DEFENCE [LOANS].

HC Deb 17 February 1937 vol 320 cc1205-318

Motion made, and Question proposed, That is is expedient— (1) to authorise the Treasury, during the five years ending on the thirty-first day of March, nineteen hundred and forty-two, to issue out of the Consolidated Fund sums not exceeding in the aggregate four hundred million pounds to be applied as appropriations in aid of the moneys provided by Parliament for the Navy, Army (including Royal Ordnance Factories) and Air services for those years: Provided that the amount so issued in respect of any service for any year shall not at any date exceed the aggregate of the amounts proposed to be so issued in respect of that service by the estimates upon which this House has, before that date, resolved to grant sums to His Majesty to defray expenses for that service for that year; (2) to authorise the Treasury, for the purpose of providing money for the issue of sums as aforesaid or for replacing sums so issued, to raise money in any manner in which they are authorised to raise money under and for the purposes of Sub-section (1) of Section One of the War Loan Act, 1919, and to provide that any securities created and issued accordingly shall be deemed for all purposes to have been created and issued under the said Sub-section (1); (3) to authorise the old Sinking Fund to be used in the said five years for providing money for the issue of sums as aforesaid instead of being issued to the National Debt Commissioners; (4) to provide for the repayment to the Exchequer, out of moneys provided by Parliament for the said services in such proportions as the Treasury may direct, of the sums issued as aforesaid with interest at the rate of three per cent. per annum as follows:—

1. (a) until the expiration of the said five years interest only shall be payable;
2. (b) thereafter the sums so issued shall be repaid, together with interest, by means of thirty equal annual instalments of principal and interest combined;

(5) to provide for the application of sums paid into the Exchequer under the last foregoing paragraph, so far as they represent principal, in redeeming or paying off debt, and, so far as they represent interest, in paying interest otherwise payable out of the permanent annual charge for the National Debt."—[Mr. Chamberlain.]

3.55 p.m.

The Chancellor of the Exchequer (Mr. Chamberlain)

When I announced a few weeks ago that it was the intention of the Government to introduce a Bill authorising them to raise £400,000,000 for purposes of Defence, the right hon. Gentleman the Leader of the Opposition said that this was a proposal unprecedented in time of peace. I am not disposed to disagree with the right hon. Gentleman about that. It is, of course, true that this will not be the first time that loans have been raised for the purpose of paying for Defence, and no doubt hon. Members will have in their minds the precedent of Naval and Military Works Acts, 1895 to 1905. I should be sorry to regard those Acts as a precedent for what we are doing now. The circumstances of the time are entirely different, and the amounts that were then raised were trifling, compared with what we are thinking of to-day. The whole borrowings of the Treasury under the Naval and Military Works Acts did not sum up altogether to £45,000,000. They were raised at a time when the Income Tax varied from 8d. to 1s. 3d. in the £; and in those happy days Super-tax had not been invented.

Looking back upon what has happened since, I think we must also say that the view which was taken when those Acts were passed that the expenditure on Defence for which they were intended to provide for something quite abnormal and exceptional, proved not to be borne out in practice. When they came to an end, the then Chancellor of the Exchequer, Mr. Asquith, summed up his view of the procedure in words which, I think, perhaps it might be useful if I were to read to the Committee, because they seem to me to set out very admirably the impressions made upon the mind of a statesman of great experience by the procedure that had been adopted, and the dangers which would be inevitable if this practice of raising money by loan for Defence expenditure were to become a permanent feature of our finance. Speaking on 30th April, 1906, in the Budget Statement, Mr. Asquith said: There must undoubtedly arise from time to time cases of charges which properly fall under the head of capital expenditure for which temporary borrowing is legitimate; but in the main I regard this as a most unhappy chapter in the history of our national finances; and, so far as the Army and Navy are concerned, my intention is at the earliest possible moment to bring it to a close. The system as it has been developed of recent years, has in my opinion, three fundamental vices. In the first place, it tends to confuse the distinction between capital and revenue charges. In the next place it inevitably encourages in the spending departments, crude, precipitant and wasteful experiments. And in the third place (and this is not the least important consideration) it draws large items of annual expenditure from any effective Parliamentary supervision. Of those three vices, as Mr. Asquith called them, the first, namely, the tendency towards confusion between capital and revenue, seems to me to be inevitable in any measure of the kind that we are now contemplating. Nevertheless, perhaps the Treasury may be trusted to preserve that distinction as far as is possible. As to the encouragement of a general tendency to spend extravagantly, it is that consideration which led me to say a week ago that it was never more necessary than now to preserve Treasury control in its traditional form. But as to the last, which was described as not the least important consideration, namely, that under the procedure then adopted Parliamentary control was withdrawn from expenditure—that fault at any rate we have been enabled to correct in the proposals which I am to describe to the Committee.

It will be seen then that I do not wish to found a justification of this proposal upon the precedents to which I have alluded. The real justification for a course which I admit and which I maintain is unprecedented, is to be found in the unprecedented conditions of the time—conditions which have led us to undertake this vast expenditure and have made it necessary to compress that expenditure within a comparatively short period of time.

On Thursday last the Leader of the Opposition, addressing my right hon. Friend the Prime Minister, put it to him that it would be impossible to discuss this Measure without being put in possession of the data on which the Government think it necessary to ask the House to consent to such an action. It seemed to the Government that that was a reasonable proposition. If the House or the Committee are to be asked to approve the raising of very considerable sums of money by loan, during the next few years, it is only reasonable that they should be informed as far as possible for what purpose those sums will be required and what is the sort of scale of expenditure which makes it necessary to consider raising anything by loan at all. Accordingly we have endeavoured in the White Paper that is now in the hands of hon. Members to give to them the information for which the right hon. Gentleman asked, and, without entering upon details which it might be dangerous to make public since they could not be confined to hon. Members, at any rate to give a sufficient story of the task that we have undertaken, to give hon. Members a fairly clear idea of its scope and variety.

I thought a week ago that when I came to mention the sum which we had in mind to ask for power to borrow, there were indications of a certain surprise among hon. Members opposite. I must say I do not quite understand why they should be surprised. They certainly could not have been surprised at the proposal to borrow, for I had made it clear in my Budget statement last year that even then that was my intention. The only thing, therefore, to which their indication of astonishment could be directed was the amount which we proposed to borrow. But if that be the cause which led to their surprise, then indeed there was a necessity for the present White Paper, for it must be clear that if they were surprised at the amount it could be only because they had not in the least realised up to now the formidable extent of the task which lay before the Government.

I suppose that, except for those who are bound to be giving constant attention to this matter and have been studying it in all its details, it really is extremely difficult to appreciate how vastly more costly is the equipment for warlike purposes of to-day than it was at the close of the Great War. In every country which has any armed forces at all, ever since 1918 experts and scientists have been working to try and devise new means of increasing the striking and offensive power of their forces. [HON. MEMBERS: "After 'a war to end war.'"] I am only relating the facts now; I am not commenting on them. Every hon. Member knows that every country has felt so little confidence that there would be no more war that it has been making every effort to increase its own striking powers. That has resulted in the invention and the development of new weapons, new means of trans- port, new devices, new equipment, and in many cases the provision of greatly increased quantities of these new weapons.

It must be remembered that, parallel with this tremendous effort directed to increase the power of offence, there has naturally been carried on an equally intense effort to find a counter to this offence. Every improvement in offence immediately calls up some corresponding development of defence. I hardly know which is the more expensive of the two, but I do know that a country like ours, with vast responsibilities in all parts of the world, with its multitudinous vulnerable points, cannot neglect either offence or defence. It is absolutely essential for us to equip ourselves at home and along the lines of communication with the newest methods of repelling attacks. We must provide forces which are capable of being despatched wherever they may be wanted. We cannot afford to allow our fighting forces to go into the field to meet others better armed than themselves.

The White Paper shows where and how the cost is going to be incurred, and whilst it does not provide details of cost (though these, of course, will in due time be provided in the Estimates which will be laid before the House) it does for the first time make an effort in public to estimate the order of the total expenditure on defence which we have to contemplate during the next five years. Let me say once again, although it has been repeated so often, that even this figure of £1,500,000,000 cannot be regarded as final or certain. If circumstances should change and allow us to slow down or reduce our programme, all the better; we shall be thankful enough to do it. On the other hand, as conditions have changed to our disadvantage since we first contemplated this programme, they may change again, and it may be that in the end we shall find that even £1,500,000,000 has not represented the total amount that this country has been compelled to spend in this respect.

In considering the Resolution which is before the Committee it seems to me that there are several questions which hon. Members will desire to have answered or to answer for themselves. Granted that what I am proposing is a grave departure from existing precedents, the first question which hon. Members opposite will ask will be, is this programme extravagant; is it unnecessary; is it inopportune? Other hon. Members in other parts of the House may ask a different series of questions. They may ask, is this programme so exiguous as to be inadequate; does it fail to meet the risks which everyone can see in front of us; ought we to have so contrived that it should be completed in a shorter time? Those are grave questions. They concern the safety of the country. Let me say that it seems to me that the Government which bears the responsibility for our safety, which has access to all kinds of information relevant to the consideration of this question—the Government alone can answer those questions, and the Government alone must in the long run be responsible for the results which must follow upon the answer that they give. But if the programme is to be condemned on the first count, if it is to be condemned as going too far, as being extravagant or premature, then we are entitled to demand that those who make that criticism should tell us wherein it is excessive; that they should tell us, in the light of the information given in the White Paper, what it is that they suggest ought to be cut out. Are we to cease to build capital ships? Are we to allow our fleets to meet fleets of other Powers which are now building ships of great tonnage and high gun-power to replace old capital ships—are we to meet those with old ships? Can we afford to drop that part of the programme witch contemplates the gradual replacement of these old ships by new ones? Can we halve our aeroplane programme, or cut it clown by a third? Can we say that it is unnecessary to pile up reserves of ammunition, so that, if our forces are to be again engaged in war, they should pass through the same tragic and bitter experiences as our forces did in the first months of the Great War? Are we to leave our towns here without protection against air raids? Are we to abandon forts and bases overseas? Hardly a day passes in this House but my right hon. Friend the Minister for Co-ordination of Defence is asked questions by anxious hon. Members who have thought of some precaution which they fear may have been overlooked, and which they desire to bring to his attention. I challenge the Opposition to name one single item of those which I have enumerated, or of those which are mentioned in the White Paper, which they can tell us they would, if they stood in our place, cut out from that programme.

Mr. A. Henderson

If the Opposition are to answer these questions, are we not entitled to know whether the Government, in assessing the strength of the armed forces of our country, are working on the assumption that we are fighting our own battles, or on the assumption that we form part of a system of collective security?

Mr. Chamberlain

I do not think that it would be in the public interest to set out a theory of whom we are going to fight, or who might be our allies in the event of our having to fight. Our programme is not directed against any particular Power or group of Powers, but it is the duty of the Government to put before the House the programme which they consider necessary for our safety and for the fulfilment of our obligations; and again I say that, if that is challenged, it is the duty of the Opposition to say in what respect they consider our programme extravagant.

The next question which I imagine hon. Members will wish to consider is this: Assuming that the programme is accepted, should the cost be met as we propose, partly from revenue and partly from a loan; or should it be met entirely from taxation? I had hoped that the right hon. Gentleman the Leader of the Opposition would have spoken on the subject this afternoon, in order that we might be edified by the spectacle of Satan rebuking sin; but I understand that he has delegated that office to the hon. Member for East Edinburgh (Mr. Pethick-Lawrence). He could not have made a better choice, for, if there is anybody among hon. and right hon. Gentlemen who sit on the Front Bench opposite who would, I am sure, go to the stake in defence of the interpretation which he puts upon his principles, it is the hon. Member for East Edinburgh.

Mr. MacLaren

That is different from the fellow behind you.

Mr. Chamberlain

I notice that the attitude of the Leader of the Opposition is not that of the fanatic who says that all expenditure must come out of taxation, but rather takes the form of a plaintive protest that it is too bad that the Government should get away with a proposal to raise £400,000,000 by loan when he himself and his friends got into sad trouble when they raised £100,000,000 for the purpose of keeping the Unemployment Fund solvent. I wonder that the right hon. Gentleman should bring up that particular incident, or should think that there is any analogy between what happened at that time and what we are proposing now. I have on my table a calendar which has a quotation for every day in the year, and, happening to cast my eye upon the quotation for to-day, it appeared to me singularly appropriate to the particular matter to which I have just alluded. It comes, quite unexpectedly so far as I am concerned, from Ellen Terry, a lady who at any rate knew a great deal about human nature. This is what it says: There is all the difference in the world between departure from recognised rules by one who has learned to obey them, and neglect of them from want of training, or want of skill, or want of understanding. Before you can be eccentric, you must know where the circle is. The trouble is that the party opposite did not know where the circle was. They had lost the confidence of the country, and they had lost it largely because of this borrowing on behalf of the Unemployment Insurance Fund.

Mr. Maxton

There was a very unscrupulous Opposition.

Mr. Chamberlain

They were borrowing, without any particular plan, for expenditure which was continuous and for the repayment of which they had made no provision. I may remind the hon. Gentleman who so triumphantly made that observation of something that was said by Miss Bondfield at the time. She said: If you came forward and wiped out the limit of borrowing powers at £40,000,000, and went on borrowing to £50,000,000 or £60,000,000"— I may remind hon. Members that it was £100,000,000 before they had finished— it would be a dishonest course, because it would be contracting a debt which you saw no possible way of paying off."—[OFFICIAL REPORT, 25th November, 1929; col. 1103, Vol.232.] In the proposals that we are making today we have elaborated in some detail our measures for paying off the debt. We can borrow £400,000,000 without loss of credit because, since we first took office, we have so reorganised the finances of the Unemployment Fund and of the country that they are now without parallel anywhere in the world.

Let us consider for a moment what is the alternative before us, and let us assume, at any rate for the moment, that £1,500,000,000 is the sum which has got to be expended over the next five years. That is an average of £300,000,000 a year. If we do raise £400,000,000 by loan and apply it to this purpose, that is an average of £80,000,000 a year. On these two assumptions, then, we should have to find out of revenue £220,000,000 for this purpose on the average each year during the next five years. This year the Estimates for defence, including Supplementary Estimates, come to £188,000,000. That means that, on the average and on these assumptions, £32,000,000 extra, above what we have done this year, will have to come out of the revenue. £32,000,000 is a substantial sum but if you are going to add to that another £80,000,000, if you are going to raise £112,000,000 a year out of new taxation or expanding revenue, then I say that you would be putting a burden on the country which would cripple our resources, and would in my opinion throw back the whole course of progress which is now so marked.

I assume that the Committee are going to answer that question, whether the cost ought to be met from taxation only, in the negative. There still remains another question, namely, whether the powers asked for provide for borrowing on an excessive scale. In the Budget statement which I made last year I sought to lay down in advance the general principles on which I thought we ought to proceed in this matter. I pointed out then to the House that the inevitable result of the enlargement of our forces, and of the various concomitants of enlarged forces, would be a permanent increase in the annual cost after the enlargement had come to an end. I said that, in my judgment, the whole of that increased cost ought to come out of revenue, and I added that some part of what might be called the capital expenditure ought also to come out of revenue, but that the actual amount could not be laid down in a hard and fast way, but must be determined from time to time in the light of the circumstances reigning when that decision had to be taken. Taking that as a general principle, and reckoning once again, for the purposes of argument, that the actual expenditure to be found during the next five years is £1,500,000,000, I do not think that it would be claimed that the amount of borrowing which I am proposing is excessive, considering that the taxpayer will still be bearing nearly three-quarters of the whole amount of the expenditure during that time.

Let me come to the machinery of the Resolution, and the way in which we are providing for the raising of this money. The first section of the Resolution authorises the Treasury to issue out of the Consolidated Fund sums not exceeding in the aggregate £400,000,000 during the period not exceeding five years, counting from 1st April, 1937. There follows a proviso, and the effect of the proviso is that no borrowed money can be spent on Defence in any year until Parliament has approved the relevant Estimates. That means, of course, that when the Estimates are presented to Parliament they will show, in the first place, the gross amount of the expenditure, secondly, the amount of the appropriations in aid from borrowed money, and, thirdly, the net total which will remain to be borne on the Vote; and that, of course, will apply to any Supplementary Estimates for Defence as well as to the original Estimate. I maintain that that procedure gives Parliament full control over the whole operations of financing our Defence expenditure for the next five years.

It is quite true that technically in Committee of Supply it is not possible to move to reduce the amount of the Appropriations-in-Aid, but in practice that does not in the least interfere with the control of the House, because the Committee of Supply can reject the net amount of the Estimate on the ground that they object to the amount of the Appropriations-in-Aid. Therefore, just as in the case of token Votes, they will keep complete control over the whole procedure.

Paragraph (2) authorises the Treasury to raise money in any manner in which they are authorised to raise it for the purposes of Sub-section (1) of Section 1 of the War Loan Act, 1919. In brief, the effect of that is to say that the Treasury may raise this money in any manner which seems to them best to meet the requirements of the particular time for which they raise it. They can raise it by Treasury Bills, and by various forms of loan, with or without a Sinking Fund, and with various other conditions attached.

Paragraph (3) provides that the old Sinking Fund may be used for Defence instead of for reduction of Debt. Hon. Members, of course, are aware that the old Sinking Fund, which is any achieved surplus on the Budget, automatically goes to the reduction of Debt; but except in very unusual circumstances it would be rather absurd to be utilising Budget surpluses to pay off debt at the same time that you are borrowing other money, and, therefore, the provision is made that the Treasury may apply any realised surplus to the service of the Defence Departments, and such surpluses would count as part of the £400,000,000. Finally, paragraphs (4) and (5) provide for interest and repayment, and it is laid down that during the borrowing period, that is, during the five years, interest only will be chargeable to the Defence Departments, but at the close of the five years, interest and Sinking Fund will be chargeable on their Votes in the form of equated annuities for 30 years.

Mr. Thorne

That is 30 times 21–600 odd millions.

Mr. Chamberlain

The hon. Member is illuminating, but a little distracting. I might, perhaps, mention that neither the rate of interest of 3 per cent., which is the rate charged on the Defence Departments, nor the term of years have any relation to the term or the rate of interest at which the Treasury will raise the money. This is merely a book-keeping entry between the Departments. The Treasury borrowings will be part of their borrowings for general purposes. They will raise money from time to time in whatever way seems most economical, but you must have a round figure of interest to be charged to the Departments, and we have considered that 3 per cent. is appropriate for that purpose. That is really all that I need say at this stage about the machinery.

Sir Austen Chamberlain

Will my right hon. Friend say whether he means us to understand that the 30-year period is also inter-Departmental?

Mr. Chamberlain

Yes. The terms of the loans raised by the Treasury have no relation whatever to the 30 years. They may be for different maturities and different times according as it seems convenient at the moment. I understand that the Opposition wish to raise a number of points upon the financial proposals or the financial aspect of these proposals in the course of the afternoon, and that they would desire to have a reply to those criticisms or those questions later in the evening. I shall be very happy to listen to the Debate and do my best to reply to anything that needs reply at the close of the proceedings this evening.

I want to say one or two words in conclusion. On the occasion to which I have already alluded the right hon. Gentleman the Leader of the Opposition said that this was essentially a war measure. I took him to mean by that that the scale of the proposals was such as to put it into the same class as measures which were found necessary during the Great War. But if he meant anything more than that, if he really sought to convey that this Measure was a Measure which was likely to lead to war, I deeply regret that he should have given utterance to any such sentiment. I regret it, because it is fundamentally untrue. It is the very opposite of the truth; on the contrary, this is a Measure for the preservation of peace. [Interruption.] This only confirms the suspicion which I have always entertained that many hon. Members opposite, while paying lip-service to the necessity for having some armaments, are really wholehearted pacifists and do not want any armaments at all. But to leave this country with all its wealth, all its territory and all its trade connections, inherited or acquired, unarmed and helpless, in face of a world which is armed from top to toe, would be to provide a standing temptation to a possible aggressor which some day might prove to be irresistible.

Everybody knows that the British Empire stands for peace, and that it never will use its Forces for aggressive purposes. On the contrary, it will exert all its influence to preserve peace not only for itself, but for others as well. We know from our own experience that our influence waxes and wanes in proportion to our strength. The strength that we are now rapidly gaining from day to day and from week to week is in itself a steadying factor in international affairs, and probably the greatest bulwark for peace that exists in the world to-day. Holding these views, convinced as we are that this great programme is essential for our own safety and a major factor in the safety of other nations, it would be impossible for us to shrink from meeting it.

No one, least of all the Chancellor of the Exchequer, can see this growing accumulation of burdens without a feeling of disgust and shame that civilisation is trying to break its own back instead of trying to settle its differences by give-and-take, and turning its energies to the pursuits which might bring prosperity and contentment to all. For the time being at least, we can do nothing but set our teeth and go forward with measures which we cannot afford to lay aside. Peace, political appeasement, disarmament are not attainable by any one Power alone, but whenever and wherever we can find others who share our views, we shall rejoice in their company to seek to find a more fruitful, a saner and a worthier solution.

4.46 p.m.

Mr. Pethick-Lawrence

The immediate purpose of this Money Resolution is to authorise a loan of £400,000,000 for armaments spread over the next five years. This is, as the Chancellor himself admitted, a financial proposal which, in time of peace, is unprecedented and of such a startling character that it will call forth from us, as I warned him after he made his Budget speech last year, a direct challenge in opposition to his proposal. I hope to make abundantly clear why we regard this innovation in the finances of the country as wholly improper, fraught as we believe it to be with grave and dangerous consequences to the well-being of our people. But, though the financial issue is the immediate purpose of this Resolution, quite clearly finances cannot be considered in vacuo, unrelated to the still large issues of public policy that are involved. The Chancellor of the Exchequer, both at the beginning and at the end of his speech, devoted himself to that wider theme. Broadly speaking, his defence of the innovation was that the finance was unprecedented, because it had to deal with an unprecedented situation. In order to understand the position I will begin with the White Paper. The Opposition asked for this White Paper in order to ascertain what was the policy of the Government with regard to rearmament. It was not merely our right to ask, but our duty to obtain this information for the enlightenment of the people of this country. The Chancellor of the Exchequer has not in any way suggested otherwise to-day.

We, in this House, and the people of the country, have a right to know certain things. We have a right to know what general principles of international policy underlie the rearmament proposals, and we have a right to know on what general principles of co-ordination of defence the expenditure which the Government contemplate is to be incurred. I would have the right hon. Gentleman and the Committee note that we did not ask, and the people of the country have no desire to be made public, those details of strategic defence which it may be contrary to public interest to disclose, but those details are quite different from the principles of policy about which the democracy and its representatives are entitled to be informed. In response to our request the Government have given us this White Paper. I wish to use words of studied moderation, but I can only describe its contents as a tragic farce. I say without fear of contradiction that there is not a Member of the House, whether he sits with us or on the benches opposite or on the Liberal benches below the Gangway, who has kept himself well informed on the progress of defence and has read the speeches of the Chancellor of the Exchequer and the White Paper of last year, to whom this White Paper which was given us yesterday brings, except in one particular, any essential new fact.

I make no claim whatever to be an expert in military or naval matters, but I honestly believe I could have written practically every word of that White Paper with the solitary exception of the matter relating to the new ships that are to be laid down in the current year. I do not find a single new fact or a single description of policy which, from my knowledge of what the Government have previously said, I could not have put down on paper and published myself. Even with regard to the additional ships that are to be laid down in the current year I think with a little imagination and conjecture I could have guessed at the proposals that we have before us. It can all be summed up by, "The Government want more of everything—more ships, more men, more planes, more guns, more munitions and more factories." [Interruption.] That is all right, then, we are agreed upon it.

But what is left out? That is what I want to bring to the attention of the Committee. There is not a hint of direction, there is not a hint of co-ordination and not a hint of real planning of defence as a whole or of the civil population in particular. Still less is there any suggestion of correlating this vast, amorphous mass of expansion to any clear conception of international policy. There is not a single word about the League of Nations, not a single word about collective security, no suggestion of any kind that the defences of this great Empire are affected for better or for worse, by the fact that the League of Nations exists, and that the Government are pledged up to the hilt to the electorate to respect the conception of collective security. I listened to the Chancellor with very great attention to discover whether he would give us any enlightenment on these questions. We have had no additional illumination of any kind. To paraphrase the words that he used about an hon. Friend behind me, there was no illumination and no enlightenment, nothing but expansion of the facts that are in the White Paper itself. He told us that new weapons were being forged, new means of transport, new devices, and that we should require to meet them with correspondingly new methods of defence. He emphasised the fact, I suppose for the benefit of some of his recalcitrant back benchers, that there was nothing final about the figure of total expenditure on rearmament during the next five years. He told us that there would be full control by the House, but, as I pointed out last year, that control is purely illusory. Control consists in giving the House information of the programme that is proceeding. It does not consist in merely telling the House how much expenditure on the programme is going to be used up in any particular year, and that is all that we shall get.

This information is the total amount that will be afforded us in order to judge. not the immediate strategy of the Government, but the policy that lies behind these proposals, and that is what the House and democracy are entitled to know. In other words, what the Government say is, "Give us the money and we will do the rest." I think the Chancellor himself said the Government only can be the judge—"We are in a position to know, and you must leave the Government a free hand to get on with the job." So we are really back with the old slogan of 1935—"You can trust me" I ask, in view of the experience of the 15 months that have elapsed since the General Election, whether that slogan has the same potency that it had in November, 1935. Why should we, why should the country, to-day trust the Government? Everyone knows now that that trust was misplaced, and we have that on the authority not of Members on this side, not of Members of the Liberal party, not of some of the back benchers or the colleagues of the Prime Minister, but from no less a fountain source than the Prime Minister himself. In that speech of devastating candour that he made in November last, he told us quite deliberately that the pledges that were given at the last General Election were given with his tongue in his cheek, and that he had realised that the democracy had to be cajoled into the policy which he thought it necessary to pursue.

I remember a friend of mine whose promises were frequently dishonoured, and I said to him on one occasion, "I wonder how you can sleep at night for the lies you tell." His answer was characteristic; he was Irish, and he said, "They were not lies when I told them, I meant to keep my promises when I made them, and it was an accident that I was unable to do so." Here is a case of promises made of loyal adherence to the League of Nations and collective security, and of refusal to take part in a great armaments race. I have the words actually used, but I do not wish to take up the time of the Committee; they are familiar to all hon. Members. At the time those words were being uttered, if I understand the speech made in November aright, they were made with the intention of being broken if necessary.

But the past is past, and I put this question frankly to the Government: What is the reason why they should not reveal to-day to the country something of the underlying policy on which their programme rests? Is not the country entitled to know? Is it not the country that ultimately will have to bear, first, the financial burden which the Government are imposing, and later the consequences, good or bad, which this policy will bring about? We are entitled to know, the country is entitled to know, and the Government are acting unconstitutionally in a democratic country in failing to give information of the general line of policy which they have in mind. I am not asking for detailed strategy which might be of use to the enemy, but for broad outlines of policy.

I have come to the conclusion that there is one reason, which is good to the Prime Minister, why they are unwilling or unable to give us the main outlines of their policy. The simple answer is that they do not themselves know because they are disagreed upon the point. They are divided on this as they have been divided on large numbers of other questions in the past. Some of them are thinking in terms of the old opposition to Bolshevism, some are thinking in terms of Germany, some are desperately anxious to have Mussolini on their side. Some of them recognise that collective security is the only hope for world peace, but they are not strong enough to get their point of view accepted by the Cabinet. Some of them are for straffing the League of Nations and returning to the glorious isolation of the British Empire, regardless of the fact that the British Empire standing alone under modern conditions is extremely vulnerable, as the Chancelor himself has admitted. Some are for the Navy above everything else, some for the Army, some for the Air Force, some must have an Army—and the White Paper suggests it but does not say so—capable of being transported and equipped for Continental service on a large scale.

The complacent Minister for the Co-ordination of Defence says, "Well, let them all have a bit of their own way." The Prime Minister, wanting peace in his lime in his party, prefers to make no decision but to go back, not merely to the slogan of 1935 but to that of 1931, "the doctor's mandate" and "the agreement to differ." I remember something of that doctor's mandate. It included a promise to make an inquiry into the fiscal system, but the promise was not honoured after the Election. It took in some of our colleagues on the Liberal benches, and it took in my noble friend Lord Snowden, who was in consequence loyal to his new allies for the duration of the Election. But to-day we are not dealing with matters of merely internal significance, important as they were. We are dealing with the vital issues of peace and war, and while the Government havers and has no clear policy internationally or in the co-ordination of defence, the ship of State drifts ever nearer to the limitless calamity of another war. I will not develop that side of the case further because other right hon. and hon. Members who have more intimate knowledge of it than I have will deal with it in later stages of the Debate.

I pass from that to the smaller issue which forms the immediate subject under discussion. The question narrows itself down on the financial side to this—if the Government are to be given a free hand to spend £1,500,000,000 on rearmament during the next five years, how is the money to be found? Shall it be met out of revenue, or shall we be asked to find a substantial proportion of it by a war loan in time of peace? That is the answer to the criticism the right hon. Gentleman made of the Leader of the Opposition. There is no doubt that it is a war loan in time of peace. As I understand the Chancellor of the Exchequer, he defends his policy under two heads. In the first place he says a great proportion of the £1,500,000,000 is non-recurring expenditure, and therefore it is reasonable that it should be met by raising money through a loan. In the second place he says that the country cannot reasonably bear the whole of this burden at the time, and it is right and proper to make posterity pay part of it. He said, I think, "To pay for it out of revenue would throw a burden on the country which would cripple its resources and throw back the progress it is now making."

I am exceedingly sceptical of the first contention that a large part of this expenditure is to be of a non-recurring character, but whether I am justified or riot in that view I am certain that the second contention rests on a complete fallacy. On the question of non-recurrent expenditure, there is no direct connection between non-recurrent and capital expenditure. The Chancellor of the Exchequer made no attempt to relate them to one another, and there has been no attempt made by him or in the White Paper to relate either to the £400,000,000 which we are asked to find by way of loan. In regard to the question of capital expenditure, there is no proposal in this White Paper to buy out the armament firms and to transfer their profits to the State. In one sense that would be capital expenditure which would have a certain amount of reason. There may be proposals for building factories, but they come into a different category.

At the end of the five years where shall we be? We shall have built a number of ships, constructed a number of aeroplanes and made a number of guns. Does the Chancellor of the Exchequer seriously suggest that when we come to the end of these five years the Service Ministers will say, "Thank you very much, we will not ask for any more ships or guns or aeroplanes for a little while because we are amply satisfied with the return to the normal pre-construction period"? I do not believe it, and I can hardly imagine that the Chancellor does so either. It is the experience of history that when the Forces have grown, and have added ship to ship and gun to gun, the appetite grows by what it feeds on, and so far from being able to retrench it is likely that we shall find the bill in five years' time not less but greater than the bill at any time during the five-year period. There are a large number of considerations that point to that.

During the last two or three years there has been a substantial rise in prices. I have figures for the wholesale price level for 1935 and 1936 and at the end of 1936. In 1935 it was 98; at the end of June, 1936, it was 95; now it is 109. These are the wholesale prices given in the "Economist" on 9th January. There is an increase between the end of June last year and the end of December of 14 points. I do not need to press precise figures. The Chancellor knows perfectly well that during the last 12 months or thereabouts wholesale prices have begun to rise considerably. I shall proceed to show that the effect of the Chancellor's proposals will be very much to increase the velocity with which prices will rise. But suppose that the Chancellor disregards that view, does he seriously suggest that the velocity of the rise in prices is likely to be checked? I cannot imagine that he will take that view. He must anticipate that in the course of the next five years, with all this enormous armaments programme, not only in armaments but in everything else there will be a very great rise in prices. Therefore, when the five years are over, on his own showing, he will find that so far from his being able to come down substantially from the peak he has spoken about he will stay up there, and his bill will be much greater than he anticipates. That is my view, although the Chancellor of the Exchequer may differ from it.

On the second point I think that I stand on still firmer ground. The Chancellor of the Exchequer has enunciated the theory that you can postpone the burden which the reconstruction of armaments forces on the nation, and that if you were not to postpone it you would be throwing a burden on the country which would cripple its resources. That is contrary to what is stated by all those best qualified to judge with regard to facts of this character, and it is contrary to common sense. The idea that you can postpone the burden of armaments undertaken inside a country merely by a financial operation, is absolutely devoid of foundation. Take an example. You want to make shells, and men are taken off making other things in order to make the shells. You want to make armoured cars. The men who have to make those cars are taken off the making of private motor cars. You want to make guns, and so on. All these people have to be taken away from their work at the time, because you cannot make the guns, the shells, the ships, the munitions that you want to-day, five years hence. They have to be made to-day, and you have to divert the productive capacity of the country today, at this time, from work on things that would be used for other purposes. Anyone who has taken notice of what has been written during the last few decades, beginning with the War, knows that that is a fact, and inescapable.

If you can float a foreign loan and say to another country: "Make these munitions, these ships, these guns, and we will pay you over a period of 30 years," you can escape the burden at the moment and postpone it to posterity. Or again if it were true that there was a large balance of unemployed capital and labour in the direct line of work which could be called into action by the financial procedure of the Chancellor of the Exchequer, it still would not be true that you postpone the burden to posterity, but it would be true that the particular financial action would make it possible to do things without suffering loss.

Mr. Chamberlain

Will the hon. Member explain why, if we had a foreign loan instead of a loan raised at home, that would avoid the difficulty which he foresees of men making guns and so diverting their labour from the making of other things?

Mr. Pethick-Lawrence

There is no difficulty. It is perfectly clear. It is the same as it is for private individuals. If I borrow money from somebody and set them to work and they agree to work, as a result of the money that I borrow, I can continue my existing activities, and if I promised to pay back in two or three years time the burden would not fall upon me at the time but in the future. In precisely the same way, suppose that the United Kingdom went to America, as they did do in the War, and said: "We want so many guns and ships, will you make them?" That at the time would not divert the labour of the people of this country from their other avocations but would enable them to throw on to posterity the burden of meeting that debt. If it is an internal loan it has only one effect. The same men, the same capital, the same machinery and the same plant will be used for making the ships, guns, munitions, clothes, or whatever the things may be, in this country, whether you borrow the money or find it out of taxation. Therefore, there is no substance in the Chancellor of the Exchequer's argument that to raise the money out of taxation would cripple the resources of the country, while to raise it out of loan would enable us to save the resources of the country and not to cripple the country at the time. The only difference is one between internal distribution. If the loan is paid for out of the income of the people, and they forego other expenditure that would otherwise be incurred, it would make very little difference, but if, as is nearly always the case when a loan is raised, it were paid for out of capital, probably by bank money to a very large extent, it would have only one effect, and that would be inflation.

That being so, let us see what is going to happen. I will take three possibilities that may arise in the course of the next few years. The first possibility is that while this programme is in operation we shall meet the terrible calamity of war. I hope, with the Chancellor of the Exchequer, that I and others shall say nothing to bring that calamity nearer. We cannot wholly shut our eyes to the possibility that that tragedy may happen in the middle of this programme. If that takes place, which is the better, that we shall have placed the burden of preparation for it out of revenue and start as far as that is concerned with a clean slate, with our financial head unbowed, or shall we be better off if we enter into the war burdened already before the war has begun with a great war debt? I do not believe that the Committee can hesitate between those two alternatives, and I hope that it is not necessary for me to say any more on that subject. Suppose that calamity is mercifully avoided and that the expenditure does not happen with a war, what are we going to do at the end of the five years? Are we going to borrow another £400,000,000 for the next five years, or are we then, at long last, going to pay for the expenditure on armaments out of taxation? Shall we be better off because we have borrowed the first £400,000,000? Every one in the Committee knows that we shall be worse off and that our position in consequence of the proposals of the Chancellor of the Exchequer will be such that nearly everyone will regret that that course was taken.

Let us take the Chancellor of the Exchequer's assumption that at the end of the five years, the peak having been passed somewhere during the five-year period, expenditure falls. What are we going to have then? We are going to have a catastrophic slump. Anyone who has read any of the literature on the question of booms and slumps and has thought intelligently about it knows that that is a fact. There is almost unanimous economic opinion on that question and it is in opposition to the Chancellor of the Exchequer's proposals, on this ground, that it may be wise, whether it be in accordance with orthodox traditions or not, in a slump to borrow money and pump new purchasing power into the community, enabling it to keep itself afloat, but it is thoroughly bad to un- balance the Budget at a period when a boom is shortly coming, because that accentuates the boom and accentuates the slump which is to follow.

I presume that the Chancellor of the Exchequer has had brought before him the facts that underlie that wide concensus of opinion, and that therefore in what he proposes he is sinning against the light. He contrasted, in his opinion, favourably to himself and the Government, the debt which he is intending to create with what happened in 1931. He must be relying upon the ignorance of the Committee on economic matters. [Laughter.] Hon. Members may laugh, but if they laugh not merely out of courtesy to the Chancellor of the Exchequer, they laugh with their tongues in their cheeks. The wealth of historic facts connected with the recovery of Sweden, the United States and other countries bears out the point that I am making. The Chancellor of the Exchequer endeavoured to get a cheap score about 1931 and talked about the policy of borrowing for unemployment. He knows perfectly well that it was not the party on this side but his own party that started borrowing for unemployment. I am prepared at the proper time to go into all the facts. The main fact that is indisputable is that to unbalance the Budget in a time of slump may be unorthodox and undesirable in other ways, but it has certain merits in attempting to recover from the slump, but if you unbalance the Budget deliberately, as the right hon. Gentleman proposes to do, in a time of coming boom, it is a most dangerous course and will probably bring most dire consequences when the crest of the boom has passed.

I should like to quote what Mr. Beckett, chairman of the Westminster Bank said at the annual meeting: Our country is still one of the very few which manages to balance income and expenditure, and this situation is of such fundamental importance, both for our own self-esteem and as a visible sign to the outside world of our determination to be rooted in stability, that we must again be prepared for sacrifice. So far as it is possible, therefore, the bill for armaments should be met out of current revenue. We must be prepared to face heavier taxation, with this consolation—that the country is in a far better position now to bear an added burden than it has been for a number of years past. Then Mr. H. G. Henderson, the well-known economist, writing in "The Economist" says: I think it is fundamental that extraordinary Government expenditure should be met out of taxes rather than loan. We should tax ourselves to the hone rather than risk further credit inflation. Further, on 5th December "The Economist" said: One important inference from it is that the non-recurrent volume of rearmament is no justification whatever for a loan Budget. If the Committee will bear with me I will read one further extract from the same newspaper of 23rd January: The point may be sharpened by a contrast with the Public Works Loan which was urged on the Chancellor of the Exchequer some three or four years ago. A loan at that time would not have been inflationary for there were idle savings. It could then have been used for works which would have enriched the nation, not for armaments. Nevertheless, the self-same Government and the self-same Chancellor who refused, in the name of orthodox finance, to raise a loan three years ago when it was economically sound and could have been usefully employed, are now proposing deliberately to intensify the oscillations of the trade cycle in order to raise money far the sterile purposes of war.

Mr. Chamberlain

Is that from the "News-Chronicle"?

Mr. Pethick-Lawrence

No. "The Economist."

Mr. Chamberlain

The same editor.

Mr. Pethick-Lawrence

I do not think so. It may be the same control, but "The Economist," which is read by hon. Members in all parts of the House, is not tied to any party, and I suggest that the article written by the editor of "The Economist" is worthy of consideration by the Committee. Let me come to the point of my remarks as to the financial aspects of this loan. It is rank inflation. Monetary terms of that kind mean nothing to many people unless they are translated into concrete facts. What is the meaning of inflation? It means that when the resources of, the country are becoming used to the full, as they are at the present time, with the exception of the depressed areas, then to pump additional purchasing power into the country, causes the Government to compete with individuals for capital goods. The raising of a loan would bring additional money into the market whereby the price of things would be forced up. The effect of raising a loan is to place a tax—it is every bit a tax although it is disguised in this way—on large numbers of people. And those who have studied this question know that such a tax falls largely on the wrong people. If you deliberately impose a tax you can impose it on the specific classes whom you wish to tax, but inflation is a disguised tax which falls upon people according to no preconceived plan whatever.

I will tell you the people who will suffer first; they are the old age pensioners, the unemployed, and others with fixed incomes. Other people if they do not escape altogether will pay only a small part. But that is not all that happens when you have inflation. First of all you pay once through increased prices, and when you have paid in that way you pay a second time to certain individuals, who because of the vast profits they have made during the inflationary period are able to exact their toll from the bulk of the people. If the burden is met out of taxation these consequences do not arise. The Chancellor of the Exchequer says, "Here is this vast sum of money, £80,000,000, and already we have spent about £30,000,000. Do you mean to say that it can be imposed upon the Budget without crippling the resources of the country"? Certainly it can. He knows, and anyone who has studied the finances knows, that there is going to be a considerable increase of buoyancy in the revenue.

The Chancellor never forestalls his Budget; I should be exceedingly foolish to attempt to do so; but we all know that there is a great buoyancy in the revenue and it is exceedingly probable that the Chancellor of the Exchequer will take this into account in the course of the next financial year. The Chancellor of the Exchequer is expected to put 3d. on the Income Tax, and he may add a little more if he thinks it desirable. With this buoyancy in the revenue, and proper additions to direct taxation of all kinds, there is no insuperable difficulty whatever in meeting this bill. Of course, it would be a hardship. I do not say, "Never mind putting something on the Income Tax," but what I do say is that if there is this underlying necessity for the life and safety of the country these burdens can perfectly well be borne out of taxation. There will be this advantage, that when it is all over there will be no increase in the Debt. It would not be reduced, that is true, but there would be no further increase of the enormous sum at which it now stands.

There are three aggravations of the policy that the Chancellor of the Exchequer is adumbrating, which arise from the general policy of the Government. The first of these is the treatment by the Government of the Special Areas. So far as the ordinary areas of the country are concerned there is already beginning a complete absorption of capital and labour. We have been told that there is a shortage of steel and of bricks, a shortage of bricklayers, and what is already existing in certain industries is gradually spreading through the ordinary parts of the country. But by their woeful nelect there exist at the same time these terrible stagnant pools of unemployment in other parts of the country, and the failure of the Government to bring these into the general apparatus of production means that we still have immense unemployment when a boom is recognised to be close upon us. In that connection I want to stress that the attitude of the Government towards the problem in Jarrow has been simply criminal. The proposal for steel works at Jarrow was turned down by the iron and steel interests because they said there was enough iron and steel being produced and that we did not want any more.

The Chairman

I think the hon. Member is now getting a little wide of the Resolution. I do not think he can discuss the Jarrow incident.

Mr. Pethick-Lawrence

I bow to your Ruling, but I was not going to deal with it further. I was merely explaining, trying to show, that the state of the country is one of approaching boom, and that it is because of this boom that the policy of the Chancellor of the Exchequer is entirely wrong. I think I am entitled, merely in passing, to answer a possible objection and say that the country could not be in a state of boom because there are pools of unemployment. I will content myself by saying that these stagnant pools of unemployment which the Government have failed to bring into the apparatus of production are due to their fault.

The Chairman

I am entitled to say that what the hon. Member has just repeated was not out of order in the least degree, and I did not stop him while he was saying that. I stopped him when he came to deal with a certain definite proposal with regard to a particular project, and I wanted to keep the Debate from going outside the limits of what is relevant to this Resolution.

Mr. Pethick-Lawrence

I had no intention of transgressing the Rules of Order. I had finished, and I only wanted to make a passing remark.

Mr. Attlee

On the point of Order. There is a whole section in the White Paper dealing with supplies of all kinds, our industrial resources, the allocation and creation of new sources of supply, and I submit that a reference to certain matters, even to individual cases, may be essential in discussing this matter. For instance, there is the question of the allocation of aeroplane factories. We have had an outstanding example recently where an aeroplane factory was proposed to be placed in one district but has been shifted. Now we are to have 75. Surely, we must be allowed to refer to the Government expenditure on factories and to their plans? I submit it involves the whole question of war materials, steel, aeroplanes, factories and so on.

The Chairman

The right hon. Gentleman has confirmed what I said in my explanation just now. It does not alter the fact that the hon. Member was going beyond the limit which the right hon. Gentleman has himself explained to the Committee; and that is the reason why I stopped him.

Mr. Pethick-Lawrence

The second aggravation is that the Government continue to pursue their policy of restricting imports at a time when we are approaching a boom period and when they are proposing to inflate. I will quote from an article in the "Times" newspaper which was written with reference not to this country but to another country, but which I venture to think is applicable here. The article reads: It has become increasingly clear that prices are rising rapidly in France not solely on account of expensive social legislation, but because French industry is at the moment incapable of meeting all the demands made upon it by the rearmament programmes and by the general expansion of commercial activity. In these conditions, to exclude foreign goods is no longer to do a service either to manufacturers or to the community as a whole. By keeping supply short of demand it encourages a rise of prices which may eventually nullify the increase in purchasing power on which the Government rely for national recovery. I venture to commend that to the Government, and if they are going to introduce inflationary measures, I would ask them not to keep out foreign goods to the extent they have done in the past.

The third aggravation is that of armaments profits. The Government appointed a commission, and they were delighted that that commission did not recommend the taking over by the Government of the private manufacture of arms. But if the Government have accepted with pleasure the decision of the Commission on that point, they have utterly failed to implement either their own promises or the recommendation of the Commission that there should be a very strict limitation of profits. The Commission was very emphatic that it was not enough merely to have a certain amount of departmental costings and control over the armaments industry, but that there should be something much more rigid and embracing. It had to be something which not merely existed, but which they would be able to show to the public did exist. As far as I know, and as far as the House has been informed, the Government have done nothing of any substance in that matter. They may have some control which they consider to be adequate, but I am bound to say that I do not know of it. I have had prepared some information which shows what the armaments firms at any rate expect will be their increase in profits. I have the facts with regard to the increase in the prices of the shares of the armaments firms since the General Election. I do not intend to refer to all of them, but they show increases varying from a 35 per cent. increase in price to a 269 per cent. increase in price. I will give the figures for what I believe to be the leading armaments firms.

John Brown's 6s. ordinary shares stood at 19s. 3d. in November, 1935, and now stand at 40s., an increase of no less than 108 per cent. Cammell Laird's 5s. ordinary shares stood at 7s. 6d. in November, 1935, and to-day stand at 16s., an increase of 113 per cent. Hadfields' 10s. ordinary shares stood at 18s. 6d. in November, 1035, and to-day stand at 40s. 6d., an increase of 119 per cent. Vickers' 6s. 8d. ordinary shares, which stood at 19s. 9d. in November, 1935, stand at 37s. to-day, an increase of 87 per cent. I do not wish to be unfair or to state the facts incorrectly in any way. I do not say those increases have arisen owing to the loans proposal; I am merely contrasting the prices before the Government came into office after the General Election with the prices to-day. The whole policy of the Government has affected them, and it is clear that those firms do not expect the limitation of profits to be very drastic. Probably they know pretty well how much the Government will do in that matter.

I have occupied a considerable time, but this is a very important matter. I will only say, in conclusion, that my hon. and right hon. Friends on these benches will go into the Division Lobby against this Money Resolution. We shall do so for two reasons. In the first place, we shall oppose the Resolution because neither the White Paper nor the Chancellor has disclosed any relation between this proposal and foreign policy; nor is there any sign of that co-ordination of the different parts of Defence which is essential for efficiency in safeguarding this country against a foreign foe. In the second place, we shall oppose the Resolution because it adopts the time-honoured way of placing the burden upon the wrong shoulders. Instead of placing it upon the broadest backs and choosing a method of doing so by appropriate taxation, it is being placed on the backs of the poorest people. By inflation, the Government are creating a disguised tax which, at the time, falls upon the backs least able to bear it, and when the period is over leaves the people of this country indebted for years to come to individuals, thereby creating a state of instability in the country which I and my hon. and right hon. Friends hold to be of the gravest danger to the community.

5.52 p.m.

Sir Archibald Sinclair

It seems to me that there are three main issues involved in this Debate, and as we shall be able to cast only one vote, it is all the more incumbent upon us who are fortunate enough to catch your eye, Sir Dennis, to make our position clear on each of these three issues. I listened with great interest to the speech which the hon. Member for East Edinburgh (Mr. Pethick-Lawrence) has just delivered. It was a speech such as we have learned to expect from him, with his great erudition and his mastery of financial subjects; but there was one issue—and it seems to me to be a central issue—with which he did not deal, and which we must face. I would define it thus: Are we, in all the political and economic circumstances of the time, willing to assume, as Members of the House, our share of the responsibility for large expenditure upon armaments, or do we repudiate that responsibility, and are we prepared to oppose this expenditure root and branch? Those of us who, on the one hand, understand the provocation offered to Germany by the refusal of the Allied Powers to disarm while Germany was still a democratic and peaceful country, and those of us who, on the other hand, realise the disturbing effect of vast unproductive expenditure on the economic and social fabric of the country and the degree to which the vacillating foreign policy and Imperialist economic policy of the present Government have aggravated the international situation, have a difficult decision to make.

Nevertheless, we have to take and judge the situation as we find it now. More money is being spent on armaments by the great Powers of the world in a single year than was spent by the same Powers in five or six years before the War. There is no need to condemn Germany. The moral responsibility may well be attributed by historians of the future to the post-war Governments of this country and France, but the fact remains that it is the dictatorship countries—Germany, Italy and Japan—which are now setting the pace in this race. In China, in Abyssinia and in Spain they are defying the League of Nations and dishonouring their signatures to the Kellogg Pact. If we are resolved not only to defend our own territory against such ruthless attacks, but to establish lasting peace on the basis of law, buttressed by collective security, we cannot afford to allow the dictatorship countries to grow relatively more powerful, and we must be prepared to contribute in proportion to our wealth and resources to that system of collective security which alone will enable the peace-loving Powers to dispose of a force so invincible as to be an effective deterrent against aggression.

There are four great differences between our strategic situation and the situation of a generation ago. First, we are no longer strategically an island. John Bright could boast, There is no causeway to Britain; the free waves of the sea flow night and day for ever round her shores. But now there is a causeway, through the air. Secondly, there is the growth of a new military conception rendered possible on the one hand by scientific, mechanical and industrial developments, and facilitated on the other hand by the new technique of dictatorship, and that is the conception of a whole nation, men and women, finance and industry, organised in peace time so as to develop its maximum war potential almost at the outbreak of war and to sustain the conflict to the full extent of its resources. Thirdly, a natural development of this conception and of such weapons as aeroplanes and mechanised forces is the knock-out blow. No longer can any nation hope for a year or two, or a few months, or even weeks, in which to develop its defensive measures. Lastly, there is the formidable fact of the emergence of this new technique of dictatorship, master of the whole life of the country and of all the means of moulding and expressing opinion, tolerating no opposition, working in secret, recognising no law but its own interests, and controlling forces of such destructive power as no dictator in history ever dreamed of.

It was for these reasons that my hon. Friends and I voted for the armaments Estimates last year. It will indeed be the duty of all of us, especially at a time of mounting expenditure, to scrutinise these Estimates searchingly and critically, but this year, as last year, we shall support any armament measure, the necessity for which may be proved. Therefore, my answer to the first question is that the policy of the dictatorship countries has made large expenditure on rearmament in this country an evil and dangerous but inescapable necessity.

But that is not the only question, nor is it perhaps the question which is most strictly relevant to this Debate. The Government are asking us for authority to expend on armaments out of revenue and loaned money no less than £1,500,000,000 in the next five years. My next question, therefore, is: Are we justified in giving the Government so great a measure of our confidence? The Chancellor of the Exchequer referred to those on one side of the House who would ask was the programme too large and said he would find, on the other side of the House, hon. Members who would declare that it was not adequate. Those hon. Members have not yet had an opportunity of speaking and we shall, of course, listen with interest to their contributions to the Debate. But, £1,500,000,000! What does it mean? Even £1,000,000 is not too easy to envisage. We know it means work for 4,000 or 5,000 men for a year. It is the livelihood of 4,000 or 5,000 families for a year. What else it means must depend, of course, on the objects for which it is spent. But add a nought to it and make it £10,000,000 or add another nought and make it £100,000,000 or make it £1,000,000,000. Very few people have any conception of the difference which the addition of a nought or two makes, of what is involved in the national effort and strain upon our financial and social system caused by expenditure on this scale.

I cannot help wondering whether those Members who, if they contribute to the Debate, are going to take the line indicated by the Chancellor, realise that the armaments expenditure of this country over the next five years, leaving out Sundays, will be at the rate of £1,000,000 a day. Imagine spending £1,000,000 a day, in peace time, on armaments. Let us compare the cost of this programme with the cost of previous armament programmes not in peace time, because, of course, there is no available standard of comparison for that, but in war time. The great father of the right hon. Gentleman the Chancellor of the Exchequer speaking at Birmingham in May, 1902, estimated the whole cost of the Boer War at £228,000,000. Now we are proposing an armaments expenditure in five years in peace time of seven times the total cost of the Boer War. We are proposing to raise £400,000,000, nearly double the cost of the Boer War, by loan before a shot has been fired.

Let me give another illustration of the magnitude of the proposals for which the Chancellor of the Exchequer expects to be criticised on the ground of their inadequacy. If we calculate the total cost of the great War to this country up to March; 1919, that is to the end of the financial year 1918–19, we find that it was £8,400,000,000. We also find that we lent roughly £1,800,000,000 to our Allies while, on the other hand, we borrowed £800,000,000 for ourselves. Subtracting the figure of £1,000,000,000, representing our net loans to our Allies, we find that our war effort up to March, 1919, cost us £7,400,000,000 or an average of £1,500,000,000 a year. That means that if we allow for the higher level of prices during the War years, it would be an understatement to say that over the next five years we are going to spend the equivalent of what it cost us to maintain that huge and exhausting effort for one year in the great War.

Faced by these proposals, we have to ask ourselves two questions about the Government's policy. First, we must try to satisfy ourselves that we are getting full value for the money spent by the Government. In the second place, we must try to satisfy ourselves that the Government are vigorous in their pursuit of a peace policy which would make unnecessary a substantial part, at any rate, of this great armaments expenditure. I hope we shall have other opportunities of discussing the details of the Government's plans and the administration of the Minister for the Co-ordination of Defence and I also hope—and in this I warmly agree with the hon. Member for East Edinburgh (Mr. Pethick Lawrence)—that we shall then have more information than we have received in the White Paper now before us. The Chancellor of the Exchequer made an effective debating point when he turned to the Opposition and said, "If you think these estimates are not correct, show us the items to which you object." But where can we find in this amorphous White Paper, any definite detail on which we can put our hands and say, "That is too much." Take the case of the Army. Never yet have we had an answer to this question which I and other Members have frequently put to the Government. What is to be the role of the Army in the next war? Is it to be an Imperial force, operating with our Navy and policing the Empire, or is it to take part in Continental warfare on a great scale, as we did in the last War? Until we have answers to some of these fundamental questions, it is impossible for us to place our fingers on particular provisions of guns or of tanks and to say: "This or that is too large."

There is much that I would like to say on those subjects, but I know that many other hon. Members wish to speak and I therefore want to confine my observations to-day to the broader aspects of the Government's policy. Meanwhile, however, I want to comment on the financial administration of the rearmament scheme. Money, as the hon. Member for East Edinburgh said, is being poured out. Armament shares are rising on the Stock Exchange. The Royal Commission which the Government appointed two years ago has reported that the Government's, system of price control is weak and inadequate, and the Government cannot make up their minds what to do about that report. What are they doing now, I would ask, to control prices? Has a system of costs ascertainment been instituted? Are the prices paid by the Government based on ascertained costs plus a percentage, and, if so, will the Chancellor of the Exchequer tell us what that percentage is and, if the percentage varies with different categories and classes of goods, will he tell us the percentages for some of the main categories? Nothing will undermine public support for a national effort of rearmament as much as profiteering out of the nation's necessities. It is, therefore, a matter of urgency that the Government should define their attitude towards the report of the Royal Commission. I hope that the Chancellor of the Exchequer when he replies to-night—and I remember that Wednesday is the day of the meeting of the Cabinet—will be able to tell us whether the Government have yet made up their minds to accept the recommendations of the Royal Commission's report.

Armaments, however, are only the expression of policy. I do not wish to digress too far into vital problems of foreign affairs in a Debate which is primarily concerned with finance, economics and defence. For my part, I greatly admire the speeches of the Secretary of State for Foreign Affairs. But no discernible result comes from those speeches, or, if it comes at all, it comes, as in the case of Spain, too late to be effective. The right hon. Gentleman's speeches are not echoed in the country by his colleagues, and the speeches of other Ministers are often wholly different in tone and substance from those of the Foreign Secretary. When he spoke in the House after our reassembly in January, when he was speaking, as he said, most grave words, when he was inviting the co-operation of Members of all parties and even of his opponents in tasks of such gravity as those with which he saw himself confronted, only two junior Members of the Cabinet gave him the support of their presence on the Front Bench. Fine sentiments and graceful speeches by a single Minister are no substitute for firmness and tenacity in action by a united Government. This bill for £1,500,000,000 is, in part, the price which we have to pay and which in successive speeches hon. Members on this side prophesied that we should have to pay, for the Government's feebleness and vacillation in the Abyssinian dispute.

Of the Government's repeated and continuing failures to make collective security a reality, I will leave my hon. Friends to speak. I do not wish to say much on foreign affairs this evening, but I must refer to the reply which the Chancellor of the Exchequer gave to an intervention by the hon. Member for Kingswinford (Mr. A. Henderson). The Chancellor of the Exchequer told us that he was going to speak again to-night and he will correct me if I am wrong, but I understood him to use words to this effect, that it was not in the public interest to theorise about who our enemies and who our allies may be. I have not yet heard such a flat repudiation of the Secretary of State for Foreign Affairs in this House and of the policy which he has consistently, though as I say, without much backing from his colleagues, put before this House.

Mr. Chamberlain

The right hon. Gentleman has purported to quote my words. Let me say that I do not recollect using the word "theorise." I certainly said that on this occasion I did not think it was in the public interest to suggest that these proposals were directed against anybody or that we should be engaged in war with any country in alliance with any other country. [HON. MEMBERS: "No."] If hon. Members say that I am not telling the truth, I must leave the matter to the OFFICIAL REPORT to decide. I am saying what was in my mind. I do not say that I am repeating the exact words which I used; I am trying to put it to the right hon. Gentleman that I consider there is an entire difference between the circumstances of this occasion and those of the occasion when the Foreign Secretary was speaking. We are now discussing the finance of a great measure of rearmament and my desire was to avoid the implication that that measure of rearmament was directed against any particular Power.

Sir A. Sinclair

The right hon. Gentleman certainly said what he has just stated to the House. I did repeat that part of it too, but that is not the part which is relevant to my argument. As he said the OFFICIAL REPORT will show what his actual words were, but it is vivid in my memory, and evidently in the memory of a great many hon. Members around me too, that he used the word "theorise" or "theory"—I am not certain which it was—about our allies. He said that also about a possible enemy, but he did say that it was not time now to theorise about who our allies would be. The Secretary of State for Foreign Affairs, not in one speech or in two speeches, but in a series of speeches throughout the country and in this House of Commons, has said that we are loyal to our obligations under the League of Nations and that it is only for them and on behalf of the League that our forces would take the field. If the OFFICIAL REPORT proves that the right hon. Gentleman said that it was not in the public interest to theorise or to make a theory about who our allies would be, it is a flat repudiation of the policy which the Secretary of State for Foreign Affairs has stated in this House.

Mr. Chamberlain

I must say again that what I said in answer to an interruption by an hon. Member opposite was not meant as a general reflection applicable to all times and circumstances; it was a statement having direct relation to the particular circumstances which we are discussing now.

Sir A. Sinclair

The statement was that we were not to theorise or to make theories about our allies, and my statement is that it is vital that we should have in our mind and base our policy on a perfectly definite theory as to who our allies will be. Our allies will be those who are prepared to defend the reign of law against aggression. [HON. MEMBERS: "Who are they?"] That is the policy which has been repeatedly laid down in this House.

Sir Ronald Ross

Who are they?

Sir A. Sinclair

This is extremely interesting. Not only have we convicted the Chancellor of the Exchequer of making this statement, but from the interruptions to which I am now subjected, it is clear that the supporters of the Government themselves are not in agreement with the policy which the Secretary of State for Foreign Affairs has laid down.

Sir R. Ross

Who are they?

Sir A. Sinclair

I am not prepared to discuss who they are. I said the League of Nations, but that is not the point. The point which I am making is this, that the Secretary of State for Foreign Affairs has laid down a perfectly definite League policy, which has been repudiated by hon. Members opposite. [HON. MEMBERS: "No."] Let me say this one further thing, that it is vital that this misunderstanding, this doubt, in the minds of hon. and right hon. Members opposite should be cleared up and that the country should be informed what the policy of the Government really is. Faced with the dangers which we know to expect, with the possibility, let us say, for example, of a triple attack upon the British Empire, in the Far East, in the Mediterranean, and a knock-out blow aimed at the heart of the Empire here, is your policy collective security; or is it military alliances, and, if so, with whom; or is it isolation? If it is either of the first two, say so. Tell us frankly, and tell us what steps you are taking to make it effective, so that the help is forthcoming if and when the emergency should unfortunately arise.

But, while, on the one hand, it is necessary to create an effective deterrent to aggression by means of collective security and those measures of rearmament which not France and Britain alone but all those peaceful little Powers which we are accustomed to call neutral Powers—Switzerland, Holland, and the Scandinavian countries—are carrying out, if, on the other hand, we do nothing to remove the grievances of the dissatisfied Powers or to eradicate the causes of war, we shall be faced with two dangers—either the dictatorships, driven to despair, will attempt a war gamble against even the greatest odds, or our civilisation may collapse under the mere weight of its armaments. The Chancellor of the Exchequer spoke himself of the back of civilisation breaking under the weight of these armaments. Of this there can be no doubt, that vast, unproductive expenditure on armaments, especially if financed by loans, must force up prices, lower standards of living, and inflame industrial and social discontent. The right hon. Gentleman rightly said that we cannot afford to let our armies go into the field and meet other armies better equipped, but it is equally true that we cannot afford to let our civilisation break, as he said, under the weight of these colossal armaments. I therefore say that we ought to be satisfied by the Government that effective measures are being taken to make these armaments unnecessary. We have to face the necessity now of building up armaments, but let us at the same time be working in such a way that if our efforts are successful, it will not be necessary to complete the whole of this crushing burden of armaments.

A committee has been appointed on access to raw materials, and that is good in itself, though it is rather slow in getting to work, but the conditions which are driving the world into feverish rearmament and towards the brink of war need a far more drastic cure than that. We cannot expect peace and disarmament in the political sphere while this Protectionist Government is still waging war in the economic sphere. Three men, in three different countries, made last week, on the same day or, if not, within a day or two of each other, three remarkable declarations. M. Spinasse, the French Minister of National Economy, exclaimed in the French Senate that Quotas are a weapon of economic war. Mr. Hull, the Secretary of State, in America, was reported the same day as saying: A revival of trade would be the most powerful single force for … What? Prosperity? No, but for— averting the danger of war. General Smuts declared over the wireless: The new tariffs have proved a greater impediment to world peace than the ideologies. These military armaments are provoked by economic armaments, but the fatal policy of Ottawa blocks the way. The Government used to say that they would lower tariffs if only these foreign countries would do so also. Now France, Italy, and other countries have reduced tariffs and abolished or ex- panded quotas, the United States of America is moving, the Scandinavian countries, Holland, and Belgium are moving, but they say frankly that Ottawa is an obstacle and that they cannot get far without British co-operation. At the time of the Anglo-Franco-American Currency Agreement, the British Government paid lip service to economic disarmament, but while other countries have been abolishing or expanding quotas, we have been adding to our tariffs week by week. New import orders have been coming out week by week; but there have been two additions to the free list. The one is secondhand typewriters and the other, in a draft Order which came into our hands yesterday, is what is described as "Used rails." Those are so far the two contributions that we have made to the reduction of tariff barriers and the revival of trade.

Critics are sometimes challenged to state their policy. I will summarise mine for removing the causes of armament for war under three heads. First, work vigorously and consistently for the abolition of quotas and of Imperial preference, for restoring the open door in our Colonial Empire, for the reduction of tariffs and the abolition of quotas, and form a low tariff group with those countries which are working in the same direction and with any others that like to come in; secondly, let us appoint a fact-finding commission under the League to investigate frankly and objectively any grievance which any dissatisfied nation may bring before the Council of the League; and, thirdly, assure Germany and Italy that it is our intention that, once a settlement is reached, they should have equal rights and status with all other members of the League and would therefore enjoy the advantages of these proposals and of the restoration of international trade. Now let the Government tell us what their policy is for securing peace and for removing the causes of war, and what steps they are taking to give effect to it.

I pointed out earlier in my speech certain vital respects in which the present situation differs totally, and in particular in the degree of peril, from that with which our forbears were faced. Yet there are some lessons to be drawn from history still. Take the situation in 1859, when Napoleon III was supposed to be contemplating the invasion of Britain. The Navy was increased, the notorious fortifications of London were built, and then, a year or two later, Gladstone and Cobden made the commercial treaty with France and the danger and the panic passed. Until the Ottawa policy is reversed, and until the Government take steps to remove those new tariffs which General Smuts describes as impediments to peace, and while we are still ignorant of their real intentions in regard to the rival policies of collective security, military alliances, and isolation, and in the absence of any effective measures to stop profiteering, we cannot cast a vote which implies confidence in their policy.

Now I come to my third and last question. Assuming that this expenditure is necessary and even that the Government's handling of foreign and economic affairs deserves our confidence, ought we to approve the method adopted by the Government for raising the money? We should consider the demand for these borrowing powers in relation to the prevailing economic situation. As the hon. Member for East Edinburgh pointed out, prices are rising, the cost of living is going up, bacon and bread are going up, steel prices have risen from 15 to 20 percent. in the last 12 months, and in many cases it is impossible to get delivery of steel for civil requirements, and bottle necks are forming in iron and steel production, in machine tools, in aircraft construction, and in the recruitment of skilled workmen. Before ever public expenditure on this scale was thought of, economists and bankers, in their speeches and articles, were urging the Government to put on the brake of taxation, and to try to even out the trade cycle at this critical stage—for this is a well proved maxim—the bigger the boom, the sharper the slump.

Now there is a real danger that after 12 months or two years our conditions will be like those of the United States of America in 1928, and into these conditions of hectic economic activity the Government propose to inject the additional and violent stimulant of a net addition of £400,000,000 worth of loan expenditure. Perhaps the Prime Minister, watching apprehensively these feverish conditions, and observing on the other hand the fall in gilt-edged stocks, consoles himself with Disraeli's reflection that there is nothing like a fall in the price of Consols to cool the blood of our good English people. But the result of this inflation must be soaring prices; a fall in the standard of living on the one hand and demands, such as have already been raised, for cutting the expenditure on social services on the other hand; agitation for higher wages, industrial strife and social discontent, embittered by the feeling that the brunt of the sacrifice is falling on the poorest classes, who cannot obtain such compensation as accrues to the rich from high prices for shares and high profits; and the slump which must follow so artificial a boom will materialise in a tidal wave of unemployment. The Government talks of the trade recovery, precarious as I believe it to be with its protectionist basis, which its artificial measures, its tariffs and quotas and subsidies have produced. Then let it tax the recovery for the purposes of rearmament, and let those who are making most out of rearmament pay the highest taxes. If we cannot pay our way now, in a time of cheap money and reviving trade how are we going to pay it in a war or in a slump?

Nevertheless, while I aril alarmed at the amount and at the conditions on which the Government propose to borrow, I am not arguing that in no circumstances and under no conditions should the Government borrow any part of the expenditure, but authority for borrowing should be asked for and debated each year in the light of the financial and economic situation at the time of the introduction of the Budget. Moreover, the conditions must be strict. Repayment should start from the date of issue. When loans are made for productive purposes it is common for the repayment of the loan to be postponed until the undertaking begins to be productive, but where, as in this case, the expenditure, however necessary on other grounds, is economically unproductive, repayment ought to start from the date of issue, as it did in the case of the Palmerston Loan, in the case of the Naval Works Loan and the Military Works Loan at the end of last century, to which the Chancellor referred in his opening speech, and in every other comparable precedent which occurs to me.

My next criticism is that a period of 30 years for repayment, which of course works out on an average at a shorter period, is far too long for an armaments loan. Hon. Members opposite have often quoted the precedent of the Naval Loan of 1889 in urging this loan policy on the Government. In that case the expenditure was £21,000,000 on the building of 70 ships, and it was provided that one-seventh of the loan should be repaid annually. Fifteen years later 30 of those ships were condemned as worthless, and under the conditions proposed by the Chancellor of the Exchequer our fathers would have had to go on paying another 10 or 15 years for ships that had been scrapped. There may be some works, such as docks, harbours and industrial buildings, which may be capable of being used economically in normal conditions. Will the Chancellor tell us how much of the loan will be expended on works of that character? The charge for obsolescence which must be provided out of this loan for ordinary armaments will be very high indeed; and I believe that most Members opposite, as well as Members on this side of the House, will agree with me in wishing that much of this material may be destroyed long before the currency of the loan, which the Chancellor proposes, expires. In any case our children will be paying for ships and tanks which will have been scrapped years before, and for works which, although they may be structurally permanent, will have no economic value in normal times. It is therefore my contention that any loan which may be proved to be necessary for such purposes, other than for capital works which would possess a lasting economic value, should run for not more than 10 years and that repayment should start from the date of issue.

Why this demand for statutory authority to borrow for a period of five years at all? That is a question to which the Chancellor did not address himself in his opening speech, but to which I hope he will reply in concluding to-day's discussion. Why is this authority necessary at all? It is unprecedented. This House ought not to part with its power to grant or to refuse the Government borrowing powers in relation to any emergency which may arise, having regard to the financial and economic situation and the taxation proposals of the Government at the time. The right time to ask for borrowing powers is when the Finance Bill is introduced.

While, therefore, I accept the necessity of substantial measures of rearmament at the present juncture the method by which the Government propose to raise the money seems to me open to the gravest objections. Moreover, this Financial Resolution is, as I have pointed out, a work of supererogation. If the Chancellor requires borrowing powers for the next financial year let him seek them in the Finance Bill. Further, when the Government bend their energies to the constructive work of peace and economic disarmament, and not till then, will they begin to have some claim to the confidence of this House. Above all we must face the fact that this expenditure will in itself be, as the Chancellor so frankly indicated in his opening speech, a grave threat to the economic and social fabric of this country. Its only justification will lie not in the creation of great fleets of ships and aeroplanes but in its success in deterring aggression while, by a constructive foreign and economic policy, the foundations of peace are laid.

6.40 p.m.

Mr. H. Strauss

We have listened to two interesting speeches, but I am bound to say that when we examine them we may think that the contents of those speeches go a considerable way to account for the position occupied in the country by the parties whose leaders have just spoken. Let me deal first with some of the remarks of the right hon. Gentleman the Leader of the Whigs. In the speech which he has just delivered he spoke with his usual vehemence but with, in my opinion, something less than his usual fairness. He suggested, on no information whatever and, I submit, on no grounds, that there was some difference between my right hon. Friend the Foreign Secretary and the other members of the Cabinet. Does he suppose, if that were true, that he is paying any compliment to the Foreign Secretary in supposing that he would remain a member of the Cabinet?

Sir A. Sinclair rose—

Mr. Strauss

The right hon. Gentleman again and again refused to yield in his own speech, and I do not propose to yield to him at the moment, though if he wishes later to interrupt me he may do so. I understand that he believes in the policy enunciated by the Foreign Secretary, and presumably believes in his honesty. On what basis does he suppose there is any difference between what he said and what my right hon. Friend the Chancellor of the Exchequer said this afternoon? Let me try to make it clear why we believe it to be absolutely fantastic to suggest, as is done by hon. Members opposite in speech after speech, that there is something in the fact that we are building armaments which is contrary to the idea of the League of Nations, that the idea of national armaments is one in which a loyal member of the League must not indulge. We are very familiar with the dilemma—I have heard it again and again in this House—which has often been posed with skill by the Leader of the Opposition.' He poses the dilemma, "Does the Government believe in collective security or does it not? If it does believe in it, then it does not need these armaments. If it does not believe in it, it is not a loyal member of the League." There is not an hon. Member who has not heard that argument again and again in this House and in the country, but the fallacy of it is visible immediately you begin to examine the words "Do you believe in collective security?" That phrase can mean two very different things. It may mean "Do you believe that collective security would be a good thing and are you prepared to work for it?" It may mean, also, "Do you think that we have got it already?" If anybody thinks we have got it already, then he must indeed be oblivious of the events of the last few years.

Mr. A. Bevan

And there are the assassins over there.

Mr. Strauss

I am sorry that I did not catch the interruption of the hon. Member for Ebbw Vale (Mr. Bevan), but perhaps he will deal with his point later. There is an idea, commonly held, that the Covenant contemplates armaments only for the purpose of combined action by all nations. It is remarkable how few of the most frequently-speaking friends of the League of Nations have ever read the Covenant. If they will look at Article VIII they will find that the Covenant itself contemplates the existence of such national armaments as are consistent with national safety and the enforcement by common action of international obligations. If that is dualism, as is so often suggested in a favourite word by the Leader of the Opposition, it is a dualism expressed in the Covenant itself.

Let me take the next argument used by the right hon. Member for Caithness (Sir A. Sinclair). Picturing the horrors by which this country might be faced, he posed the example of a possible triple attack, and one of those attacks was to be in the Mediterranean. By whom was he imagining that attack to be made? I do not think it is very difficult to guess that he was imagining an attack by a fellow member of the League, and, if he was imagining that, with what right does he taunt the Government for not necessarily supposing, in considering their armaments policy, that every member of the League is going to be loyal? There is literally no answer to that.

Mr. Price

What about Abyssinia?

Mr. Strauss

Abyssinia is a most admirable example from my point of view. I have seen in the "Manchester Guardian" the reported utterances of the right hon. Member for South Hackney (Mr. H. Morrison) in a speech which he delivered the other day at a by-election which is now pending. Half that speech was an attack on Italy as a danger to the peace of the world, and in the other half he was saying that the Government, instead of indulging in armaments, ought to be relying on the collective security of the League of Nations. By what possibility can hon. and right hon. Members opposite attempt to reconcile those statements? If they will examine the constitution of the League they will see that for some of the most important actions of the League the League Council has to be unanimous; yet, while they say that we ought to rely upon the collective security given by the League, they are themselves supposing one member of the Council to be disloyal to the League.

Some of the points which I am now putting were put with considerable force at the Labour party's own conference at Edinburgh. I do not wish to taunt hon. Members opposite too much with what was said at that conference, but it is really going a little too far for the right hon. Gentleman to suppose that, because armaments are being contemplated in this Resolution, the Government have abandoned all belief in the development of the League into something which it is not at present, or are not using the League, in so far as they can, to serve the cause of peace, although they do not regard it as something other than it is or believe that it can give complete security at the moment. An hon. Member asked: "What about Abyssinia?" By all means rely upon collective security alone, if you wish to share the fate of Abyssinia.

Mr. Price

Why did His Majesty's Government refuse arms to Abyssinia?

Mr. Strauss

I dare say we could have a very interesting Debate on that question. However much the hon. Member devotes his mind to the subject, I do not think that he will really come to the conclusion that the lesson of Abyssinia is that armaments are unnecessary. Let me turn from the leader of the Whigs to the hon. Member for East Edinburgh (Mr. Pethick-Lawrence) who first spoke. He complained in his interesting speech that in the White Paper which has been issued there was no mention of the League of Nations. I have not confirmed that observation, but I have no doubt that he is right, and that the League of Nations is not mentioned in the White Paper. Nor, on the other hand, is the agricultural policy of the Government or the Midwives Act.

If the implication is that, because the League of Nations was not mentioned, a relevant consideration has been left out, I would ask hon. Gentlemen opposite to examine their own record about the League of Nations. One would think, from speeches delivered from the benches opposite, that the League of Nations and support of collective security had been the continuous and steady policy of the Labour party. [An HON. MEMBER: "Hear, hear!"] I am glad to hear that "hear, hear," because it shows that there are Members who still believe in that erroneous idea. I have obtained from Transport House a report of the Annual Conference of the Labour Party at Hastings in 1933, and on page 185 of that document is a full account of the official resolution which was put forward and passed unanimously on the subject of war and peace. Lest hon. Members should think it is a short resolution, I would remind them that it contained 340 words and set out the Labour party's policy on war and peace. In that resolution, from beginning to end, there is no mention of the League of Nations, and no mention of collective security. What there is, is a pledge by the Labour party to take no part in a war of any kind and an instruction to the executive to enter into immediate consultation with the Trades Union Congress in order to concert measures for a general strike in the event of any war or threat of war, whether waged in pursuance of our duty to the League of Nations or otherwise.

Shortly afterwards, the leaders of the Labour party did as they often do: They went to the trade union leaders and they heard their master's voice. The leaders of the trade unions were not at all keen on the general strike, having had some experience of it, and the consequence was that at Southport, in the following year, there was a Resolution which said a great deal about the League. The policy at Hastings in 1933 was: "No war of any kind, whether the League of Nations binds us to take armed action or not." Next year at Southport—the report is no longer in a red cover—the decision was: "We should not go to war in any circumstances, even to defend our own shores, without the consent of the League." I am not going to ask which is the more sensible of those two proposals. They both incurred, as they deserved, the contempt of ordinary reasonable men.

I have dealt briefly with the Labour party's own record; what is the Labour party's belief at this moment? That is rather a vital point which should be cleared up by some subsequent speaker. There seem to be two points which are relevant in the Debate. The first is: Does this Resolution contemplate more expenditure on armaments than is justifiable? The second is: Is it right to raise such part of the costs as this Resolution suggests, by means of loan? Those two questions are distinct. On the first question, whether it is right to contemplate this quantity of arms, I am not clear where the party opposite stands. I heard all the speech of the hon. Member for East Edinburgh with the exception of two or three minutes, and he may have dealt with that matter while I was away, but I did not hear him say that he thought that the total amount of armaments contemplated was excessive. Perhaps some hon. Members, speaking from the Front Bench opposite, will make clear whether the Opposition believe that it is excessive.

It is true that the right hon. Gentleman who spoke from the Liberal benches—[An HON. MEMBER: "Whig."] "Whig" seemed to be resented. I did not mean to be discourteous, and that is why I changed the word. I assure the right hon. Gentleman that no discourtesy was intended. In his speech the right hon. Gentleman said that he was appalled by the vast figure of £1,500,000,000. No one on this side of the House suggests that that is not a vast figure, but I should have thought that, if the right hon. Gentleman was going to make any point as to its excessive character, he would have compared it with the figures of Germany and other countries. Comparing our figure with the expenditure that has been undertaken abroad, appalling as our figure may appear, he would be a bold man who would say that it was out of proportion.

Sir A. Sinclair

Nobody knows what the other figure is.

Mr. Strauss

I agree that there is a margin of error, but I think we know enough to be sure that it is greater than our figure. I should say that in the last few years £1,500,000,000 had been exceeded, but I agree that the estimate cannot be very exact. I hope that subsequent speakers will agree that when we are considering this figure comparison with the figures of other countries would be a more relevant consideration.

Let me come to the leaders of the Socialist party. The interruption by the hon. Member for Kingswinford (Mr. A. Henderson) was to ascertain whether we were relying upon allies or the loyal Members of the League. Let me ask hon. Members opposite to assume that the new armaments are to be used as they would use them if they formed a Government, and that our League policy is what they themselves would want; do they say that the figure is excessive? I hope that somebody will answer that question in the course of the Debate. I do not wish them to fall into any trap, so I would remind them of what was said upon the subject by the hon. Member for Bishop Auckland (Mr. Dalton), moving the famous resolution at the Edinburgh Conference. Although the resolution was carefully designed to mean nothing at all, and was objected to on that ground with considerable skill by the right hon. Gentleman the Member for Bow and Bromley (Mr. Lansbury) and the hon. and learned Member for East Bristol (Sir S. Cripps)—who thought that there should be some delay in voting on it in order to find out what it meant—the speech of the hon. Member for Bishop Auckland contained these words: I myself judge, in the light of the facts and figures regarding rearmament in Germany, that a Labour Government, if it came into power to-morrow, and was faced, as it would be, with the present world situation, that such a Government, pending an international agreement to reduce and limit armaments—and such a Government would strive its utmost to negotiate such an agreement—pending that, a Labour Government would be compelled to provide an increase in British armaments. If that is still their policy, what is the use of the Leader of the Opposition going to Gorton and referring to any expenditure on armaments as the price of blood?

Mr. Attlee

If the hon. Member proposes to quote me, let him quote me exactly. I never used the phrase "price of blood."

Mr. Strauss

I am sorry if I have misquoted the right hon. Gentleman. I have the "Manchester Guardian" quotation, and I think his words were "£400,000,000 for blood."

Mr. Attlee

That is not "the price of blood."

Mr. Strauss

I am very sorry.

Mr. Attlee

It is a very simple point, really. I was comparing a question of two different loans, and I said that £100,000,000 was the price of keeping people alive and the other, £400,000,000 for weapons, was the price of blood.

Mr. Strauss

I do not think I misrepresented the right hon. Gentleman, and I am extremely sorry if I misquoted him. It was represented that armaments expenditure was expenditure on death or on blood.

Mr. Attlee

What is it for?

Mr. Strauss

I imagine it is for what the hon. Member for Bishop Auckland said it would be for if the Labour party were in power, and had to re-arm. If he meant that the Labour party would re-arm for purposes of creating a war, it is very good that the country should know it, but I imagine that he meant that they would re-arm for Defence. I was quoting the view of the gentleman who is, I think, chairman of the executive of the Labour party. I hope I have not got the exact title wrong. I do not think that what he said in moving the official Resolution is unimportant. He said that if the Labour party came into power to-morrow they would be compelled to increase British armaments. I now have the quotation in my hand. It is in the "Manchester Guardian" of the 15th instant: Now we are going to have £400,000,000 for death.

Mr. Attlee

Quite right.

Mr. Strauss

That, I gather, is the correct quotation. At Edinburgh we have one leader of the Labour party saying that if they got back to power they would have to re-arm, and then one of his colleagues speaking at a by-election in February says that any rearmament that is done, although they admit it to be necessary, is expenditure for death. If right hon. Gentlemen opposite can reconcile that with their consciences, I have nothing more to say on the subject.

Apart from the question of the amount of armaments, there is the question whether the money should be raised by loan. I agree with some of the remarks that have been made on the Opposition side as to possible objections in certain circumstances to raising money for armaments by loan. Supposing it had been the proposal of the Chancellor of the Exchequer to raise the greater part or the whole of this expenditure by loan, the objections which have been raised from the other side would have some force. But I would remind hon. and right hon. Gentlemen opposite that that is not so and that the power to raise this money is to be spread over five years. That period may include periods both of what is known as slump and what is known as boom. Must we really credit the Chancellor of the Exchequer in advance with the intention of making the greatest use of this power in time of boom and no use of it in time of threatened slump? I suggest it is useful to have the power in order that you may, in the light of your best economic and expert opinion, issue your loans at the best time. Further, I do not regard it as entirely valueless that we should demonstrate to the world at large that we are determined in this matter, and I believe that is one of the greatest contributions to peace that can be made.

Mr. Bevan

Does the hon. Member seriously suggest that the decision to raise £400,000,000 over five years is to warn other nations of what we propose to do, so that they may themselves get their plans ready for a great armament race over five years?

Mr. Strauss

I do not suggest it seriously or at all. The case for this loan was that which was stated by the Chancellor of the Exchequer. The money is needed, and it would be an intolerable burden on this country, and a set-back to any chance of the furtherance or continuance of prosperity, to raise the whole of the amount by current taxation. [Interruption.] The hon. Member need not think I will evade his point. Even if it had been difficult, I would not have tried to evade it. As regards encouraging other countries to pile up armaments, if the hon. Member's attention had been concentrated on the more important world affairs, he would have known that the piling up of armaments has been in progress abroad for some years.

Mr. Bevan

The hon. Member is doing himself less than justice. He has tied himself up in his own rhetoric. He was supposed to be explaining the reason why the Chancellor of the Exchequer has asked for powers to borrow over five years. He has not addressed himself to that question. The issue before the Committee is not that of borrowing or raising money by taxation, but why it should be announced at this moment that the Chancellor must have power that he may not exercise.

Mr. Strauss

I still think it is a valuable thing. I do not want to alter my speech too much in deference to the hon. Member, but he has raised an interesting point. If he follows discussions in such papers as "The Economist" he will know that some good economists are even questioning whether it is entirely wise to have annual budgets confined to a single year, and that it is well to plan over longer periods. I believe, in the case of a big rearmament programme, that it is useful to plan over a period of five years, and I believe it useful on the economic side to have the power to arrange your borrowing as may be necessary.

The hon. Member who spoke from the Front Opposition Bench gave as an example to prove wasteful expenditure on the part of the Government the rise that had taken place in certain shares on the Stock Exchange. I am sure that he is aware that the price of a company's shares on the Stock Exchange is not controlled by the company itself, and does not in itself prove anything relevant to the profits that company is making. Even if it did, what was the first example which he chose?—John Brown shares. I would ask hon. Members opposite if they really regard a sister ship to the "Queen Mary" as an increase in armaments? What we have to consider is whether there is anything in this Resolution that indicates excessive armament. I have submitted that, on the published declarations of the leaders of the Labour party, there is no ground for saying that these armaments are excessive, even if in the future the League of Nations can develop as we hope.

As regards the policy of raising part of the cost by loan, the case that has been made against the Chancellor is founded on arguments that would have been excellent if he had been proposing to raise the whole or the greater part by loan, but they have little application when he proposes to raise only the amount mentioned in these proposals. Since "The Economist" has been mentioned, I hope that right hon. Gentlemen opposite have been studying some of the letters on the subject from Mr. Keynes, who has not taken the extreme view that nothing whatever should be raised by way of loan. I fully recognise that that view was also taken by the right hon. Gentleman who spoke last. I submit that the case made for this Resolution is overwhelming, and that no good reason has been put forward against it. There is no ground whatever for saying that by supporting this Resolution you are in any way being disloyal to the League of Nations.

7.10 p.m.

Mr. Benson

I should like to say a word in reference to the Memorandum on the Defence Loan. I will not say that it tells us nothing. It does tell us that the Government propose to borrow £400,000,000 as a maximum. It also sets out some rather complicated machinery, the whole of which is entirely unnecessary, which will only clutter up the bookkeeping of the Government and also the Estimates when they are presented. The suggestion of fixing a sinking fund to a Service Department is of no use. It serves no purpose, and as far as I can see, the Chancellor has made no suggestion of any advantage that can accrue from it. The case of a Department like the Post Office, which is actually earning money and pays out of its surpluses for money borrowed and invested in profitable undertakings, is no parallel. A departmental sinking fund is just as much a heresy as earmarked taxation, and the Chancellor of the Exchequer, who I think in his last Finance Bill prided himself on his financial orthodoxy and his support of global taxation in his abolition of the Road Fund, is doing here exactly the opposite by attempting to fix a sinking fund to a non-revenue department. So far as I can see, it is with the idea of attempting to build up a suggestion that he has made some provision for the repayment of the debt.

What is the proposal? That the various Service Departments shall be debited with the amount they borrow, and that they shall pay interest on a sinking fund of that amount. But that is merely an inter-Departmental matter. It has no bearing on the repayment of the money borrowed as to the terms, the amount of interest or the period. Although it says in the White Paper that the money allocated to the Department and then allocated by the Department by the Treasury shall be used for the redemption of debt, that gives no guarantee. It is no certain arrangement that we shall pay off the £400,000,000. For this sum the sinking fund necessary over 30 years at 3 per cent. would be £8,500,000—a less annual sum than we pay in the statutory sinking funds.

What is to prevent a Chancellor of the Exchequer who is so unorthodox as the present Chancellor has shown himself to be from using the money allotted under this departmental sinking fund to satisfy the legal demands of the statutory sinking funds? Nothing whatever. He would still have kept within the letter of the law, and not a single penny of the £400,000,000 would have been repaid. The Chancellor himself, towards the end of his speech, referred to the complaint—I think the legitimate complaint—of Members on this side, that whereas we were condemned for borrowing £100,000,000, the Chancellor himself proposed to borrow £400,000,000. He suggested, with a very apt quotation, that only those who knew how to keep the rules were entitled to break them. When, as a Chancellor, has he shown any signs of knowing the rules, and what are the rules that he knows? They are certainly not the rules of political economy; they are certainly not the rules laid down by our big economists and bankers at the present time.

The policy of the Chancellor, ever since he became Chancellor, has been a violation of all the advice of the best economists of every country in the world. He has certainly shown no knowledge of the rules which he claimed the right to break. He has blocked, or helped to block, international trade by a fantastic system of tariffs; he has cut down during a slump when all economists recommend that Government expenditure should be increased; now he is piling up expenditure financed by borrowing when all political economists and the majority of the bank chairmen are strongly advising a diametrically opposite course. He may say, and I have no doubt that hon. Gentlemen behind him will say when they come to reply, "Well, at any rate under the present Chancellor this country has come back to prosperity." There is an old saying that post hoc is not ergo propter hoc. It is perfectly true, as has been said many times from these benches, that prosperity has materially improved in the last five years, but for that no thanks are due to any policy of the National Government. This country lagged behind other countries in the return to prosperity, and at the present moment the improvement in this country since 1929 is far less than in a very large number of other countries. If hon. Members will look at "The Economist" of three weeks ago, they will find there a list of countries' recoveries, in which we are ninth in the scale. Prosperity has come back to this country, not because of the National Government or anything it has done, but because there has been a general trade revival.

Mr. De Chair

Surely the hon. Member does not suggest that this country has made no contribution to that revival?

Mr. Lawson

Read the Prime Minister's speeches a year or two ago, and see.

Mr. Benson

What contribution has this country made? Can the hon. Gentleman tell me why trade has revived during the last five years in the rest of the world? We do not know. We can no more explain why booms come than why slumps come.

Mr. Loftus

Surely, booms and slumps can be regulated and controlled by financial policy, and surely the financial policy of President Roosevelt and of this country has helped to cause a general rise in world prices, which will lead to the restoration of better times.

Mr. Benson

I am aware that in recent years a great deal of thought has been given to this matter, and economists are groping for a policy which may help to smooth out the great fluctuations, but no one can explain why the slump passed. The hon. Member says it was due to the policy of this country and of President Roosevelt, but how can that be the case when the two policies were diametrically opposite? President Roosevelt spent money open-handedly from the very beginning of the slump; he poured money out. The Chancellor of the Exchequer, from the very moment that he became Chancellor, cut national expenditure. What is the use of saying that the policies of these two countries are responsible? They are diametrically opposite. Whether an economic law in America works one way, and in Great Britain in another way, I do not know—

Mr. Loftus

They both raise prices.

Mr. Benson

They do not raise prices. It was going off the Gold Standard—and we were driven off the Gold Standard—that helped to raise prices in this country. As I have said, economists are groping for a policy, and what is the policy that they are recommending at the present time? Their recommendation is that we should avoid any possible suggestion of inflation. If the hon. Member will read the "Economist," if he will read the speeches of the various bank chairmen, if he will read the articles of Professor Keynes in the "Times," he will see that in every case they are afraid of inflation, and are recommending that this particular expenditure which we are discussing should be met out of taxation and not by loans. If the hon. Member looks at Sweden, where there has been a definite, conscious policy, he will find that there they are carrying out the policy recommended by the bank managers and economists of this country—taxation in time of prosperity, and expenditure in time of slump. Every canon of political economy as we know it is diametrically opposite to the policy that the Chancellor of the Exchequer is proposing to carry out.

His defence is that such taxation would tend to cripple our resources. The hon. Member for East Edinburgh (Mr. Pethick-Lawrence) has already pointed out that that is an old argument, but one which has no validity. The whole of the wealth that is to be poured into armaments is current wealth, that is to say, wealth created during the current years; and if that wealth can be created in the current year, it can be paid for by taxation just as readily and just as easily as by loan. Let me give an example. Reference has already been made to the expenditure during the War. We have a National Debt of some £7,000,000,000 incurred in those four years. If we cancel out what we borrowed and what we lent, our net indebtedness abroad amounts to £1,000,000,000 of the £7,000,000,000, leaving £6,000,000,000 which was created in this country during those four years. The whole of that £6,000,000,000 represents wealth created, or rather, goods created and services rendered, during those four years inside this country. It was not borrowed; it was not imported from abroad; £6,000,000,000 worth of goods and services was created in this country; but, owing to the policy of borrowing, that £6,000,000,000, which was created then by a combined national effort, is still hanging round the necks of the people of this country. They created wealth and made a financial fetter for themselves.

The whole of that amount ought to have been met out of taxation, with the exception of the £1,000,000,000 which we owe on balance. If taxation had been applied, that taxation might have been crushing to some people, but at any rate it would have left us practically free from debt at the end of the War. To-day the goods and services which we propose to pour into armaments are produced for the most part in this country, and the cost could be met by taxation. If it is not met by taxation, if it is met by borrowing, we shall merely add another burden to our country, a burden which our children will have to carry, just as we are carrying the burdens which were imposed, but which need not have been imposed, during the War. I shall certainly vote against this Money Resolution, because I regard it as bad economics, because I regard it as in no way lightening the burden on the country. It is, in fact, merely imposing the burden twice over—once in the necessary production of goods and services, and, in the second place, in a debt which will hang on and on and increase our financial difficulties in the future.

7.28 p.m.

Mr. Boulton

The Debate has covered such a very wide field, and hon. Members have expressed so many different views on various subjects. I hope the hon. Member for Chesterfield (Mr. Benson) will forgive me if I do not follow him in his arguments, which I confess I had some little difficulty in understanding. I was not one of those who were surprised at the amount, large though it is, of the Defence loan which was announced by the Chancellor of the Exchequer, for if we are to bring our depleted defences completely up to modern requirements, and of a strength requisite for our security on the basis of the standards set by some other nations, I have always been advised by those competent to judge that the cost must be enormous. What we are being asked to do to-day is to pay the price, to a very large extent, of having given a lead to the world in disarmament. That was acquiesced in by all parties, and most vigorously by the party opposite, and I think it ought to be taken into account when hon. and right hon. Gentlemen opposite now come down to the House and criticise so severely the Government's proposals and the necessary cost.

The maintenance of peace dominates all other issues. I have never believed that peace can be secured by weakness, and it is because I believe that a strong Britain is not only essential to our security, but will have such an enormous influence and be such a great factor in helping to secure peace, and, I hope, put a stop to this mad armaments race, that I welcome the Government's proposals. The nation will not shirk this gigantic burden. I am sure that the Government are fundamentally right in spreading a portion of this extraordinary expenditure over a period of years, for otherwise, surely, we should be getting near to committing suicide. What I think the country really wants to be assured of is that it will get real value for our expenditure and that the amount is sufficient to place all branches of our defences, including the Territorials, so sadly lacking in equipment, into such a state of efficiency and necessary strength as to be sure, so far as it is humanly possible to say, that we shall have reasonable security in all eventualities.

Are the Government satisfied, for instance, that industry is being harnessed in such a way as to secure the best out of it both now and in the event of war, and in the most expeditious way? We should like to hear rather more about the Government's plans for growing more food in this country. How are these doubts, engendered perhaps through experience gained in the late War, to be allayed? I know it is not easy, but I am inclined to think that if a committee of, say, three independent persons with undoubted experience and competency were to be appointed with a watching brief, it might go far to satisfy this anxiety. Among those three I would like to suggest that my right hon. Friend the Member for Epping (Mr. Churchill), with his unrivalled experience in these matters, would be the most acceptable both to this House and in the country, if he would accept such a position.

I trust that the right hon. Gentleman the Chancellor of the Exchequer or the Financial Secretary, who I see in his place, will not take it amiss if I make a few observations with regard to the Chancellor's unenviable task of meeting this horrible bill. I am quite satisfied, as I think the whole House will be, that the Chancellor of the Exchequer, with his proved skill, will raise his loans in the most economic way and at the psychological moments. But it is the extra burden that we imagine is going to fall upon revenue that is exercising the minds of many of us both in and outside this House. Although the Chancellor is not likely to unburden his mind to us as to which way his thoughts are turning, I hope the Financial Secretary will not object if I unburden my mind, because I wish to try to be constructive. Taxation to-day has reached a figure that is unprecedented in peace-time, and I make no apology for referring to taxation, for the taxpayer, as is commonly known, and particularly the Income Tax payer has always borne his burden unflinchingly and without recourse to rancour, and he will do so in the future. We all know that this bill has to be met and we have all to bear our share.

I saw it reported in the Press that the right hon. Gentleman the Member for Hillsborough (Mr. Alexander) speaking to one of his audiences a few nights ago, told them that it was the rich classes of this country that had placed the Government in power in order to get them to bring forward a rearmament programme, and this Defence loan was a way of getting out of paying for what they themselves had demanded. If that report is true, I hardly think it is a fair way of putting the case. It is really unworthy of the right hon. Gentleman, because he must know it is not a fact.

Mr. Alexander

I did not say the rich people had put the Government in power for the purpose. I said there was a rearmament programme introduced at the demand of the rich people. I am afraid I do not often get accurately reported in that particular paper.

Mr. Boulton

I have the report in my hand, but the right hon. Gentleman may have been misreported and I will accept that. Of course he knows such a thing as that is not the fact. We must all take our share in proportion to our means, for our security is fundamental, and no one knows that better than the right hon. Gentleman opposite. We are enjoying to-day a period of peace time, I confess not without anxiety, but with war time taxation. There is a limit even to the height at which Income Tax can be economically imposed. Has that limit been reached? The Chancellor of the Exchequer will have to decide that question—a very difficult and vital one—when he comes to consider in which way this burden is to be carried. I am frankly disturbed when I ask myself the question what margin is there in Income Tax, for instance, in the event of war, for obviously there is no margin.

The Deputy - Chairman (Captain Bourne)

This Debate naturally is wide, because the subject covered by the Resolution is a wide one, but we cannot go into a discussion which is more appropriate to the Budget.

Mr. Boulton

The speeches have roamed over such wide fields, and taxation is such an important factor in connection with the raising of this money, that I thought I might refer to it.

Mr. Alexander

I thought we had been quite in order so far in arguing that the policy involved in this Resolution was wrong and that we could in the circum, stances refer to taxation. Do you rule that this is anticipating a Budget discussion?

The Deputy-Chairman

No, I understood the hon. Member was going far more into the details of taxation. So long as he deals with the argument that the burden of taxation is heavy, I shall not rule against him.

Mr. Boulton

That was exactly what I intended, but I could not have made myself sufficiently clear. I am now thinking of the effect on the nation as a whole, not the individual, for there is nothing that cripples and stifles industry more than a too high Income Tax. Today industry is prosperous and we are told that revenue is flowing into the Treasury very satisfactorily. But when the cycle turns the other way, which it inevitably must do, sooner or later, that is what has to be considered—the effect on employment, the cost of our social services which no one wishes to see curtailed, but which so largely depend on a prosperous industry. A few days ago an interesting Debate took place in this House on the trend of population on a Motion introduced by the hon. Member for the King's Norton Division of Birmingham (Mr. Cartland), a young bachelor, and he was to a great extent supported by numbers of young bachelors on both sides of the House. We can all feel gratified that they are at any rate taking such a feeling interest in this most important question. That gives hope for the future. But I heard no one advance the argument that a too high Income Tax is the greatest barrier to-day to large healthy families. That is a question which affects our race and Empire and which ought to be taken into consideration most seriously.

My only object in making these observations with regard to taxation is to express a desire that whatever further burdens have to be imposed they shall be in a direction that will do the least harm to what I would call our fundamental position, so that we may avoid, so far as it is possible in less prosperous days, the undermining of those sources of revenue upon which the workers and the poorest people have to depend for their livelihood. This expenditure on armaments is what we might term major expenditure with which the Great War made us familiar. The sum of £400,000,000 was perhaps the cost of three months of the Great War. If such an expenditure, horrible though it be, is going to secure us from and perhaps place us in a position to prevent war, do not let us flinch from the effort.

What we are legislating for to-day, as I conceive it, is not only the protection of this country, but the protection and security of the whole Empire. I take it for instance, that we should never enter on war unless the whole Empire decided it was of vital Imperial interest. If this is the case, are we right in our methods of Imperial diplomacy? Is the Foreign Secretary in close enough touch with Dominion opinion? Does the Foreign Secretary require improved machinery for the closer collaboration with the Dominion representatives? We must not drift into a crisis and then suddenly find a difference of opinion existing. Our policy must, therefore, be an agreed Imperial policy all the way. The last War found us with a definite and clear case, and the Dominions evidently had no doubt about that. But how different are the conditions in which we live to-day, when literally a war might come from the blue, and if there was no agreed Imperial policy and the necessary machinery for action, where should we all be? If we are to have an agreed policy why not follow the precedent of the late War and institute an Imperial Committee in London to help guide such a policy?

There is another doubt in my mind which I am going to be bold enough to express, and which I deem to be as much in the interest of the Dominions and Colonies as of ourselves, and that is as to whether an agreed Imperial war policy should not from now onwards be based on Imperial finance; I mean loans secured on the revenues of the whole Empire, which would be a first charge, and therefore the finest security in the whole world. All the Dominions and Colonies, including India, would be represented in due proportion, the whole under the management of Imperial Commissioners. Such finance, I have very little doubt indeed, could be worked on a very low interest basis, repayable in say 20, 25 or 30 years. On a population basis, if that could be taken—I do not suggest for a moment that it is the right basis—our share might come to something like three-fifths of the whole. London would issue for the whole Empire and the whole of the loans required would be under the management of the Imperial Commissioners at the Bank of England. If, unfortunately, we are obliged to fight, my point then is that it must be a definite fight in which the whole Imperial strength is whole-heartedly concentrated—all our brain power, our man-power, our financial power concentrated at one centre.

In considering these huge proposals today it is really not the size of the immediate cost of rearmament that causes the greatest anxiety but rather whether behind the Government proposals there are really any well-thought-out plans, but I trust my right hon. Friend the Minister for Co-ordination of Defence has them already locked up in his desk, and I hope he will be able to enlighten us on this very important matter. I feel most strongly that we here at home ought to view afresh and must face the reality of Empire. We must not flinch from bringing to an issue questions of delicacy, and perhaps of real difficulty, in our own family and, moreover, no time should be lost in doing so. If the doubts that I have endeavoured to express should be well founded and there should be a germ of helpfulness in the suggestions I have with all humility ventured to place before the House, then I would urge the Government and the Opposition parties, in view of the extraneous pressure from dictatorships and the cumbrous methods of democracy, to give their immediate consideration to the general Imperial attitude, for I can only think and believe that that is of vital concern for the protection and future prosperity and existence of our Commonwealth of Nations. If the Empire is prepared to act on this matter, vital to us all as one whole unit, then the influence that it can exert for world appeasement cannot be over-estimated.

7.48 p.m.

Mr. Stephen

I should like to assure the hon. Member that he need have no anxiety with regard to the burdens that will be caused by this loan. The Gov- ernment will see that they fall upon the shoulders of the working class, and not upon the landed and financial interests. The speech of the Chancellor of the Exchequer was concise and clear as usual, but not very inspiring. A reference that he made to the finance of the Minister of Labour in a preceding Government interested me. It occurred to me that the same financial canons were followed then as are being followed now, and that the inspiration with regard to the finance of the Treasury was the same as is behind the arrangements covered by the present Resolution. I take it that he was a little bit ungenerous in criticising the responsible Treasury official, who was the same individual who had quite evidently guided the present Chancellor of the Exchequer with regard to this Resolution. The Resolution appears to me to be one that can commend itself to many Members if they accept the League of Nations and the collective peace policy. The experience that we have had of the League of Nations in recent years has made it plain that it is a very feeble institution in time of crisis. The collective peace system proved futile in the case of Manchuquo, and also in the case of Abyssinia, and consequently it appears, to me that, while the Government are loyal to the League of Nations, as they were during the time of the Abyssinian situation, they are also taking the precaution to increase their armaments and greatly to multiply their forces. At the same time I believe that the Government would have been acting wisely if they had made it perfectly plain that they have not any great faith in the League of Nations.

The speech of the hon. Member for Norwich (Mr. H. Strauss) was quite evidently inspired, although it was delivered from a bench behind that which he usually adorns. It would be as well if the Government would be quite honest and make it plain to the whole country how little faith they have in the League of Nations, and that this phrase "collective peace system based upon the League" is very much a phrase, and nothing more. I believe it would mean a great deal if we got rid of a lot of the hypocrisy and cant associated with this institution. The Abyssinian Emperor put his faith in it, and in a lot of these phrases, and he and many of his people suffered very greatly in consequence. One of the things most necessary at the present time is to get clear in the public mind that this institution is a complete imposture as an instrument of peace. The Government's policy appears to me to be based upon a realist conception of the League of Nations. It also takes into account the idea of the balance of power and that in future developments Britain will be able to depend upon certain allies.

I have been wondering if the Government are not rather optimistic in thinking in terms of five years in which they will be able to prepare for a conflict. When I think back a year to the previous White Paper, it is evident now, from the steps that are being taken and the acceleration of the policy and the additional amount of money that is going to be spent, that the Government evidently believe that the situation with regard to the possibility of war is about 100 per cent. worse than it was this time last year, and I am wondering why it is that they are still thinking in terms of a five years' interval for preparations for a conflict that they evidently believe is practically inevitable. The Government have to face this criticism, that what they are providing is either not enough or too much. If they have decided that they can bank upon certain allies in the next war, I wonder whether they are going to be justified in that assumption, because in view of recent developments and recent expenditure it does not appear to me that, in the event of war in the next 12 months, the British Government would be in too strong a position in facing certain foes in Europe to-day.

Mr. McKie

The Government's proposals have been received with considerable concern in certain countries, which rather disproves the lion. Member's statement.

Mr. Stephen

I have noticed references in the German Press. The comment is that the proposals are amazing and that they are colossal. In the Italian Press it is stated that they have come to a gentlemen's agreement with Britain, and therefore the proposals do not concern them.

Mr. McKie

And that the poorer countries might find themselves in a very unfavourable situation in the event of a European war.

Mr. Stephen

Yes, but I do not see that that has very much relevance.

Mr. McKie

Of course it has.

Mr. Stephen

I was pointing out that when Britain was trying some few months ago to bluff the Italian dictator and it did not come off, there was a very general opinion in Conservative circles in this country that British armament was not in a sufficiently strong position to enable this country to make good the bluff against Italy at that time. Evidently the hon. Member agrees.

Mr. McKie

At that time— in 1935.

Mr. Stephen

If that was so, as far as I can judge, the international situation and the evident apprehension of the Government are 100 per cent. worse than was the case a year ago. I cannot see that the programme for which the Government are responsible is really sufficient, on the assumption of the Government that the League of Nations is no use, that the collective peace system is a hopeless business, and that they can rely only upon the support that might be obtained with the balance of power. Recent events have shown that evidently it does not do to depend very much upon treaty obligations. I wonder whether the foreign policy of the present Foreign Secretary is not putting this country into a position in which it will be left by itself. I notice that the Liberal party which has now vanished from the House was very enthusiastic about the Secretary of State for Foreign Affairs, because evidently he was the one white-headed boy in the present Government and the only one that could be depended upon always to say the right thing. Little Lord Fauntleroy is the Foreign Secretary, but he has very wicked colleagues who will not allow his foreign policy to have a chance. As far as I can see his foreign policy, I am not the least bit enthusiastic, and I do not think that he has been the least bit successful.

As I regard the future and the way that things are going, I can easily visualise Britain finding herself in a position of splendid isolation, or the reverse, because of the policy of the present Secretary of state for Foreign Affairs. If that is to he the case, it would appear that the rearmament is not based upon Britain fight- ing alone, but in association with certain other Powers on the assumption that the balance of power is operating in Europe. The way in which British foreign policy has been conducted during the last year or two has appeared to me to he very strange. I believe that that policy has very often been dictated rather by the class sympathies of the Members of the Government than by their class interests. They have allowed their class sympathies to make them blind to what their class interests really should have taught them in regard to the situation. For example, one needs only to comment upon the present position in the Mediterranean and the importance of the Mediterranean in connection with British Imperialism, or upon the position that has been developing in reference to Germany. As long as Germany was repudiating Versailles, and it did not seem to concern British Imperialism, there was not very much sympathy with the other parties to the Versailles Treaty. Now that Germany is rapidly approaching the position when Hitler will present the British Government with "Stand and deliver our colonies or take what is coming to you," I think that you will have there also an illustration of how weak, from the point of view of British Imperialism, British policy has been in recent years.

So with regard to this Resolution, I assume that the Government are basing their policy upon the old idea of the balance of power, and I believe that they are not providing a sufficient amount. They are not providing for a sufficient acceleration, and they will he woefully disappointed when the crisis becomes a little more acute than it is at the present time. As I said at the beginning, I would like the Chancellor of the Exchequer, when he is replying to the Debate, to make it perfectly plain that, while the Government are still prepared to remain within the League of Nations, they recognise how weak and futile that instrument has proved itself, and that they are basing their policy upon the assumption that it may be a long time before the League of Nations is of any very great use in the world. It would be a great advantage if the atmosphere could be cleared in that respect.

As far as this Debate has gone, there is not really a fundamental difference between the Labour party, the Liberal party and the Government with regard to this matter, but, speaking for my own party, we take up fundamentally different views. We do not believe in the League of Nations or that peace is possible through any collective system. We cannot expect peace and disarmament in a capitalist world. We believe that war is one of the incidents of the working of the present economic order. The Liberal Leader said they could not expect peace and disarmament when the Government are making war in the economic sphere, and when he made use of those words, I thought that with some adaptation they could be made to represent our considered view, that, within the capitalist economic system, war is one of the weapons which ultimately will be resorted to as the crisis within that economic order becomes more acute. The Liberal Leader also said that we had to face the problem of making this armament unnecessary. That is a very sound proposition to put forward. At the same time, I do not believe that he and his colleagues are facing up to the problem. He evidently believes that, if the National Government were to change the system and reduce tariffs and abolish quotas, the League of Nations would become a wonderful peace instrument again, that there would not be the need for this armament programme, and that the nations would be inspired by this wonderful action on the part of the National Government. I do not think that anything like that would happen, or that there would follow any such consequences, because we have to go much deeper. We should find that the tariffs and quotas are not something that are brought into operation simply because of diversity on the part of the Government, but they are implicit in the working of the system because of the desire to protect and to secure markets.

If they are inherent in the system and we are to face up to the problem of making armaments unnecessary, we shall have to go deeper and realise that we have to change the economic system altogether. Therefore we take a fundamentally different point of view from that of other parties in this House with regard to the question of armaments. One of the great factors tending to make the world go at such a headlong pace towards the possibility of war in the immediate future is the weakness of the working-class Socialist movement in the respective countries at the present time and the way in which those movements have become more or less tied up with their own capitalist class in their respective countries in the identification of the two classes with one national interest in those countries. If you had had in each of those countries, as you had after the close of the last War, a working-class Socialist movement threatening the overthrow of the capitalist economic order, threatening revolution and the capture of power and the bringing into being of Socialist commonwealths in those countries, you would not have had a situation that would have allowed the nations to drift, as they are doing, into the possibility of a war similar to the one waged from 1914 to 1918.

The great factor that can make for peace in the world is a working-class movement in each of the countries at war with its own bourgeois class, with its own possessing class, seeking to dispossess that class and bring into being a Socialist commonwealth. I believe that that is the one great factor that can make for peace in the world. Unfortunately, as I see it, in each of the countries there has been this dependence upon the League of Nations and the assumption that you can get within the capitalist economic order the lead that will give you a sound basis for peace. That is leading the working classes all wrong in this and other countries, and consequently a crisis is here to-day which enables the Government to come forward with a Resolution for the expenditure of all these millions of pounds upon armaments or the instruments of death. If the Government in this country had been faced by a working-class movement that was in fundamental disagreement with them in regard to the armaments problem, and determined to overthrow that Government and its policy, I believe that we should never have had such a Resolution presented to the House of Commons. The National Government are very fortunate that they can come to this House and find that there is not arrayed against them a strong working-class movement in fundamental opposition to them, and threatening the whole capitalist economic order in Britain with overthrow.

There is one paragraph in the White Paper dealing with the Army, and I want to say a few words on the difficulties which the Secretary of State for War has had in connection with recruiting. I believe that one of the factors that has weighed against recruiting has been the way in which men have been treated in the Army, the bad conditions and the little consideration shown for the men. There is one class of treatment in particular to which I would refer, and that is the way in which the Army treats men who are accepted as A1 men, who afterwards develop trouble through tuberculosis and are discharged with no pension, because the War Office declares that their tuberculosis did not arise out of their service. I put one case before the Financial Secretary to the War Office. I presented evidence from the man's doctor, who had seen him before he went into the Army and who assured the War Office that he had been perfectly sound. This is what I am told by the War Office: I am afraid that it is impossible to admit his case as attributable to Army service, since we have no evidence that the disability was directly due to any specific circumstances or conditions of that service. As my secretary pointed out last September, a disease contracted during military service is not necessarily the direct result of military duties. That is the answer I got from the War Office.

The Financial Secretary to the War Office (Sir Victor Warrender)

Will the hon. Member read the last sentence?

Mr. Stephen

I will do so: The medical certificate which you sent with your letter goes no further than to show that the disease arose during Army service, but there is no evidence that specific military conditions gave rise to the disability. If you can furnish any such information I would see that the case was investigated once more, but on the present evidence a careful review does not make it possible to depart from the original decision. I would draw attention to the words: The medical certificate which you sent with your letter goes no further than to show that the disease arose during Army service. If it arose during Army service, then he got it in the Army, and the Army should accept responsibility for it. How is the man to be able to prove it to the satisfaction of the War Office? The trouble came when he was in the Army. How could he have got it but through his service in the Army? Is the Minister going to say that it was hereditary, or something like that? I believe that the general treatment by the War Office of the men has been one of the factors against recruiting. I mention this case because I am opposed to this Financial Resolution on the ground that I have no faith whatsoever in the National Government or the governing class in this country. The whole system is arranged in order to protect the privileged, propertied class. Even now, under this Financial Resolution, which is practically nothing but inflation, the working classes, as the hon. Member for East Edinburgh (Mr. Pethick-Lawrence) pointed out, are going to be taxed by the rise in prices they will have to pay for their commodities. One thing I hope will result, and that is that with the rise in prices there will be again developed such a militant Socialist movement in this country and this programme of armaments will lead to so much discontent, that it will result in the overthrow not only of the Government but of the whole system for which this Government is responsible.

Mr. Morgan

I have listened with interest to the latter part of the hon. Member's speech. Did I understand him to say that he has no faith in the League of Nations?

Mr. Stephen

I am asked whether I said that I have no faith in the League of Nations. The great Russian Socialist, Lenin, described it as a league of robbers, a thieves' kitchen, and we of the Independent Labour party think that Lenin's description was singularly appropriate. That is our view to-day, and anybody who has had faith in the League of Nations has been sadly disappointed, such as the Emperor of Abyssinia or the Chinese in Manchukuo. There has been much criticism of the position of the Government with regard to the League. We think that the leaders of this Government are practically the League of Nations. What they say goes with the League. M. Blum's Government has very largely had to follow what would be pleasing to right hon. Gentlemen opposite. We know what those right hon. Gentlemen are. We know how they have treated the unemployed, and consequently we have no faith whatsoever in an institution of which they are the pillars. I hope that I have made it plain. Our party are opposed to this Resolution. We are opposed to giving any facilities to the National Government. We do not believe that they govern in the interests of the masses of the people, but that their Government is a class Government, organised to protect the interests of the rich and well-to-do.

I should like to ask the Chancellor of the Exchequer a question, to which he might reply. I have been interested in the statements made from time to time by members of the Government and their supporters, that Britain has led the way in disarmament and has allowed our defences to get to such a dangerous position because of concern for disarmament. I should like the Chancellor of the Exchequer to tell us how many Governments have spent more money on armaments, since the close of the last War in 1918 till 1933, than the British Government. I do not know of any country which has spent more upon armaments than the British Government, with the possible exception of the United States. Possibly Russia in the last few years may come into comparison with the British Government, but I question whether, taking the period from 1918 to 1933, the Russian expenditure has been as great as that of the British Government. If my assumption is correct I hope we shall not hear so much about Britain disarming while other nations were arming. The policy of the National Government is absolutely unsound. They are having regard only to the interests of the rich and well-to-do, and I trust that as a result of their policy such discontent will be created throughout the country as will sweep away this Government and bring into being an anti-militant Socialist movement, which will be the inspiration of similar movements in other countries, and lead to a great Socialist revival throughout the world, which will be responsible for a real policy of peace.

8.28 p.m.

Captain Macnamara

I do not know anything about the case of the soldier mentioned by the hon. Member for Camlachie (Mr. Stephen), but later on I shall have something to say about another case, and I do not think I shall find myself far from agreement with the hon. Member. I was interested in his suggestion for replacing the old-fashioned forms of warfare by a new and modern form, which I am sorry to say is spreading. I hope notice will be taken of his speech, because I foresee that when the younger generation is older it will be the very problem they will have to face; precisely that form of warfare which he advocated to the Committee and which his colleagues throughout the world to-day are advocating. I do not say this prophetically, because I know it is coming. The hon. Member also asked Members on this side of the House and also the Government to make it plain that we have no faith in the League. For myself I will not say that I have no faith in the League of Nations—far from it; but I have no faith, and I say it deliberately, whatsoever at the moment in the League being able to protect us militarily. But that does not mean that I have no faith eventually in the efficacy of the League of Nations. The two things are entirely different.

We must think in wider terms than our own island. All history gives us a lead in that respect. As communications improve and as we are brought nearer together we must think in wider terms. In the old days we used to think of Northumbria, Wessex and East Anglia. I speak for England, although I am an Irishman, and I say that we should have been indignant if anybody had suggested that we should remove our English army from the Scotish border. Yet that has come about. We came into closer contact and began to speak in terms of the British Islands. Now that communications have still further improved we are brought, for better or worse, closer together, and eventually we shall have to think not in terms of France and Germany and of England, but in terms of the Negroid, Semitic, the Aryan races and Mongols, and ourselves, whatever that may mean. But that is a matter more for a Debate on foreign affairs.

The Leader of the Liberal party made several remarks during the course of his speech which I should like to take up. I am sorry that at the moment the Liberal benches are completely empty. I think that on occasions there should be one of their number present to hear remarks which may be addressed to them by hon. Members of the House. The right hon. Member's views were very idealistic but completely impracticable. His argument was that free trade would prevent war and that there was, therefore, no necessity for a big loan for rearmament purposes. Did free trade prevent war in 1914 when a Liberal Government was in power? I suggest that the Liberal Government of 1914 would have been wiser to have raised a large loan for rearmament purposes before 1914, and to have seen that the arms of this country were so deadly that it would have made Germany hesitate twice before she attacked Belgium. The result might have been different if they had acted as the present Government are now acting.

The right hon. Gentleman talked of the peace-loving democratic Germany up to the days when Herr Hitler came into power, and suggested that it was because of our policy during that period of German history that we are now faced with a dictator in Germany and the huge German armament programme. I deny it. That is not so. The policy of the German Government has been the same, republic or dictatorship, since 1918. The German policy since the end of 1918 has been like eating an artichoke. Gradually every vestige of the Treaty of Versailles has been stripped away. Allied officers were seen on the streets of Berlin and it was said that no sovereign State could look itself in the face with officers of a foreign Power on the streets of Berlin. They were removed. The Army of Occupation had to go. It was said that no sovereign State could hold up its head in the world if it was not allowed to use the flag it liked. Germany was allowed to use her old flag. And so leaf by leaf that artichoke is being stripped and swallowed, whatever Government is in power in Germany. All the leaves have not yet been stripped off; we have not yet got to the core of the artichoke, and many people think the core is the most desirable part. As far as Germany is concerned, the core is not what she had in 1914, but what she wanted in 1914, and that has not changed, whatever may have been the Government in power.

The right hon. Gentleman the Leader of the Liberal party also pointed out that we spent some £7,400,000,000 during the Great War and that we are spending approximately the same amount now in peace time; but he did not mention how much we are spending to-day on pensions to people who were disabled in the Great War, nor did he mention the lives that were lost in the Great War. If we spend the same amount, or if we even spend 10 times more, we shall still gain, because we are not losing the lives. We shall gain by spending in time rather than too late. I was delighted to see the Liberal party forced into the invidious position of championing the cause of dictatorships driven to despair. I can only say that the attitude of the Liberal party to-day has completely justified the sabre-rattling of such dictators as Hitler or Mussolini. If the Government of this country were Liberal, one would see every demand of the dictators acceded to, and their sabre-rattling would be more than justified.

I am glad that we have the present Government in power. The right hon. Gentleman reminded us that Napoleon III contemplated an invasion of England, but he did not say that Napoleon III did not invade England because we built up our arms and were ready to meet him. He went on to point out that the whole matter was settled in the end by a trade agreement—we got rid of our tariffs and were friends again. The same thing would happen on another occasion. Other countries may be threatening an invasion of England or our Empire. What are we doing? We are doing the same as in the time of Napoleon: we are building up our arms, and in the end we shall be able to say, "Now be sensible and agree to trade with us instead of fight against us." History will repeat itself, as it has often done in the past.

We are being asked to-day whether we wish to pay for our armaments by means of a loan or by taxation. Speaking as one of the younger generation, naturally I feel that whatever we can do in the way of paying out of current expenditure we should do. My generation has to think of a long time ahead. We have to think of all the interest that will have to be paid on debts. Although I realise that it would be impossible to raise the whole of this colossal sum out of taxation at the moment, I think that as far as possible the country should pay for its armaments out of revenue rather than by loan.

To come down to earth from this very high level of £400,000,000 and to talk for a few moments about the way in which the money is to be spent. I would like to go into details with reference to the Services and the individuals concerned. I do not think we shall profit by talking airily about these huge figures unless we also consider critically and constructively how the pennies are to be spent. One of the greatest moves that the Government made was to appoint a Minister for the Co-ordination of Defence. That was not an easy job. Anyone who knows the Services and the Service Departments knows that it was necessary to move slowly and tactfully. The Minister has already done a great deal of work, but I would like to see him have a wider influence. I would like to see his Department strengthened by an Under-Secretary, partly because I think the lack of one prevents him from having the status and prestige he ought to have vis-a-vis the three Service Departments, and partly because I can in my own mind see a great deal of work that an Under-Secretary could do. Indeed, I am certain that the Minister himself would be only too glad if his Department were given more influence and wider powers. Although he may be modest about the matter, I am certain that he sees that in the end it will be absolutely necessary.

But co-ordination must not stop at the Ministries. It must go down through the ranks. I doubt whether we shall ever have real co-ordination in our fighting Services until we have much more co-ordination of the General Staffs. I do not know that it would be any more difficult than was the appointment of the Minister for the Co-ordination of Defence to have some form of General Staff by which the Admirals, Air Marshals and Generals would all be in one staff. I can envisage the time—in fact it is so at the moment—when warfare is amphibious and when the three Services are so closely co-ordinated in war that it would be better for them to be administered and trained towards that end in peace. Not only must the co-ordination go right down to the lower ranks, but it must be extended to civilians. I suggest that there is a good case now for the co-ordination, from the economic point of view, of the soldiers', sailors' and airmen's lives, particularly when they leave the Services, with the civilian life of the State. As far as the Post Office, police and so on are concerned, there should be some system, which I think could be worked out by the Minister for the Co-ordination of Defence—for personnel is Defence—by which men, having left their jobs in the Civil Departments and gone into the Services, could come back to the Civil Departments and have the same seniority as they would have had if they had served in those Departments the whole time. If that were the case, it would do more than anything else to improve recruiting, and a spontaneous flow of recruits into the Army would do more good in the eyes of the world than all the amounts of £400,000,000 we might spend.

I would like now to say a few words about the Navy. There are many small outlying stations where we could scrap and save without impairing efficiency. In this connection, I would like to draw the attention of the Minister for the Co-ordination of Defence to Jamaica, Bermuda and other small stations dotted over the Atlantic and the East Indies. Is an infantry battalion justified at those stations? Of what use is an infantry battalion in such places as Bermuda or Jamaica? I suggest that a good deal of that work could be done by the Navy through the Royal Marines. The garrisoning of places like that could be done much better by landing parties than by expensive infantry battalions which ought to be in our field force. That is a matter which ought to be gone into carefully.

When we are spending money on the Navy, it would be just as well for us to make up our minds as to the future of naval tactics. We hear arguments about the big ship and the small ship. As one without any knowledge of actual naval warfare, but with a certain knowledge of history, I submit that history has shown that Britain has been at her best on the sea when she has had small powerful craft with initiative, and the power of manoeuvre as opposed to great lumbering weapons which are difficult to get out to sea, and involve such risks that we scarcely dare use them. A case can be made out for a close study of the possibilities of smaller craft, and possibly for a large increase in the number of small, powerful, speedy craft such as coastal motor boats, torpedo boats and the like which would be almost immune from air attack while themselves in a position to attack these monsters and perhaps drive them off the seas. I suggest that these are all subjects worthy of examination. While I am criticising, I am trying to do so constructively.

A further point in that connection is that of the Fleet Air Arm. I have never been able to see why the Navy should not have its own aeroplanes if it requires them. The sole question is one of function and since when has it been held that the function of the Navy is merely to steer ships or that of the Air Force to pilot aeroplanes? The functions in war of various services may change slightly if it is a case of attack and not of defence, but in defence, I submit, the function of the Navy is the command of the sea, the function of the Air Force is the denial of the air to the enemy and the function of the Army the holding of the land. In the performance of those functions I cannot see why, in the case of the Navy, for example, if aeroplanes are required to assist in maintaining the command of the sea the Navy should not have them. Likewise, as regards the holding of the land, a position may one day arise in which each battery of artillery will require to have its own reconnaissance aeroplanes and in that case the machines ought to be Army aeroplanes. It might also be necessary, for instance, for a general to use an aeroplane. The point is to get the functions of each branch clear, and not to have them muddled up, and it is not a question of this or that service merely being employed to drive or to steer this or that particular vehicle or boat.

In the same connection and in regard to the function of the Air Force, namely, the denial of the air, I consider it wrong that ground defences against aerial attack should be administered by the Army. If you had the ground defences against aerial attack administered by the Air Force, you would have real co-ordination between the aeroplanes in the air and the guns on the ground, co-operating with each other and administered by the same authority. When all these millions are being voted we ought to look carefully into the question of whether we are organising efficiently against the possibility of aerial attack. As it is now we would have the Navy on the sea responsible for letting us know when the aeroplanes were coming over; the Air Force operating in the sky responsible for trying to bring the hostile aircraft down; the War Office responsible for shooting at them from the ground; the Home Office responsible for issuing gas masks to civilians and the Ministry of Health responsible for the hospitals to which the wounded are to be taken. In all this muddle, who is responsible for giving an air raid warning? There must be some form of co-ordination from the beginning and all the way through. The defence of Madrid at the moment, I think it will be agreed on all sides, has been handicapped by the lack of unity among the different factions making up the popular front, who cannot always agree until the critical moment comes on who is to take command and give orders. Let us consider these questions without fear or prejudice, so that we may be ready in time, and let us benefit by the lessons of other people's experiences.

I now come to that Cinderella of the Services, the Army. I wish to pay a tribute to the Secretary of State for War who has, of late, been receiving a good many kicks—although I agree with hon. Members that he may have been giving some as well. He has done something definite for the Army. He has shown more trust in the soldier than was formerly shown. I do not think anybody in this House has been more keen that I have been in fighting the soldiers' battle in the last year, and nobody is more pleased than I am to see the gradual relaxation of old, out-of-date, archaic restrictions. I am bound to say that the Minister has assisted us and by his attitude and by the publicity he has obtained for the Army, he has done a great deal for recruiting. As one who has criticised him on occasion I take this opportunity of giving credit where credit is due.

The leader of the Liberal party asked what was the role of the Army, and one has heard hon. Members, in more than one part of the Committee, ask "Why should we have an Army at all?" I would ask whether command of the sea alone has ever made any country secure? During the War of American Independence we had command of the sea, but we lost that war. Between the Battle of Trafalgar, when we swept the French off the seas, and the Battle of Waterloo, there was an interval of 10 years, and we feared the French all that time. In the Great War we had the mastery of the sea from the beginning, but it cannot be denied when there were times when we were very anxious indeed. The Air Force alone cannot guard our shores and our Empire. Aerial warfare might come to a deadlock, and what would the country do then if it had no Army with which to meet aggression? There is no doubt about the necessity for the Army, and there is no doubt about its role. The only difficulty is to decide on the best way of training it to fill that role.

Mr. George Griffiths

You cannot train it on margarine.

Captain Macnamara

There is a rule by which a Member is not allowed to ask the same question twice in a Session, and I think there ought to be an unwritten law that a Member is allowed to make the same joke once only every Session. There is one thing lacking in our military organisation which is very serious. I mentioned it the other day in the Debate on the Reserve Forces Bill. That is the question of a military police force. We are asked to spend £400,000,000 on rearmament, and we have spent recently a great deal of money on sending a military force to Palestine to clear up what is really a police problem. I think we seriously lack some form of military police force, rather like the Italian Carabinieri, or what used to be the Spanish Civil Guard, or the Canadian North-West Mounted Police. If we had some form of military police force like that, which could go to Palestine or to parts of the British Empire, I am sure it would be far more effective in clearing up troubles than in sending a very expensive expeditionary force which we really need for our home defence.

The "Manchester Guardian" the other day said that I was advocating a military police force for use in this country. It is not for use in this country. The guardianship of Manchester and of other towns can be left to our ordinary civil police, but no one, not even the "Manchester Guardian," can deny that from the Italian point of view, in the conquest of Abyssinia, their Carabinieri, their military police force, behind the lines did invaluable service for them which could not have been done so cheaply by soldiers.

I would like to join in the plea for equipment as soon as possible, and particularly equipment for the Territorial Army. The Territorial Army is expected to join up citizens who love soldiering and who are prepared to do their bit, give up their evenings, and so on in order to train. They are told that they are doing a patriotic job, that they are soldiers, and yet when they get there, time and again they are handed out completely old or useless equipment, with no guns, or with wooden dummies or blanks. Can you expect anybody really to be keen on joining such an army as that? You would not expect an artisan to join an institution unless he was given his proper tools, and it would do more good for recruiting perhaps than anything else, in the Territorial Army or the Regular Army, if we brought up to date at once our equipment; and I very much hope it will come. Until it does come. I am afraid we shall not get very much farther.

While on the subject of recruiting, I would like to say that we can do a great deal for the Regular Army without spending large sums of money. Some of this money which we are now voting is to be spent on the Regular Army on providing new battalions and in other ways to stimulate recruiting. I think it is more a question of looking into the terms of service and conditions in the Regular Army than spending great sums on it that is required. There is no dearth of recruits in the Air Force, and none in the Navy, but in the Regular Army there is a dearth of recruits, and there will continue to be until the Army is brought up to date. A lad who joins to-day is told that he will get free board and lodging when he goes into the Army, so much pay, 2s. a day, and so on, but he is very soon disillusioned. He goes into the Army; he gets his free lodging, it is true, but as to his board, he gets meals up to 4 o'clock in the afternoon, but no supper; he gets his 14s. a week, but a great deal of that is stopped before it comes to his pocket, because he is put to a great deal of personal expense in buying uniform or fancy bits of uniform and things like that, which should be a charge on the Government, and not on the purse of the private soldier.

Likewise, when he goes abroad and gets to India, he finds that, far from getting free board, he has to pay out of his own pocket anything from 1½ to 2 or 2½ annas a day on extra messing, and he then has to pay for wood out of his own pocket in order to provide himself with hot shaving water or bath water, which he would not get otherwise. I am sorry to have to make this strong indictment, but every word of it is true, and until the conditions in the Regular Army are thoroughly sorted out by those responsible and put right, both at home and abroad, in India, and until the man who goes in knowing that what he sees on the posters or pamphlets as to his conditions of service is true, and that he will get a fair deal when he gets in, and also some prospect of a Government job or of a job of some sort when he comes out, you cannot expect him, for economic reasons, to join up.

Finally, I would like to say a word or two as to the future. For the next three or four months I do not believe there will be much danger. Germany is not yet as strong as France, as far as I know, and France still possesses the most powerful military machine in Europe. We have not yet begun to catch up. The danger period will come between the time when Germany begins to outstrip France and we ourselves have begun to catch up in armaments. This loan for which we are asking will do a great deal to keep the peace by doing exactly what some hon. Members opposite have criticised us for doing, namely, threatening the dictator Powers, but the best answer to any country in Europe or the world would be a spontaneous movement by our own people, particularly before that danger period comes, about four months from now, when Germany catches up France and we are not yet ready. If by then or before then our own people show that there is no question of party politics in our wanting to defend our homeland, and that we can combine in such an army as the Territorial Army, recruited up to strength, for the defence of our country, we shall do a great deal to ensure the preservation of peace within our own frontiers and indeed throughout the world.

9.4 p.m.

Mr. Price

I will not follow the hon. and gallant Member for Chelmsford (Captain Macnamara) in all the review of the Forces by air, sea, and land which he has given to the Committee, but I should like to bring the Committee back to the financial aspect of this Resolution. At the same time, with very much that the hon. and gallant Member said on the question of recruiting for the Army I find myself in agreement, and I hope that when the Estimates come before the House this matter will be more fully ventilated. Before, however, I go on to my further remarks, I would like to take the hon. and gallant Member up on his opening remark in regard to the League of Nations. I am afraid he seemed to me to damn the League with faint praise. He believed that it was useful perhaps just in small matters, but that it was more a case of the day after to-morrow than now. We have heard a great deal about the uses of the League. It is useful to-morrow, but not to-day. Jam to-morrow, but never jam now. I think we are rather tired of that.

The hon. Member for Camlachie (Mr. Stephen) apparently does not want jam at all. He wants a very bitter medicine, which we have all got to take, a medicine which has been concocted in Moscow and rehashed in Glasgow—a very nasty medicine. My hon. Friends here and I do not take the view of either the hon. Member for Camlachie or the hon. and gallant Member. On the contrary, we feel that we can get some jam to-day and we want to have it, and because we fail to see in the Government's statement on defence expenditure any reference to the League, or any indication that their defence policy is related to that collective foreign policy which should arise out of their support of the League, we must oppose this Resolution.

I am not one of those who would say that with Europe as it is to-day we can neglect our defence forces. Indeed, if the Government came to the House with a statement that it wanted a considerable increase in our defence forces, because it needed them to pool them with those of other members of the League in the defence of public law in Europe, I for one, could not see my way to oppose them, but because they do not say that I have not confidence in their defence policy, which is not based on a sound foreign policy. The Government have, in fact, lowered the prestige of the League of Nations all the time they have been in office and all the previous years. They had the decency last March at least to mention the League of Nations in their White Paper, somewhat in an aside it is true, but they have not even mentioned it in this White Paper. Since last March we have seen Fascist nations triumphant and aggressive throughout Europe, acting on the offensive, and we very much fear that the big defence forces which the Government envisage will not be used to maintain public law in Europe, but may be used to keep a ring fence while the international gangsters get busy, as they have been doing in Spain.

For that reason we have no confidence in the defence policy of the Government, but, as I said in my opening remarks, I want to go back to the financial side of this question rather than the foreign affairs side. I would ask the Committee whether the method which the Chancellor of the Exchequer has adopted for financing this big expenditure is the right one. Over a period of five years it is proposed to spend approximately £1,500,000,000, in other words there is to be an annual expenditure of £300,000,000, of which, I understood the Chancellor to say, £220,000,000 would be found by the revenue—roughly and on an average throughout the five years—and £80,000,000 on an average out of the loan. There will be two-thirds from revenue and one-third from loan. What I should like to know is what percentage of all this large expenditure can be called capital expenditure for which a loan could very well be raised. It is a sound financial policy not to raise loans for any but capital expenditure, for expenditure on something which will last and produce revenue in some form or other—perhaps not revenue in money form, but in some other form. It should not be spent on a wasting asset, and here is where I feel that we ought to know a great deal more than the Government have allowed us to know in the White Paper.

We are to raise £400,000,000 by loan for the purpose of building or constructing—what? What will be there in 10 or 20 years' time? Will not the assets by then have gone or wasted away, and will not future generations be paying for something which has gone? Take the case of the five battleships, two laid down last year and three to be laid down in the coming year. What will be the life of those great battleships? Those which form part of the present battle fleet now were all constructed just before the War, and are said to be now becoming obsolete, and, therefore, must be replaced. They have had a life of 20 years only. Can we guarantee that the money we are now to spend on battleships will be paid off in 20 years' time? I think it is an unsound policy to raise by loan money to be spent on such things as battleships, particularly in view of the new inventions which are always coming along and the dangers which great floating forts like battleships are always subject to, especially from the air. Battleships at least ought to be paid for out of revenue. No mining or colliery company which is working a wasting asset raises all its finance by loans. It should always put by so much out of its profits every year to meet its wasting assets, and I maintain that the nation should act in the same way with a wasting asset.

It is the same with the Army. Considerable expenditure is foreshadowed for the mechanisation of the Army, for new artillery, motor transport and tanks. Here, again, if we finance that expenditure by loan one must ask, How much of the material is likely to be of value in 10 years' time? With a constantly changing technique in the mechanisation of the armed forces, how are we to know that the new artillery, transport and tanks will not be obsolete in a short time? Looking through the White Paper, there seem to me to be only two items, perhaps, which could reasonably be put down to capital expenditure and the money raised by loan, one being the new aerodromes and the other the shadow factories to be built for the manufacture of munitions and other materials for the forces. One might reasonably expect that they will last for several years to come, but even in that case one cannot say how long. Therefore, from the technical point of view, it is dangerous in the extreme, both to the national finance and the national interest, to raise this money by loan if it can possibly be raised in any other way.

Mr. Orr-Ewing

The hon. Member appears to be speaking as though the whole cost of the expansion was to be borne by loan. He wishes to put the case fairly, and I am sure that he will agree that approximately three-quarters of the cost is to be met out of revenue. He has mentioned only certain items of expenditure which could be fairly borne by a loan. Perhaps he will tell the Committee whether he considers that the three-quarters to he raised by ordinary means is an unfair proportion. As he has analysed the items on which the expenditure will be laid out, perhaps he will look at the question from that other angle.

Mr. Price

It is not three-quarters but two-thirds, as I see it. I should like to be told the proportion of the money foreshadowed in the White Paper which is to be financed by loan and what proportion by revenue. I cannot see anything in the White Paper, except for what I have mentioned, which could reasonably be put down to loan. They are all wasting assets. We have not been given any in- formation in the White Paper upon which to base a judgment.

Now I come to the third point, which is the effect of a loan policy upon the economic state of the country. My hon. Friend the Member for East Edinburgh (Mr. Pethick-Lawrence) pointed out in his speech that to-day we are in the upward swing of the trade cycle and we may be beginning boom conditions. If things go on as they are going at present I should say that we should most certainly be finding ourselves in the same condition as that in which the United States found herself prior to the big collapse in 1933. We were gradually coming out of the depression of 1929 and 1933. Like the rest of the world, we have replaced capital goods, a building boom has started and there is a certain improvement in our export trade, not a big one and nothing like enough, but still an improvement. The indications are that the Colonial parts of the world are experiencing the benefits of increased commodity prices and that they are increasing their purchases with us. All that indicates that we are approaching boom conditions. On the top of it comes this heavy expenditure by the Government on Defence.

My objection is that the Government are meeting some of that expenditure by loan which will only have the effect of intensifying these boom conditions. We have the three items, replacement of capital goods, building boom and increase in the export trade. Now comes the financing of our defences by a loan. This is a most dangerous situation, but the Government are only aggravating it by their financial policy. I should have thought we should hear something from hon. Members opposite about those very interesting articles in the "Times" by Professor J. M. Keynes, warning this country of the danger of boom conditions and telling us the way in which we ought to meet them. Unfortunately Professor Keynes has too often been a kind of Cassandra in this matter, too often proved to be right in his prophecies. He was certainly right over the Versailles Treaty. Let us hope that he will not be right on this occasion. I fear that what we have heard in the last two days shows that many of his prophecies are in danger of becoming true.

Loans can be reasonably made and the National Debt be reasonably increased only at a time of economic depression when we require to raise the purchasing power of the people and develop public works because private capital cannot function. That is when the public can be asked for a loan, even for Defence purposes, but to do it now when prices are rising and there is a danger of an increase in the rate of interest, is the worst thing the Government could do. Low rates of interest have been the cause of the improvement of economic conditions and it is wrong to aggravate them by increasing the debt and causing a rise in prices and still higher rates of interest. The Government are only preparing the way for a serious slump. The danger today is that if more money goes for the purpose of investment, whether it is in Government stock or any other capital investment or investment in capital goods, it will withdraw from circulation and possible consumption, consumable goods, and that will increase the amount of money in circulation while not increasing in proportion the amount of consumable goods which that money can purchase. That will lead to a dearth of commodities and rising rates of interest.

What is the alternative? The Chancellor of the Exchequer showed that the alternative was to increase taxation. It will be wrong of me to anticipate the Budget statement. I realise that the Chancellor of the Exchequer could not go into this matter in detail, but I think we can take exception to the remark he made that it will be a grave danger to increase taxation beyond a certain amount. The sources of revenue are by no means exhausted and it is perfectly possible to finance the greater part of this expenditure out of revenue. There are a number of reasons why I feel that it is quite reasonable to say that. We have not by any means reached the limit of direct taxation. An increase in the Income Tax would yield a considerable amount. Another 9d. on that tax would raise, I believe, about £35,000,000. That will be a 1s., with the 3d. last year. Moreover, over the two years there is an increased buoyancy to the national income. It will be possible for the Chancellor to estimate for an increase in the yield. There is then the possibility of introducing something like the Excess Profits Duty once more, whereby we might get a revenue out of industrial profits. Everyone knows that the profits on equity shares are going up. Industrial shares show increased dividends.

I say that it is not impossible to introduce such financial mechanism. I believe that in that way it would be possible for the Chancellor of the Exchequer to finance this scheme without having recourse to a loan at all. The extra amount required for the next five years will be £80,000,000 a year. I maintain that unless he can show to us far more reason than he has done in his speech to-day why this cannot be done, we shall be fully justified in opposing the financial side of this Resolution. What we need to do is to plan our national economy and in such a way that while raising the necessary money for national Defence—which, however, should be a Defence plan based on collective security and the League of Nations—we should do so not by assisting and furthering these boom conditions, which will lead only to a most serious collapse in a year or two, but should take time by the forelock, control the movement of prices and interest rates and go on the principle that in a time of boom you should raise taxation, if you want to raise money, rather than do it by raising a loan.

9.26 p.m.

Major Hills

The hon. Member has made a strong argument against inflation, and has painted its evils. I quite agree that inflation may be a very bad thing. It all depends on the facts of the case whether a certain policy is inflationary and whether it is used at the wrong time. The same point was made the chief attack on the Government in the speech of the hon. Member for East Edinburgh (Mr. Pethick-Lawrence). He dislikes what the Government are doing; there is nothing good in it whatever. Still more he dislikes the way they are doing it. He said, first of all, that the raising of £400,000,000 by loan will cause a rise in prices. If that stood alone, if the whole of the Government's policy were confined to a loan, I should be inclined to agree with him, and when I first heard the Chancellor of the Exchequer I confessed that I felt some uneasiness. The hon. Gentleman has a very acute mind and a mind which is well instructed in economics, but is it not rather too abstract, because he takes out of the whole picture one single feature, the £400,000,000 on loan, disregarding that £1,100,000,000 to be raised by taxation?

Mr. Pethick - Lawrence

The £400,000,000 is the subject of our Debate to-day. We are not now on the Estimates; we are on this question of the £400,000,000. That is why I spoke about it.

Major Hills

I submit that you must look at the whole picture, and not the part which happens to suit your case. When you are taking £1,100,000,000 out of the taxpayers' pocket for five years, the effect of the loan on prices and inflation is very much modified.

Colonel Wedgwood

Does the right hon. and gallant Gentleman think that prices are more likely to rise if the money is raised by loan than if it were raised by taxation?

Major Hills

I think so, because the more money you leave in people's pockets and the less you tax them, the more money there is about. All economists are agreed that transferable expenditure is a very valuable thing. Loan expenditure can be accelerated or deferred; it can be used in time of slump and stopped in time of boom. How does the hon. Member for East Edinburgh know that the Chancellor of the Exchequer does not mean to use his loan expenditure in this way? I can imagine that at a time when things were booming more would be spent out of taxes and less out of loan, and that if there were a prospect of a slump more would be spent out of loan and less out of taxes. I think that the hon. Gentleman has looked at the matter too narrowly. He went on to say that we should be very badly prepared for war if we spent this money. That was a curious argument. There are two ways of being prepared for war—either being fully armed and ready for it, or having no arms and being rich, and between the two I am rather for strong than for rich, although I quite agree with him that finance is an element in all war, and certainly modern war. But at this moment of time the first thing necessary to this country is an ample armament.

Then he said, "Do not inflate currency: inflation is a disguised tax." There, again, I agree that it may be. Yet it may be a very beneficial operation, and it is a very difficult thing to say that you can tax certain people and depend on the tax resting there. You may say that you will raise the £220,000,000 a year from the rich, but who knows on whom the burden of that tax really falls? I do not believe that in all cases inflation is an evil, and I do not believe that any economist thinks so. It was suggested that the whole cost should be met out of taxes. We may quarrel as to the exact proportion. It is quite easy to argue that a line should be drawn here or there, but I think that most people, economists as well as ordinary people, would agree that a certain sum ought to be raised by loan. You have both the economic argument and the human argument. The human argument is that people think they ought not to be taxed to pay the whole cost of a benefit of which a large amount will be drawn by prosperity. That may not be sound economics, but it is an argument which no Chancellor of the Exchequer can ever disallow. Lastly, the hon. Gentleman said that the Government had no foreign policy and that they were placing the burden on the wrong shoulders. If he means that no one can look through the darkness very far ahead I entirely agree with him. Who can say what is going to happen in the next six months, or even before that time? Is it not wisest to take measures to protect ourselves, to protect our Empire, and then to see what is going to happen? Here we have a large sum being spent in this, country, with the burden fairly adjusted between taxes and loans. I do not think that anyone can ask more of the Government. They have done what they ought to have done, and I think it will make our position much clearer and our influence much greater in the disordered world around us.

I have only one more word to say, and that is with regard to the speech of the right hon. Gentleman the Member for Caithness (Sir A. Sinclair), who, I am sorry to say, is not in the Committee at the moment. He still seems to think that Free Trade will cure all evils. Does he, I would ask in his absence, think that Free Trade will prevent war? History has shown that Free Trade and Protection have nothing to do with war. Free Trade England entered the last War as an ally of Protectionist France. No doubt statesmen in all countries will con- tinue to say in their perorations that economic peace must come before actual peace, but Free Trade and Protection have no more to do with peace and war than have the phases of the moon. I see that the hon. Baronet the Member for South-West Bethnal Green (Sir P. Harris) has just come in, so perhaps I might repeat what I was asking the Liberal party in their absence. Do they really think that Free Trade will bring peace, or is it merely a useful peroration, that is always there, and can always be drawn upon?

Sir Percy Harris

As the right hon. and gallant Gentleman has been courteous enough to challenge me, may I say that, if the Government would meet the appeal of M. Blum in the spirit in which it was made, it would be a considerable contribution towards peace?

Major Hills

It is pathetic. If I wanted to be rude I might have said that I thought it nonsense and dangerous, but all I will say is that the hon. Baronet is suggesting an erroneous theory. I need hardly say that I support the Government, and think they are entirely right.

9.39 p.m.

Mr. Macquisten

I am sorry that, instead of making one task of this matter, the Chancellor of the Exchequer will have to come to the House every year for a certain amount of money. I am afraid that that will inflict upon us a repetition of some of the arguments that we have heard to-day, and we do not want to hear them more than once; we do not want constant repetition of these effete economic theories. I look at this expenditure and this loan from the point of view of the men with whom the money is to be spent. Practically the whole of it will be spent on wages. A battleship represents wages almost entirely. There is the digging of the ore from the mine, the smelting of the pig iron, the making of the steel; there are the ship carpenters, there are the gun-makers. It is all work, and it is all going into the pockets of the highest class of wage-earners that we have; it will increase the circulation of money. Who has borne the burden of all this disarmament in the last 20 years? The people on the Clyde, the Tyne, and other places of that kind. Artists in steel were put on the dole. It is infinitely better that they should be working and making a livelihood for themselves, while at the same time making us proof against the nervous fears that are so bound up with our present-day life. Is it not better that they should be getting good wages than that they should be idle and drawing the miserable dole, with its means test and all its other abominations?

Moreover, if naval construction is going on, it increases the possibilities for the mercantile marine. The case is like that of Edinburgh, which is the home of printing. Why? Because it has always had the printing for the Law Courts, and that has provided a kind of backbone for the business. In the same way, the Clyde had always battleships and cruisers building, and that was a backbone for the shipbuilding industry. When that building ceased as a result of the Washington Conference, the loss fell on the unfortunate shipyard workers and steel workers. I was connected for a time with a company that made paper, and the bottom fell out of that company's business in a disastrous way after the Washington Conference. Of course, I have suffered, like all the rest of us who have to pay high Income Tax and Super-tax. That happens on both sides of the House. I have often wondered how, for instance, the hon. and learned Member for East Bristol (Sir S. Cripps) can look so cheerful when I think of the amount of Super-tax he must be paying. But the attitude I have always taken in regard to taxation is that it is not what the Government share may be, but what is left, and, if what is left to me is sufficient to keep me in comfort, I am grateful to this great country that gives me the opportunity of earning it. I do not ask whether the State is getting more than I am or not; it is enough for me that I have sufficient left for myself, while at the same time I am protected by all the organisation of civilisation which enables me to carry on, and by all the organisation of democracy which enables me to express my views without being immediately run into a concentration camp.

The spending of all this money in the next few years will get rid very largely of the hard core of unemployment. The taxation will no doubt be taken from various sources, but the people who will bear the heaviest burden will be the Income Tax and Super-tax payers, and I hope that the burden will not be made too heavy. I remember that, when the £1,000,000,000 War Loan was raised during the last War, an appeal was made through the Inland Revenue Department to the patriotism of Super-tax payers. A most moving letter in the handwriting of Mr. Bonar Law himself was circulated. At that time I was connected with a company which had very large reserves, and we rushed and put what spare cash we had into it. It was one of the most wonderful appeals ever written. The bankers had advised the Government that they would have to pay 10 per cent., but Mr. Bonar Law said he would not do that, and went and consulted Mr. Kennedy Jones, who told him not to pay a penny more than 5 per cent. The Super-tax payer is just as patriotic as the poorer taxpayer. I believe that the whole of the money for the last War could have been borrowed at from 2½ per cent. to 3 per cent. by appealing to the patriotism of those who had it. I hope the rate of interest on the proposed loans will not be too much, and if the Chancellor of the Exchequer could find it practicable to accept some of it in lieu of payment of Death Duties I believe it would assist considerably. You talk about the taxation of the rich, but Death Duties are a terrible thing for some estates.

The Deputy-Chairman

Order.

Mr. Macquisten

I was hoping to guide the Chancellor of the Exchequer in the ways of raising money at the cheapest possible rate, but perhaps I wandered a little from the Resolution. The point I want to make is that this money is not being lost. It is being circulated. Almost the whole of it disappears in wages. There may be a few firms which, owing to their large turnovers, are making a good profit, but compared with the amount that will go in wages these are not considerable. This policy will help one of the most capable classes in the population, the shipbuilders, and will get them back to their old occupation of which they have been deprived for years, because we set out to persuade the rest of mankind to disarm. We are doing what we ought to have been doing for years past. It is easy to shout "Peace." We had a demonstration of it in the peace ballot, which was a direct invitation to get into war. I do not believe we shall go into war. We shall only be in a position to defend ourselves from attack. This country will never stand an aggressive war.

The loan is to be devoted mainly to the Navy and Air Force, and the British Navy has never been used to conquer anybody. It has been used to defend. It is an instrument of defence which was started by King Alfred. Before the Navy was formed, the country was constantly being ravished by invasion. It has maintained our shores inviolable for all these years. This will be well spent money. It will make for the prosperity of the country and the peace of the world, and we should all, in all parties and classes, support it.

9.40 p.m.

Mr. Dalton

When the hon. and learned Gentleman began his speech I was hoping that he was going to come down upon our side, because at one stage he said that so far as taxation was concerned he did not care how much he had to pay away, provided enough was left him to live in comfort. That is a doctrine which has often been put forward from our benches, and I hope I may say something in harmony with it later on. There is a section of the community who are taxed so little relatively to their great wealth that they are enabled to do much more than live in comfort. A case can be made along these lines for a substantial increase in taxation to pay for these charges which the Chancellor of the Exchequer has put before us. I welcomed the speech of the hon. and learned Gentleman, and I hope it may not be long before he is in our Lobby.

Mr. Macquisten

Will you help me to reduce the whisky duty?

Mr. Dalton

I might be willing to barter that if the hon. Gentleman would come over. It would be worth a high price to get his support. One of my hon. Friends reminds me that we want some good lawyers. We are sometimes rather conscious of our lack in that direction. [Interruption.] Why should I not be frank? The Debate to-night has run wide, but I wish to concentrate attention upon what it is we are being asked to vote upon to-morrow night. It is not a vote for or against armaments in general. It is not a vote for or against armaments at any particular level. These are subjects for debate on later occasions, on the Votes for the Service Estimates. This vote is nothing of that kind. It is a vote for or against a Resolution authorising a particular method of raising £400,000,000 over five years, and against that Resolution His Majesty's Opposition will vote with conviction to-morrow night.

It is principally to the financial aspect of the matter rather than to those wider aspects which you, Captain Bourne, have permitted to be introduced to-day, to which I wish to address my remarks. The consequence of this Resolution will be that the British Budget will be gravely unbalanced for the next five years. There was a time when an unbalanced Budget terrified Treasury officials and was regarded by Members of the party opposite as being a very dangerous condition of our finances. The addition of £400,000,000 to the National Debt will raise the National Debt to a higher figure than it has ever reached at any time in peace or war in the history of the country. In March of last year the total National Debt stood at just under £7,800,000,000. The internal debt was just under £6,800,000,000 if we leave aside the nominal external element, which has become nominal since the present Government came into office and ceased paying anything to the United States. Therefore, it is more realisatic to focus on the internal debt, on which interest is being paid, rather than on the external debt on which interest is not being paid. The internal debt stood last year at £6,800,000,000.

If you add this £400,000,000 you will get a total, including the external debt, of over £8,000,000,000—nearly £8,200,000,000—and a total internal debt of nearly £7,200,000,000. Your previous high-water mark was in 1920, when the external debt was £7,800,000,000 and the internal debt £6,600,000,000. This means that you are going to wipe out at one blow all the slow and painful efforts which the Treasury officials have made to build up sinking funds and to inculcate successive Chancellors of the Exchequer with prudent methods of finance in the whole period since the War. All that will be gone down the wind of history, and you will be back in a situation where the dead weight debt is more massive than ever before, and the total sum which has sooner or later to be repaid will be standing at a record height for all time. That is a solemn thought, and the Committee should not be unmindful of it.

I should have hoped that some financial purists from the benches opposite would have rallied to our support in opposing such finance. The Chancellor of the Exchequer is proposing a scheme of repayment over 30 years, but who believes in these paper schemes stretching over such periods? The whole of financial history, as he knows well, is full of schemes of a hopeful character promising to repay such and such sums over 30, 40 or 50 years, and they have all broken down at a very early stage. Let me cite only two recent examples. The right hon. Gentleman the Member for Epping (Mr. Churchill) in his Budget in 1925 announced to a delighted Committee that he was going to repay the whole debt in 50 years, and he laid out a pretty little paper plan with that object. The next year it collapsed, and it will never revive again.

Mr. Macquisten

That was in 1926.

Mr. Dalton

Yes, in 1926, when the Government provoked the lock-out of miners by their foolish return, as everyone now admits, to the Gold Standard in 1925 for which action the Chancellor of the Exchequer of that time takes the major responsibility, and that is, no doubt, one reason why the plan collapsed. Again, Lord Snowden had a very pretty plan in 1929, whereby a deficit incurred in one year should be repaid in subsequent years and not be carried forward, but that plan collapsed the very next year, in 1930. Whether the Chancellor's plans for repayment will collapse as soon as that I do not guess and, after all, it is only, as he said, a book-keeping entry. My point is that in the light of past experience it would be very rash to attach any value whatever to these paper schemes stretching over long periods of time for repayment of additions to the debt. These are only intended to reassure public opinion, which otherwise might be rather dubious about such additions to our indebtedness.

Moreover, if I may turn to another argument against this loan policy, what is it that you are borrowing for? You are borrowing to make instruments of war many of which, assuming that peace is kept, will very soon be obsolete. Long before the 30 years are over they will be out-of-date. They will be superseded by new types and you will therefore be continuing to pay interest in respect of assets which will have lost their effectiveness and will probably have been scrapped or melted down again to make new and better instruments. Therefore, even if you take the standpoint that it is legitimate to borrow provided you repay the loan within the life of the asset created, the Chancellor's mode of prepayment is much too slow to justify the procedure of raising this loan. Further, as my hon. Friend the Member for East Edinburgh (Mr. Pethick-Lawrence), in his exceedingly able and interesting speech explained, the Government have refused—and the Chancellor has held his present position now for a number of years, through good and bad trade; he has almost seen us through a trade cycle—in times when trade was very bad, to undertake loan expenditures even for works of capital and productive use such as might have been set afoot in the distressed areas, or even in other parts of the country, and even now, while £400,000,000 is apparently readily to be raised by loan for this purpose, there seems great doubt as to whether even a very much smaller sum will be forthcoming for these other objects—for the restoration of employment in those areas where unemployment remains most intractable.

My hon. Friend also made it abundantly clear that all this talk of putting the burden of this expenditure on the future is a sheer delusion. Let me quote the final words of the Government's White Paper: It would be neither practicable nor just that the whole burden of making good these deficiencies in the short period of five years should be thrown on the taxpayer during that time. In other words, the Government apparently hold the view that it is possible to push part of this burden forward upon the future. I believe that is sheer confusion. All that you can do by borrowing, as distinct from taxing, is to make taxpayers, and in particular the working class, who pay so large a share of the taxation through indirect taxes, which have been greatly increased since the present Government came into office, pay tribute in the future to bond holders. The whole thing is in the future—it is a transfer of wealth in the future in consequence of your monetary operations.

But the real cost of armaments for which you are raising the money now, whether by taxation or by loan, lies in the diversion of men and materials and money from making objects needed for peaceful use to making instruments of war. Here I am purely on a point of economics and not on the question whether these armaments are necessary or not. I do not want to introduce that complication here. It is more convenient to discuss one thing at a time. The Chancellor of the Exchequer is suggesting that somehow or other this burden is going to be pushed forward into the future by this mode of finance. I submit that he is merely laying up a burden for one class in the future for the benefit of some other class in the future, while, by this expenditure, we are now being deprived of houses, schools, bridges and other supplies which might have been made with the labour, the steel, the bricks and the rest which are being devoted to the programme in dicated in the White Paper. The view of my hon. Friends is that it is better, in public finance as in private, to pay as you go rather than go to the moneylender, as the Chancellor proposes, for this large sum.

I am anxious not to go beyond the Ruling that you, Sir, have given and not to enter more deeply than you think proper into details with regard to taxation, but, in view of the fact that the White Paper states that it would be neither practicable nor just that the whole cost should be borne in five years, I hope I shall not be going beyond your Ruling if I offer a few general observations to seek to controvert the view that it is not practicable that the whole cost should be thrown on the taxpayer within the next five years. I hold the view, having lately looked at some of the most recent publications that are available to us, that it is perfectly practicable to put the whole burden upon the direct taxpayer and that there are several alternative ways in which it might be done. We are very conscious just now of what many call the arms racket. We are conscious of the fact that enormous profits are being made by armament firms in spite of all the promises that have been made that those profits should be controlled, and in spite of the fact that the Royal Commission, which was appointed by the Government and reported in September last year, most strongly recommended that the profits of armament firms should not only be limited, but also that they should be limited in so straightforward and well advertised a fashion that the public in general should be satisfied that they were so limited. Nothing has been done and, therefore, great fortunes are being accumulated and large profits are accruing 1.0 these armament firms and to kindred enterprises. One way—it would appeal to a sense of justice—in which a large part of this money could be raised would be by a special tax analogous to the Excess Profits Duty of the last War upon persons who have secured undeserved additions to their wealth through armaments. That would be one way.

Mr. Macquisten

Get it all on Death Duties.

Mr. Dalton

Would the hon. and learned Member propose that course? We would welcome such a suggestion.

Mr. Macquisten

If a man makes a large fortune, fully one half of it is taken away in Death Duties.

Mr. James Brown

He leaves it to his sons.

Mr. Macquisten

There is very little of that. The State gets all back. In some cases more than all. Take the case of a man who leaves £5,000,000; you take the whole of it.

Mr. Dalton

I welcome the suggestion. I am more and more of the opinion that the hon. and learned Gentleman is just on the margin of coming into our Lobby. There is a great deal to be said for this second alternative, for the hon. and learned Gentleman's suggestion, that we should steeply increase the Death Duties scales. That would be in the tradition of the distinguished family to which the Chancellor of the Exchequer belongs, because one of the steepest increases in Death Duties in modern times was put on, as he will remember, by his brother the right hon. Gentleman the Member for West Birmingham (Sir A. Chamberlain), when he put up the Death Duties on the estates of millionaires from 20 per cent. to 40 per cent. Afterwards it was put up to 50 per cent., and there is a lot to be said for putting it up to 75 per cent. If that were done there would still be, in the case of the man leaving £2,000,000, the sum of £500,000 untouched by taxation. I am not anxious to incur your displeasure, Captain Bourne, by giving too much statistical information on this question, but I would say in passing, that, if you put Estate Duty up by 50 per cent., you would get another £50,000,000 a year. Take the surtax payers, that fortunate bunch of people, about 90,000 in number, who, at the present time, have an income of more than £2,000 a year. A slight adjustment of the surtax rate would bring in another £40,000,000. I have been anxious only to illustrate, and if it were in order and there were time, I should be able to make many practical detailed suggestions to the Chancellor of the Exchequer, which would show quite clearly that this sum could easily be raised, in contradiction to the statement in the White Paper, by an increase in direct taxation.

What is the alternative? My hon. Friend the Member for East Edinburgh has referred to this proposed loan finance as inflationary, and he was justified in using that term. It is an inflationary loan which will increase the cost of living, and, therefore, hit hardest the poorest section of the community. This loan finance which pretends to let off the taxpayer imposes taxation through the increased cost of living upon the poorest section of the community. If I may refer again to the Chamberlain tradition, the right hon. Gentleman's father once asked what ransom would property pay? That was in the days when he was Republican, Radical and Equalitarian. The Chancellor of the Exchequer to-day asks what ransom will the poor pay? There can be little doubt—many authorities have been quoted in support of the view that at this phase in the trade cycle there can be little doubt—that you are going by means of this loan, raised at this time and for this object, to raise the cost of living very subtantially.

There is yet one more argument, in addition to those used by my hon. Friend the Member for East Edinburgh, which I should like to put to the Committee. Such a loan will be inflationary at this stage in the trade cycle when, outside in distressed areas, there is beginning to be a shortage of many forms of material and skilled labour, but it is still more inflationary when you take account of the purpose for which it is to be spent. If the loan were being raised in order to make, not armaments but houses, or to increase the production of foodstuffs or clothing or what not, items that enter into the consumption of working people in this country and other classes of consumers, then the loan would, at any rate, result in a substantial addition to the quantity of consumable goods which would enter into the living standards of the people. But this loan is to be used to make armaments. It is true that wages will be paid, but that is true of any form of expenditure and is equally true of house building, bridge building or anything else. The system of finance which is here advocated will add nothing, as far as the armament products are concerned, to the consumable goods available for the masses of the people. Therefore, corresponding to this great additional effort directed away from productive forms of work, there will be no addition to the production of consumable goods. Therefore, there will he an even steeper rise in the cost of living, as my hon. Friend indicated.

I hope that I have given sufficient reason to show that we have solid ground for opposing this proposal on purely financial arguments. It is bad finance, it is bad from the point of view of the general interests of the community and from the point of view of preventing a collapse and a slump as soon as the spurt of armament production comes to a head, if ever it does. From this point of view it is thoroughly bad finance.

I turn from that to certain other considerations. When I turn to the White Paper and read it through, as an attempted justification of this Resolution on the Paper, I confess that I am filled with the deepest misgivings and gloom. One reads of a co-ordinated plan. The phrase "co-ordinated plan" appears at the top of page 4, where it says: Part of the co-ordinated plan which has been drawn up. The Minister for the Co-ordination of Defence, we understand, will speak tomorrow, but I hope that he will not think me discourteous if I say that up to date he has inspired no confidence at all among my hon. Friends that he is effectively co-ordinating anything; no confidence at all. It may be, as suggested by an hon. Gentleman who spoke earlier, that he is short of staff. That may be one difficulty. It has been suggested that he ought to have more assistance. Many of us think that it would be a great advantage if more of the younger and fresh-minded men from the Services were to be recruited to his staff to modernise the outlook of the officials at present advising him. That may well be, but it is a matter for further Debate to-morrow. We have no confidence that he is effectively co-ordinating anything and no confidence in him or his staff as it is at present constituted. For that reason whatever the total—and to-night I am anxious to leave this point without pronouncing any opinion upon it—which it is desired or which it is determined to spend on arms, we have no assurance whatever that under the Government's present arrangements that total will be spent to the best advantage, none at all. We have no assurance that there is any plan for effective co-ordination and for the efficient spending of whatever sum may be voted.

There is one further point on page 4 of the White Paper, a financial point, on which the Chancellor of the Exchequer might say something. We are told at the bottom of page 4 that: The wide dispersal of the territories comprised within the British Empire and the dependence of these islands upon supplies from overseas lay a special responsibility upon British Forces and, above all, upon the Navy. There is a very wide dispersal of our Dominions and Colonies, and I should like to know whether, in connection with this scheme of finance, there have been any negotiations and, if so, whether they have reached the stage of completion, whereby those who are to be protected by the British Navy and other armed forces are going to contribute any proportion, according to their ability, towards the additional cost. Are the Dominions going to contribute anything additional to these common costs, or is it all to fall upon us? Are any additional contributions in sight from any of the Colonies or other Dependencies? That is a financial point on which we should be glad to have information. This paragraph in the White Paper suggests that the territories within the Empire have a common interest with us in being defended. That being so, are they making any common contribution towards the cost of that defence?

It has been said, and I will leave the point to be developed to-morrow, that the White Paper makes no reference whatever to the League of Nations, nor to collective security, nor to the background of foreign policy against which alone any such policy as this can be justified. But there is a background to these proposals. There is a background of history, of recent history, and it would be impossible for these proposals, put forward as they are, to be understood unless the events of recent years are borne in mind. Since the year 1931, when this Government entered into office, there has been a rake's progress towards world catastrophe, coming nearer and nearer, and, unless we can divert the march of events, many of us may not long remain to comment upon them.

The Government in 1931 inherited a very fair international prospect. There were low armament charges compared with anything we have now before us, and the prospect of bringing them lower still if only they played their diplomatic cards with skill at the international conferences then planned. They made a tragical mess of disarmament. That is a story which has been told before and it should never be allowed to be absent from our memories when judging these matters. They made an utter mess of the Disarmament Conference. They threw away wonderful opportunities, which will never come back in the lifetime of any of us. Had those chances not been thrown away this White Paper would have been outside the bounds of possibility and armaments would be far lower than they are, and the prospect of getting them lower still would have been within our grasp. [Interruption.] I have said that they made an utter mess of the possibilities of international disarmament. In 1932 they lost wonderful opportunities, which at that time presented themselves, of getting substantial reductions in armaments, by international agreement, all over the world.

If the Government at that time had accepted the proposal made by Signor Mussolini's emissary, backed it up and put it through there would be no bombing aeroplanes in any land to-day, and in that case a very large part of this expenditure would be completely unnecessary. I am not going to develop that argument but the records are perfectly clear, that the British Government threw away that opportunity by failing to back up the many nations which were willing at that time to line up behind Signor Mussolini. At that time and on that issue it would have been the right thing to do. Later on they ran away from him in another sea. Having made a mess of disarmament they are now making, I fear, a terrible mess of rearmament.

May I once again refer to the speech made in this House by the Prime Minister on 12th November, 1936? It is one of the most serious counts against the Government, and they have now admitted it, that during the period in the years 1933 and 1934, when Herr Hitler had just arrived in power in Germany and was beginning to show what manner of policy he intended to pursue, through fear of electoral consequences they concealed the truth from the British people. Let us begin by getting the arithmetic of these things right. How can we judge what forces we should have within the framework of collective security, or otherwise, until we know the plain facts about other people? The Prime Minister has admitted that through fear of electoral consequences, the fear that he might, had he told the people the truth, have lost the forthcoming election—he said that he and his friends were very worried about what was then happening in Europe—he did not tell the truth regarding what they then knew to be proceeding in Germany and elsewhere. Not only so but, perhaps through defects in the Secret Service, they did not appreciate the fact that German rearmament in the air was proceeding with unexpected rapidity, and a little later we were confronted with the statement that Germany was stronger in the air than we were. All this is part of the background of this White Paper, and it will be proper to develop it at another time.

We on these benches have our responsibility for what we did when we were in Government from 1929 to 1931. During those years there was no need for any such White Paper to be produced and no need for any such policy as lies behind it to be pursued. From 1931, uninterruptedly, the present Government, with minor variations of personnel, have been in office. They have the complete responsibility for the events of the last six years. They have had an ample majority in this House and so far as our national policy is concerned they are wholly responsible. This White Paper is the outcome of a series of tragic and preventible errors which have been made in the conduct of our foreign policy. Foreign policy is the background of all this armament business. Had our foreign policy been otherwise conducted since 1931 we should have a very different armament situation to-day. In this region we have nothing for which we need apologise. Our record can be defended, and theirs can be attacked, effectively. And in the light of their past performances we have no shred of confidence in the Government or in the policy they are asking the country at this time to pursue.

10.25 p.m.

Mr. Chamberlain

I understood when the Debate began to-day that, on the Opposition side at any rate, the criticisms were to be principally financial, and that it was desired that an answer to those criticisms should be made before we pass to-morrow to other aspects of the questions before us. That expectation has not been altogether borne out, and the Debate has ranged over a somewhat wider field than I had anticipated. I do not propose however, to touch upon other matters than those which are strictly related to the financial aspects of this proposal, and I will leave to my right hon. Friends who are going to speak to-morrow the task of replying to any criticisms which have been made on other sides of the affair.

However, I might perhaps make one remark in answer to the repeated criticism that we have not explained how our Defence programme is related to our foreign policy. That appears to me to contemplate that our foreign policy in relation to Defence is of a comparatively simple character. If it were in fact contemplated that, in considering what Defence measures were necessary for the safety of this country, we had to take an enemy A and consider how we could defeat that enemy with the aid of B and C Powers, with whom we were in alliance—if that were what we had to consider—it would be comparatively easy to draw up a Defence programme and to show how it was directly related to the problem we have to solve; but, of course, that is not the case. We have not to single out a particular Power as the enemy, nor are we, as a matter of fact, in alliance with other Powers on whose aid we could count in that particular case. What we have had to do is to consider a whole series of hypothetical emergencies in which we might be opposed to this or that Power, or this or that group of Powers, and in which we might find ourselves fighting alongside other Powers or groups of Powers. We have had to draw up our Defence programme to the best of our ability, with the best advice we could get from expert advisers, to enable us to feel that it is so drawn up as to make us as safe as we can make ourselves against any of those hypothetical emergencies.

I come now to the financial criticisms to which I have listened this evening, and they may be reduced to a very small category. There was indeed one of a specific character which has been made more than once—for instance, by the hon. Member for Chesterfield (Mr. Benson), the hon. Member for Ebbw Vale (Mr. Bevan) and possibly by others. It was that we ought not to have asked for statutory powers to enable us to borrow for the whole period of five years, and that the proper course would have been to come year by year to ask for powers to borrow what we might require during each year and that the necessary provisions could have been inserted in Clauses of the Finance Bill.

Mr. Benson

I do not think I said that.

Mr. Chamberlain

I apologise to the hon. Member, but the right hon. Gentleman the Member for Caithness and Sutherland (Sir A. Sinclair) said it, and the hon. Member for Ebbw Vale certainly supported that view in a series of interjections. The matter was, I think, dealt with very adequately by my hon. Friend the Member for Norwich (Mr. H. Strauss) in the very admirable speech which he made. I venture to supplement what he said by two further considerations. First I would remind the Committee that the programme which we are considering is not a programme of one year. It is a programme which it will take several years to complete. Even when you enter into commitments in the course of a single year, those commitments may involve you in continuing expenditure over a series of years. I have only to take the case of building a battleship to show what I mean. You lay down a battleship in one year, and you can spend a comparatively small sum on it in that year, but before you can complete it, you must go on spending at an increasing rate until you reach the peak, and then the expenditure diminishes again.

If we had adopted the course suggested and instead of asking for statutory powers to cover borrowing for the whole period, we had said we were going to reveal only what we contemplated it would be necessary to borrow in a single year, the party opposite would have been the first to complain and to say that that was not the way to deal with a programme which was going to extend over five years. The theory of planning which is so often pressed upon us goes by the board if you propose to present your plan year by year and on general principles that seems to be an unanswerable reason for bringing the matter forward in one year and not by separate instalments.

There is a second consideration which is one of practical convenience. It would be impossible to deal with this matter by Clauses in the Finance Bill, for the simple reason that before the Finance Bill is introduced the House must have considered and passed the Estimates. We cannot produce the Estimates without showing upon them how much of the money is to be found by appropriations-in-aid to be met by borrowing, and we cannot do that until we have introduced and made progress with Bills such as those dealing with statutory powers of borrowing. I need only add, in conclusion on this subject, that the House would find it extremely inconvenient if, year after year, they had to take up time in going over the same ground over and over again to the detriment of other business which is always so pressing at this time of year. So much for that point.

Now I come to another point, namely, the question of borrowing. Incidentally, I must remark that the question which I put in my opening statement as to whether the party opposite did or did not challenge the extent of the programme contemplated in the White Paper has never been answered. The hon. Gentleman who followed me said nothing about it. He avoided the question altogether. The hon. Member who has just addressed the Committee, bearing in mind no doubt the quotation from his speech at Edinburgh which was recalled to the Committee by my hon. Friend the Member for Norwich—the speech in which he said that the Labour party themselves would have to increase armaments if they were in power—also avoided it on the ground that he did not wish unduly to complicate the situation.

Mr. Dalton

I do not want any misunderstanding. If I make a speech, I am prepared that it should be quoted, and if it is accurately quoted I do not mind hearing my words repeated by other lips. But what I said was that the Resolution before us dealt simply with the question of whether or not a certain sum should be raised by loan. It was that question I said, which we were discussing, although the Debate had been allowed to go rather wide, and it was on that question that we were going to vote to-morrow. Therefore, I said that these other matters, however interesting in their right time and place, could be discussed later on the Service Estimates, and I did not propose to consider them to-night.

Mr. Chamberlain

If hon. Gentlemen did not consider it convenient to consider that question to-night, I suppose we may take it that the programme is not challenged and that what the Labour party is challenging us on to-night is on the question of whether the £400,000,000 can be found by taxation or by loan. There are two main objections which have been raised to the proposal to borrow this £400,000,000. The first was made by the hon. Member for East Edinburgh (Mr. Pethick-Lawrence) and repeated by the hon. Member for Bishop Auckland (Mr. Dalton), namely, that it was impossible to establish that any part of this expenditure would be non-recurrent. On that point I would say, first of all, that it will be agreed at any rate by the hon. Member for East Edinburgh that a great part of the expenditure is recurrent and that it is not proposed to find the money for that recurrent expenditure out of borrowed money. That, I think, is understood.

Mr. Pethick-Lawrence

The right hon. Gentleman says that I shall agree with that, but the right hon. Gentleman has never attempted to address himself to that question. I certainly do not agree that that has been proved already, because there has been no attempt to prove it.

Mr. Chamberlain

The hon. Member's theory is that the whole of the expenditure is recurrent, but I deny that.

Mr. Pethick-Lawrence

I never said that.

Mr. Chamberlain

He said we could not prove that any of it was non-recurrent.

Mr. Pethick-Lawrence

I said that we did not know whether non-recurrent expenditure was the same as capital and that in any case where there was capital or merely non-recurrent, even so there were considerable arguments against raising it by loan.

Mr. Chamberlain

I think the hon. Member's memory is perhaps a little at fault. He went even further and said that it was very doubtful whether any of the expenditure was non-recurrent, and that was certainly the argument of the hon. Member for Bishop Auckland. I agree—I said so at the beginning—that it is extremely difficult to take every item in the programme and put it into one category or the other and say whether it is recurrent or non-recurrent, but I did say, first of all, that it is only a portion of what we believe to be non-recurrent expenditure which will be found out of borrowed money, and, secondly, I said that it cannot be denied that a considerable part of this expenditure is non-recurrent. For instance, take the erection of shadow factories. When they are built we shall not have to duplicate them. They will not come back on us every few years, and their life will certainly be more than 30 years. There are, of course, a great number of works of a permanent character, such as barracks for men, sheds, and so on, but, above all, what I want the Committee to bear in mind is this, that one of the reasons why we are forced to undertake this enormous expenditure in a comparatively short time is because we have to overtake arrears which have been accumulating for a long period in the past. When you have overtaken those arrears, again they will not come back on us. Once they have been overtaken and the stores, for example, or reserves, have been brought up to the new level, that is non-recurrent expenditure.

Mr. Pethick-Lawrence

This is a very important question, and we want to be clear on it. In the White Paper, as I understand it, there are two classes of factories. There are the shadow factories, which are refered to in paragraph 28, and there are other factories, which are referred to, I think, in paragraph 32. Now the right hon. Gentleman is speaking of these shadow factories as if they were to be built and owned by the State, but that is not the understanding which I have. I thought the shadow factories referred to in paragraph 28 were to be the property of private firms but that the factories referred to in paragraph 31 were national factories. As far as the Government factories are concerned I think his argument applies, but not to factories which are to be the property of private firms.

Mr. Chamberlain

I am much obliged to the hon. Member for that explanation because it enables me to make clear what evidently he has not fully appreciated, and that is that these shadow factories, at any rate in the great majority of cases, will be State-owned factories. They will be the property of the State after they have been built and the necessary experience has been obtained by working them on what I might call sample orders. They will then remain as war potential factories, which will be worked by the particular firms but will be themselves the property of the State. Therefore, those factories represent non-recurrent expenditure just as much as the Government factories to which the hon. Member referred and which are alluded to in paragraph 31 of the White Paper. As to the second and more theoretical argument regarding the effects of borrowing £400,000,000 of this expenditure, I must confess to not being a theoretical economist myself and I had a good deal of difficulty in following his argument. In listening to him I was repeatedly puzzled to know whether his argument was directed against placing any orders at all for armaments or was merely against the practice of borrowing a part of the money required, because he stated that the vice of this proposal was that men would be taken away from ordinary commercial occupations, the making of textiles for example, in order to make armaments or munitions which were of no economic value. Did the hon. Member not say that?

Mr. Pethick-Lawrence

I do not want to keep interrupting, but the right hon. Gentleman invites me to reply. I said that whether you borrow money or raise it by taxation you are diverting people from the occupations of peace to the occupations of war, and the difference between the two is this: In the one case, by abstracting the money from taxation, you are not inflating, but when by means of a loan you get additional purchasing power, and thereby compete with the existing purchasing power of the community, you are inflating, and that, I think, is a recognised fact.

Mr. Chamberlain

I do not really appreciate the point of that. The hon. Member spoke of diverting people from commercial work in order to make armaments, and said that the danger would be averted if there was a foreign loan, and when I asked him why that would avert the danger he said because in that case the armaments would be made abroad and somebody else would suffer the damage instead of ourselves. It shows how difficult it is to follow these theoretical arguments; but I did understand this quite clearly, that when we did not borrow we were always wrong and when we did borrow we never did it at the right time. He explained to us that when, in the period of greatest depression, I steadfastly refused to borrow for public works, I was then transgressing all the proper canons of real economists, and that now I was borrowing just at the wrong moment. At least, I have the right hon. Gentleman right this time. I am afraid that I do not accept his conclusions.

When I look back over the history of the past few years and compare what has happened in this country with what has happened in other countries where they have incurred enormous deficits, I fail to see that those deficits have assisted their recovery or that we have suffered material damage from the fact that we did not borrow at that time. If we did not borrow then, it was not because we objected on principle to borrowing but because we could not find any works which were economic in character and suitable for borrowing. I said that over and over again at the time. Where we did find it possible by Government assistance to hasten or to anticipate works which we considered to be of economic value, again and again we took that opportunity. One has to repeat those things so often because the same old arguments are repeated on the other side. Let me remind the Committee once again of the project of hydrogenation of coal, the building of the "Queen Mary," and the great schemes in connection with the development of London traffic and the main line railways.

We are not borrowing this time because we think it right to borrow on principle at this moment, but because the circumstances of the time seem to make that expedient. The hon. Member for Bishop Auckland has maintained, as indeed his colleague maintained, that I am wrong in saying that it would be impossible to find the whole of this £80,000,000 a year during the next five years out of taxation. He somewhat exaggerates what I said. I did not say that it was impossible. Obviously it would be possible to raise it in various ways, although if the object of raising taxation to that extent were, as is suggested in the Resolution passed by the Liberal executive, to damp down consumption, one would look to indirect taxation rather than to direct taxation to produce that result.

We have to consider not merely what is going to happen to-morrow or even next year. One has to take a rather longer view of things than that. When the right hon. Gentleman says that it is not going to make any difference at all whether you put off the burden to a future generation, I wonder how many taxpayers he would get to accept that view. When he suggested that it makes no difference whether you add 1s. 6d. to the Income Tax or whether you spread the burden over the next 30 years, how many converts would he have to his view? It is absurd to suggest that you can push up taxation to extravagant heights without it having some serious effect first upon psychology and so upon the recovery that is taking place in the country. When it is not practicable to run taxation up to those heights, I do not mean that it is impossible to do so. You can bleed the country at almost any rate until it is bled white, but it is not wise to do so. The chances are that if you attempted to do so you would check the progress of industry to such an extent that you would cripple the national resources in revenue for some considerable time.

Hon. Gentlemen opposite talk as though this extra expenditure upon Defence is all that we have to take care of in the next few years. Are they not forgetting also that we have to consider the growth of Civil expenditure? Do they think that that Civil expenditure is going to remain where it is? Do they not know that it automatically increases every year, that in pensions alone the sum is going up until it ultimately reaches a charge of something like £80,000,000, from the £40,000,000 where it is to-day?

We have to consider that we cannot keep the social services for ever where they are. We do not want to cut down all expenditure except expenditure on Defence. We have to consider that the revenue, buoyant and expanding as it is, has to sustain the burden of increasing expenditure not only on Defence but on Civil purposes as well. If we had proposed to borrow the whole of £1,500,000,000 there might be something to be said for the view of hon. Members that the result would be inflationary in effect. I know that inflation is a word dear to the hearts of hon. Members opposite. I am not at all sure that they know what it means. They regard it as a sort of term of abuse.

I am not sure that there is not a certain inflationary effect going on already. Increased supplies of gold, and other causes, are raising prices, and we are getting the benefit in the increased prices of primary commodities because of the increased purchasing power of those countries which are chiefly dependent on the exports of those commodities, and we see the result in increased exports from this country, due to that increased purchasing power. But when the hon. Member said that this comparatively small proportion of the total to be raised by loan was going to, have an inflationary effect, that is a purely theoretical deduction, and I doubt very much whether it will be substantiated in fact. What I do say is that the expenditure of this money is going to give increased employment. A great deal of it will go to the Special Areas, and the whole expenditure will be fairly balanced over the whole country, at any rate, for the next year or two.

Do not let hon. Members think that anything any economist says is infallible. They sometimes make mistakes. But it would be a mistake to suppose that Mem- bers of the Government, who do not profess to be theoretical economists, are entirely blind to the possibilities of doing something to control booms and slumps. We are perfectly alive to the fact that the present activity in trade is not likely to last for ever, and that there is a duty on the Government of the day to watch what is happening, and when and if they think it necessary to take measures to ease off the extreme points of the curve, and to slow down by degrees instead of suddenly.

There is only one other point I want to touch on, and it was one made by the right hon. Member for Caithness and Sutherland, to whom the whole trouble of the world is due to Imperial Preference. The death warrant of the peace of the world, in his view, was signed at Ottawa in 1932. He believes that if we would give up Imperial Preference and throw open the trade of the Colonies to the whole world, at last we might see our way to peace. There is a good deal more than economic theory involved in Imperial Preference. If the right hon. Gentleman had his way he would probably soon lose us the British Empire. Does he think that if we were to throw the Colonies free to the competition of the Far East, that would be likely to conduce towards the peace of the world? What it would be likely to conduce to would be unemployment in Lancashire.

On the general policy of Imperial Preference my views are well known. The agreements which are at present in force may be modified in one way or another; I am not suggesting for a moment that they are perfect or not capable of improvement; but the policy of treating members of the British Commonwealth of Nations rather better than the inhabitants of other countries is a phase of Imperial policy which is far above mere questions of economics. I do not think that the right hon. Gentleman carried very much conviction, if I may say so, by his remedy, such as it is, but I think it is one that will make us thankful that he is sitting on those benches and not on these.

Mr. Dalton

Would the right hon. Gentleman be good enough to answer the question that I put as to whether other parts of the Empire are going to make any contribution?

Mr. Chamberlain

I beg pardon. The hon. Gentleman, in asking that question referred to paragraph 8 of the White Paper, which says that: the wide dispersal of the territories comprised within the British Empire and the dependencies of these islands upon supplies from overseas lay a special responsibility upon British Forces and, above all, upon the Navy. Let me explain that these words had reference rather to the position of this country, and its responsibilities to the Colonies and territories for which it is directly responsible, than to the Dominions. It is perfectly true that we are dependent largely, for supplies of essential materials, upon the Dominions, and in that sense, therefore, the dispersal of the Dominions over the world does lay this special duty upon the Navy; but so far as the Dominions are concerned it was not the intention of the paragraph to suggest that we had any right to call upon the Dominions to make any contribution to the common fund. The Dominions, of course, have as a matter of fact spent a great deal of money upon perfecting or improving their own defences, and that is their contribution to the common fund; but there is no other form of contribution that I am aware of under discussion at the present time.

Motion made, and Question, "That the Chairman do report Progress, and ask leave to sit again," put, and agreed to.—[Mr. Paling.]

Committee report Progress; to sit again To-morrow.