that in the end some sort of compromise will be reached somewhere half-way between the two sides. I think that is a very costly plan if it is going to be adopted by Chancellors of the Exchequer in future. A proposal is meant to be carried out in the original form in the main, and although small modifications may be made, I think in general they should not be of the magnitude they are likely to be in this particular case.

The right hon. Gentleman argued in his speech that while the end of the Excess Profits Duty could not have been foreseen we could all see the end of the proposed new tax. I challenge the Chancellor of the Exchequer to give any ground whatever for that assertion. I know perfectly well that he talked about his five years' programme of rearmament, and about the £1,500,000,000 and the £400,000,000 which we were going to borrow for five years, and that after that we were going to reach the peak, and that it would then sink and we should live in a time when the cost of armaments would be very much reduced. But he must know that there is no solid ground whatever for that view. Much as we all hope it will prove to be true, there is no ground for hoping that an armaments race, once embarked on, even if we avoid the major catastrophe of war, will end on some particular date which the Chancellor of the Exchequer has pre-determined in his own mind. It may be that he is right, and that we may have the peak in three years' time, and that at the end of five years we may come down again to the armaments of some years back, but he must know that there is no definite assurance about that. I may be too pessimistic and equally he may be too optimistic, but there is nothing definite and this thing may go on very much longer than he believes possible. If that be true, and we have no assurance that it is not true, this thing needs much closer scrutiny and examination.

On the question of yield, we have the Chancellor's estimate, we have estimates of hon. Members in the House, we have the estimate of the City, and of the right hon. Gentleman the Member for Hillhead (Sir R. Horne), and there has been a very wide discrepancy between them. I do not pretend to judge between them, but I say to the Chancellor of the Exchequer that if his estimate is right, and if the tax is going to bring in £2,000,000 this year, and between £20,000,000 and £25,000,000 next year, and not very much more in other years, is the game really worth the candle? The Excess Profits Duty in the late War brought in hundreds of millions. It was a great upset, it introduced a great many things which it would have been much better not to have introduced, such as rising prices, but it did draw in very substantial sums to the national revenue.

If the right hon. Gentleman is going to raise only £25,000,000 in an ordinary year then, when you have taken into account all the upsets, all the expenditure on accountants and lawyers and all the rest of it, and when you have asked whether, after all, the people who have paid the tax are the people who should have paid it, or whether you have included all the people whose contribution would most be required in other years, whether you have got the right people and not got some people who ought to have been left out, then I cannot help wondering whether for so small a sum£because the right hon. Gentleman knows it is a small sum, after all, it is less than 6d. on the Income Tax and, as somebody has said, only 1s. on the Corporation Tax£it is worth while introducing this proposal at all. Nearly everyone in the House feels that the idea is sound, if it can be worked. The question that we have to decide is whether it is a practicable principle.

We are in essentially the same position to-night as we were last week; we do not know. The Chancellor has given us no essentially new information. It may be that the disquiet in the City of London and elsewhere is but a storm in a teacup; it may be, as the Chancellor has said, that people are inclined to exaggerate the disadvantages of anything new. I know that that has been the case with many things with which I have been connected. If we on this side had introduced this proposal, we should have met with a storm of abuse ten times greater than that which has assailed the Chancellor, though the tax would not have been any worse because we had introduced it. I stand where I stood a week ago. I shall reserve my decision with regard to this tax. It may prove that the Chancellor can make it a workable proposal; it may prove that the critics are right who think that he cannot; when we see the Finance Bill we shall know. Until that time I preserve an open mind, but I am bound to repeat that I have the gravest misgivings as to whether the tax will work out in the way that the Chancellor has anticipated.

11.7 p.m.

Sir Edward Campbell

The Chancellor said that he would be obliged to hon. Members for any suggestions that they might make. I wish him to bear in mind that the rubber industry for a great number of years has been going through great difficulties. Owing to the restriction scheme, it is now doing better. For perhaps 10 years no dividends were paid, but the industry is now in a position to pay dividends. Will the Chancellor bear that in mind when he goes into the whole scheme?