FINANCE BILL.

HC Deb 01 June 1937 vol 324 cc873-931

Order read for resuming Adjourned Debate on Amendment to Question [31.st May], "That the Bill be now read a Second time";

Which Amendment was, to leave out from the word "That," to the end of the Question, and to add instead thereof: this House cannot assent to the Second Reading of a Bill which, in time of peace and rising prices, embodies an unbalanced Budget, thereby promoting further increases in prices and depressing the already low standard of life of pensioners, unemployed, wage-earners and other persons of small means, and which fails to deal adequately with profiteering in armaments or to raise an equitable share of their cost from those most able to bear the burden."—[Mr. Dalton.]

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

4.1 p.m.

Mr. Lees-Smith

The greater part of the discussion yesterday, although not all of it, was, of course, concerned with the National Defence Contribution, and in a short time I shall come to that subject myself. But I and my hon. Friends have put down an Amendment which deals with other subjects as well as the National Defence Contribution, and I think it may well prove to be that the wider issues to which our Amendment calls attention may before many years have passed be realised to have been more important even than the National Defence Contribution, which at present looks rather like being a nine days' wonder. I shall address myself to some of those wider issues first. The main purpose of our Amendment is to ask the House to try to take some survey, in the light of this Budget, of what our position is likely to be a few years hence, when this problem may very well be dealt with by another Government which is not at all responsible for the causes which have brought it into being.

At the present moment the chief fact which underlies all our finance is that we are in a fairly advanced stage of a world trade revival. I think it is now generally agreed that that revival began at the beginning of 1933, and I think it is true to say that no trade boom yet has ever lasted for more than five years. That takes us to the beginning of 1938. The most careful estimate of the possibilities have been made by the Unemployment Insurance Statutory Committee, who have to be very careful because they have to base their own proposals for the Unemployment Fund on their estimates. They say that they do not expect an appreciable accession of employment beyond the present level during the year 1937, and for some time thereafter; but they say that we must then be prepared for a relatively severe recession, and they put the unemployment which we must expect sometime after 1937 at about 2,000,000. But the Unemployment Insurance Statutory Committee takes into account only the operation of what it calls the general trade cycle. It does not take into account the special policy of the Government. What is the policy of the Government in its effects upon unemployment?

It has always been admitted, I think, that any great programmes of public works ought to be held back at the peak of a trade boom and kept in reserve until the slump breaks. This rearmament programme is in fact a great programme of public works, thrown on to the market at the very moment when it is not required. If and when, as the Government anticipate, two or three years hence that rearmament programme is slowed down, that in itself is just one of those effects which precipitate by themselves a trade slump. So that we shall have two causes endangering us, with a trade slump in operation more or less at the same time—the general turn in the world condition and the slowing up of the rearmament programme. But there are other causes of danger also. There has been a great deal of Debate to and fro between the two sides of the House as to the effect of raising a loan of £80,000,000. It cannot be doubted that at any rate one result of raising a loan and embarking on great public expenditure is an artificial increase in the demand for commodities in order to raise prices.

One of the main causes of slumps in the past has been the sudden fall in prices. Again what have we to face? When rearmament comes to an end the borrowing comes to an end at the same time, and the fall in prices due to that cause is likely to be set in operation. In fact the whole policy of the Government is that the cessation of borrowing, one cause of slump, will synchronise with the cessation of rearmament, another cause of slump, and we are faced with the cessation also of the world trade revival. Never at any time that I can remember have we been faced with the prospect of so many perils of a slump a few years after a Budget is introduced. If, as is extremely probable, these three causes begin to operate within broadly the same period of years, we have to face the prospect of one of the most catastrophic slumps with which this House has ever had to deal.

I must just refer to a feature of our policy which was not mentioned yesterday. I was rather surprised. I would have thought that when it is almost agreed by the House as a whole that we have to face the danger of a slump in two or three years, the Government would have made some preparations to deal with the possibility in advance, and would not have left unemployment to be dealt with until it is too late. We have always held that during the period of a trade boom like this you ought to hold back as much public work as you can, and that you should take advantage of your opportunity to foresee in advance programmes of public works all over the country and draw them up in order of priority. That has been a policy of ours for some time, and I mention it for a special reason. The last time I took part in a Debate on a financial question I think I followed the present Prime Minister, who was very pleased on that day to defend himself with a recital of Mr. Maynard Keynes. I well remember that I warned him that he would find Mr. Maynard Keynes a very unreliable ally. I think that the right hon. Gentleman will not quote Mr. Maynard Keynes in regard to the National Defence Contribution, because the first really devastating attack on that proposal was in a letter addressed by Mr. Keynes to the "Times" almost so soon as the proposal was introduced.

Major Hills

Mr. Maynard Keynes said plainly that the borrowing for the Defence Contribution need not be inflationary. He expressly said so in a speech to the shareholders of an insurance company of which he is chairman. I have the reference here.

Mr. Lees-Smith

I remember the speech, and that is the point I am making. It was that speech and an article in the "Times" conveying the same opinions that the Prime Minister quoted. I warned him that Mr. Keynes was an unreliable ally. It is a letter published in the last three weeks to which I am referring now. What he says seems to me to be common sense. Let me quote: Now is the time to appoint a board of public investment, to prepare sound schemes against the time that they are needed. We ought to set up immediately an authority whose business is not to launch anything at present, but to make sure that detailed plans are prepared. The railway companies, the port and river authorities, the water, gas and electricity undertakings, the building contractors, the local authorities, above all, perhaps, the London County Council and the other great corporations, should he asked to investigate what projects could be usefully undertaken if capital were available at certain rates of interest—3½ per cent., 3 per cent., 2½ per cent., 2 per cent. The question of the general advisability of the schemes and their order of preference should be examined next. That is the proposal. I notice Mr. Keynes ends by saying: Is it conceivable that the Government should do anything in time? That, indeed, is one of the difficulties of debating with the present Government. When one makes a suggestion it is generally received with approval, a sort of watery affirmative, but when it comes to positive action all ends in smoke. I mention that for this reason. Here we have the obvious danger of a very great trade slump in front of us. It is also obvious that the Government are not taking any particular steps to prepare for the time which is about to come. In view of that fact I want to examine the Budget figures and the prospects which they present to us two or three years hence. The revenue of this Budget is.£863,000,000. The expenditure is £80,000,000 beyond that. The Prime Minister when Chancellor of the Exchequer said that he did not wish to raise the revenue beyond that sum because it would challenge the revival of trade. But the revenue is now £863,000,000, and the anticipation is that in a few years the expenditure will decline and we shall be able to meet that expenditure without borrowing. But, as a matter of fact, is it so evident that there will be a sufficient decline of expenditure to meet the problem in a few years? After all, there will be a great change in the position financially at the end of three or four years. The whole level of armaments will have been raised, and, therefore, the cost of the annual maintenance of armaments will be far higher.

I presume that the Chancellor of the Exchequer proposes some day to establish a Sinking Fund. It is certainly very far from any normal financial arrangement for the year, but even if he establishes the Sinking Fund that the Labour Administration maintained, in spite of all the criticism against them, that is another £30,000,000. Then we must take into account the possibility of a small rise in the rate of interest, and if it rises even to three per cent. for short-term loans, which is not at all an exaggerated anticipation, there is another.£20,000,000. There will be the addition to the money that is being borrowed, on which interest will have to be paid, and there is certainly another £12,000,000 for that. If we take all these new sources of expenditure into account, we shall find that the revenue at the present time, apart from borrowing, is not likely to meet that expenditure.

There is a very careful and surely realistic examination of the whole situation in the "Economist" Budget supplement. That is not political, but it is a collection of statistics, and they very carefully come to the conclusion there that our normal expenditure will be about £920,000,000. The Chancellor of the Exchequer this year raises £863,000,000, and he may raise it next year, but whenever there is a turn in trade, his expenditure will go up and his revenue will go down, and if he is unable to balance his Budget when we are on the peak of a boom, still less will he be able to balance it when we are in the depth of a slump. I am bound to say that if I were a supporter of the present Government, I should view the prospects of the future with the most extreme apprehension. Here are the Government now borrowing for wasting assets like aeroplanes, which wear out in four or five years, borrowing in a period of booming world trade, breaking every canon of finance with which the present Prime Minister so fiercely assailed the Labour Administration in 1931. They have all broken in his hands, with a larger deficit than there was then, and with the prospect that in a few years hence the deficit which is present in a time of boom will still be present in a time of slump, and you will have the prospect of another economy campaign and another attack on the social services and the standard of living.

My hon. Friend the Member for Bishop Auckland (Mr. Dalton), in speaking yesterday, pointed out a feature of the situation which I would like to develop a little further. We believe that the present situation is the direct responsibility of the present Government. It is not the fact that they are living in unfortunate times. The present rate of expenditure is directly connected with their conduct during the Disarmament Conference in 1932. The Chancellor of the Exchequer to-day is reaping the consequences of his, I will not say action, but complete inaction until it was too late, when he was Foreign Secretary. We hold that, and I will occupy a minute or two in telling the House why we believe that. I was in a position to follow this at leisure, and I am bound to say that I was very disturbed day by day at what was happening with this country at the Disarmament Conference. As a matter of fact, there has only been one successful Disarmament Conference since the end of the War, and that was the Washington Conference, when Mr. Secretary Hughes on the very first afternoon took the lead and came forward with what, at that time, was the shattering proposal for a holiday in all capital ships for 10 years.

When the Disarmament Conference in Europe opened at the beginning of 1932, we had just as good a chance as Mr. Secretary Hughes. France was under a moderate Government, Germany was under Dr. Bruening, and they were wanting to come together, but they looked to this country, which is rather outside the ring and is a kind of arbiter, to take the first step. If, at that time, we had had someone representing us who had done what Mr. Hughes did, at any rate we can say that there is a reasonable prospect that better results would have been obtained. I watched it at the time —I am speaking of what I remember very well—from day to day, and I noticed that our Government were playing a waiting game. I read about everyone else putting forward proposals. There were the Hoover proposals and the Hughes proposals, but as a matter of fact no serious British proposals came until March, 1933. I do not criticise the proposals when they did come, but it was 13 months after the Conference opened, with the result that by that time Chancellor Hitler had come into power, the whole opportunity had been frittered away, and we had the humiliating spectacle of finding ourselves offering to the threats of Hitler twice as much as we had refused to the reasonable moderation of Dr. Bruening.

When we are attacked for 1931, it should be remembered that, after all, every Government has its own special problem. We had the problem of coming into office at the very beginning of an economic blizzard which swept the world. That was our problem. The Government's problem was the disarmament situation in Europe, and I certainly say that it was easier for the Government to have influenced the disarmament situation in Europe than it was for this or any other country to have influenced an economic blizzard sweeping throughout the world. I recollect that the late Lord President of the Council, early in the last Parliament, used to make speeches asking us to judge the National Government by their results. We do judge them by their results, and the results are that now, after six years of National Government, you have got larger armaments than ever since the War came to an end, and you have the Chancellor of the Exchequer in a time of trade boom saying he must give us a deficit upon the Budget.

Now I come to the National Defence Contribution. The House will realise from what I have been saying that one of the great needs of the situation is left entirely unmet by the N.D.C. In my view what we really need is to devise some method which will assist us in the days of trial, the days of need, when the inevitable slump is upon us, but a tax which is devised and developed to assist us when times are easy and which dries up just when we want it, seems to me to fail to meet the essential requirements of the national situation. I would like to call attention to another feature of this whole situation which has not been mentioned in the Debate and which indeed has scarcely been mentioned outside this House, and yet it seems to me to be a feature from which all Governments will be very wise to learn a lesson for the future. I think it is true to say that beyond the Chancellor of the Exchequer, and perhaps the Prime Minister, there was not a single Member of the Government who knew anything about the proposal for the National Defence Contribution at six o'clock the day before the Budget was introduced, and certainly the Chancellor of the Exchequer was very careful yesterday to make it clear to us that, whatever may have happened afterwards, he himself was in no way concerned with the origin of this proposal. I believe that is true and that no Member of the Government knew a word about this proposal, except perhaps the Prime Minister and the Chancellor of the Exchequer, at six o'clock the day before the Budget was introduced.

It is getting to be a very serious feature of our system of government. After all, finance is a very important part of government, and here we have gradually developed a situation in which the control of finance is, for all practical purposes, in the hands of one man, the Chancellor of the Exchequer, with perhaps the knowledge of the Prime Minister. The whole system has gone too far, and I most earnestly hope that the unfortunate incident of last year is not going to lead to the perpetuation of this system. It is very new. I see the right hon. Member for Epping (Mr. Churchill) sitting there. I believe it is true to say that the cause of the resignation of Lord Randolph Churchill was the very fact that a Budget was introduced in the Cabinet, and as a result of the decision of the Cabinet he resigned.

Mr. Churchill

No. The resignation arose out of the discussion of the Estimates during November.

Mr. Lees-Smith

At any rate, this is a comparatively new development. The Cabinet used to have responsibility for the Budget until fairly recent years, and I am glad to say that, so far as my hon. Friends and I are concerned, we ourselves have actually brought this matter before one of our annual party conferences years ago and have declared that we are not going to allow this monopoly of power to continue. I am hound to say that our views on that subject are greatly strengthened by this fiasco which, as a consequence, has ensued. Let the House consider it. I am always very nervous when I learn that three or four very clever men are sitting in a room with all the fresh air from outside excluded. I know that when you get discussions of that sort you get as a result a great deal of knowledge and a great deal of expert experience, but you probably find—I have found over and over again—that when those three or four clever men bring the matter to a larger assembly, a breath of common sense blows through the whole thing and sweeps it away. Anyone who has been in public life has had that experience probably more than once. You do not get the right perspective if you stay in a sort of little hothouse concentrating on one subject to the exclusion of everything else. I am quite sure that a proposal of this sort would not have lived through any Cabinet discussion at all.

I come to the immediate situation. It is clear that the Debate of yesterday destroyed this proposal as a practical method. It was, in fact, destroyed during the speech of the Chancellor of the Exchequer by the simple question of my hon. Friend the Member for North Tottenham (Mr. R. C. Morrison) who asked what the yield would be after all the concessions. The whole thing has taken on a new aspect since then. The answer was £15,000,000. The analysis of my hon. Friend the Member for Bishop Auckland and others showed that after Income Tax had been taken the amount would be reduced to a little over £11,000,o00. From that had to be deducted the loss on Death Duties, Stamp Duties, the cost of collection and the cost of litigation, until finally a sum was left which was less than could be obtained by 2d. on the Income Tax. How could a proposal like that have got through any Cabinet discussion? As far as this year is concerned with the loss in security values, I am not sure it will not lead to a minus quantity. The proposal has really become ridiculous, and I am sure that the Prime Minister will sink deeper into the quicksands the longer he stays on this ground.

I would ask him to take this fact into account. I suppose there never has been an occasion, except certain ceremonial occasions, on which the House has been so unanimous as it showed itself to be yesterday. It is clear what the House wants. It wants a tax on profits, but it wants a tax of less complexity and more yield. Many suggestions were put to the Prime Minister as to how that result could be secured. I hope that he will not accept the rather naive suggestion which came from behind him that he should go to the industrial leaders and ask them how they themselves would like to provide this money, and that they should take control of the taxation into their hands out of the hands of this House. A new situation has now arisen, and this is what the Prime Minister should take into account, apart from the merits of the whole subject and from the question whether he thinks it is right. I have always understood that when this House expresses a clear opinion it is the duty of the Government to accommodate themselves to that view. Otherwise, what is the purpose of debates in this House? The late Chancellor has altered his position since he introduced the tax. He is now the Prime Minister and the Leader of the House, and I say that, as the Leader of the House, he ought to conform himself according to the traditions of the House. He ought to conform himself to an opinion which has been so generally expressed.

4.35 P.m.

Mr. Churchill

The ranks of ex-Chancellors of the Exchequer have been severely thinned in the last few months from death and other causes, and I find myself the sole survivor on this side of the House. Therefore, it seems to me that I ought not to allow the Second Reading of the Finance Bill to pass without contributing an expression of opinion to the Debate. I certainly do not do so in any hostile spirit to the new Government and to the new Prime Minister. On the contrary, I take a friendly interest in this new Government. I do not quite know why I do. I cannot go so far as to call it a paternal interest, because, speaking candidly, it is not quite the sort of Government I should have bred myself. If it is not paternal, at any rate I think I may call it an avuncular interest.

I will this afternoon begin by expatiating at large upon the canons of financial orthodoxy. All taxes are evil, but the revenue must be found. "A tax," said Adam Smith, "must be clear, definite and equal." There is a well-known Treasury maxim that "an old tax is no tax." The most healthy tax is one whose sole purpose is revenue. Taxation to give effect to some political purpose, or even to inculcate some moral principle, is usually found to fall short of the highest standard of financial economy. All the best authorities prescribe as the true test of any tax that it should yield the largest sum of money with the least possible disturbance of the life and business of the nation. Another well-known test by which any tax may be judged is the proportion of the cost of collection to the revenue yielded. These are, of course, only the well-known and accepted truisms of the British Exchequer, and we are all agreed upon them.

Now I will venture on the somewhat more disputable ground of profits and profiteering, and the position of individual enterprise. I know that it is the Socialist idea that making profits is a vice, and that making large profits is something of which a man ought to be ashamed. I hold the other view. I consider that the real vice is making losses. I believe that to lead a large number of wage-earners and shareholders up a blind alley into bankruptcy and disorganisation is almost a crime. In happy Communist Russia failure at the head of a manufacturing or trading enterprise is very often considered sabotage punishable by death, or one of the lesser punishments comprised in their somewhat elaborate penal code. The making of profits apart from the question of who gets them, is a virtue in any land, and no one should regard it as a virtue more than a Chancellor of the Exquer with his Income Tax, his Supertax, his Surtax and his Death Duties, which can take, without the Death Duties, 14s. in the £, and, with the Death Duties, according to an answer I remember to have been given by the late Lord Snowden, the whole lot if you insure against Death Duties upon the present scale. So much for the question of profits.

Let me pass to profiteering. The charge of profiteering is justly odious, but what is the essence of profiteering? It is the exploitation of monopoly or the exploitation of famine, disaster or war. I remember that in the pre-war days we used to say that Socialism attacks capital and Liberalism attacks monopoly. It is the exploitation of monopoly or of some public misfortune which constitutes the essential venom of profiteering. That was the justification of the Excess Profits Duty of which I, as a subordinate Minister, was a strong supporter, and of the aftermath of which I saw and learned a. good deal during the five years I was at the Treasury. The Excess Profits Duty, for all its many obvious anomalies and wasteful defects, was an act of moral and social justice. Millions of men had volunteered to fight, and millions of others were compelled to follow and had to sacrifice their earning capacity at home to fight and die for four terrible years. Some of those who stayed at home made great fortunes in the absence of their natural competitors and under conditions which were totally different from normal life. It was essential that an effort should be made to reclaim for the purposes of reconstruction a portion at least of those excess wartime profits. In a single year a vast sum was recovered—300,000,000 or £400,000,000 at one stroke, if my recollection serves me. Moreover, the profits in this case had actually been made and they could be measured with considerable accuracy by comparing them with normal pre-war years before our affairs were so violently interfered with by the great struggle.

Personally, I do not mind saying that I would have gone as far after the War as a capital levy—[An HON. MEMBER: "Why did you not?"]—I have always suffered from a lack of power to give full effect to my wishes. I know that Mr. Bonar Law was very much inclined that way. It seemed to me, and I think to others, that it would have been quite fair to say that no one should come out of the War richer than he went in. I think that that ought to be considered in case we have another unfortunate experience of that kind. All this dealt with the tremendous cataclysm of the Great War, Armageddon, an event without compare in human experience. That is not the situation to-day. To-day, in the conditions of peace and free competition, the making of large profits cannot be judged apart from the history of any particular firm or person, and I would say that those profits cannot be judged apart from the risk. There are some businesses which are seen to yield large profits, but how many people have tried and failed at one of those businesses before the successful ones made their profits? Again, there are some businesses which are profitable in one year out of five, others maintain a steady flow, but, broadly speaking, in a free market risk is the shadow of profit and keeps pace with it every hour of the day.

I submit that the Treasury would make a profound mistake if they mix themselves up in these imponderable transactions. Similarly, I would say that it is much better for the Treasury to come along afterwards and say, "Hullo, you have made this money under laws which Parliament prescribed. Quite right. Many congratulations. Please hand over to us 5s. in the £ and anything up to 9s. for Super-tax, according to scale." It will be a great mistake for the Treasury to get mixed up in the processes by which this wealth is acquired, and to get into the position where it will have to sit as a kind of moral judge and say, "This is virtuous, that—h'm, that is not so virtuous, and this is plainly peccant." That is a sphere into which they would really be well advised not to enter. I have often seen it tried and sometimes I have lent myself to its mood, but it nearly always meets with failure and costs more than it is worth. If the State is to meddle with the wealth-getting process, apart, that is to say, from prescribing just laws and taking the lion's share of the profits, there are no grounds of justice for penalising the citizens who engage in risky enterprises or for regarding them as less reputable than those who seek the sweet simplicities of 2 and 3 per cent. On the contrary, as good a case can be made out for the merchant adventurer of modern times as can ever be put forward for the safety-first crowd.

I venture to say that if the capitalist system is to survive, it must be continuously refreshed by enterprises produced by the genius, the inventiveness, the calculation, the sacrifice and the audacity of individuals. We must not disparage or hinder new businesses making new work for the old unemployed. I can imagine a Governor of the Bank of England thinking first of the rentier class; I can imagine the Treasury officials, though I have not the slightest idea of suggesting that their's is the responsibility, keeping very prominently in their minds the state of the gilt-edged market, above all as it affects their short-term borrowings. Naturally that would be a great preoccupation with them. But the House of Commons, where all classes and all interests are represented, ought certainly not to take a view against the equity shareholder or against the bold pioneer who, pushing through the crowd, reaps as his just reward what looks like an enormous prize.

If once you penalise the spirit of individual daring and initiative, if once you decide that that is to be discouraged—I am not suggesting that that is the attitude of the Government, but if once the course of legislation takes the form of suggesting that that is to be discouraged—then you are, in fact, abandoning the capitalist system, and you ought in all logic to go to the other extreme and weave the whole industry of the country into one vast structure under State planning. I am against that because I think it can be shown that it would be highlyinfertile, and that the mass of the people would be much worse off under an all-embracing bureaucracy and absolutely governed by Government Departments than they are at present with the wonderful, buoyant and apparently inexhaustible fund of personal energy, thrift and contrivance. I should much regret to see the Conservative party get into any position where it could be suggested that it took a hostile attitude towards adventurous, by which I mean novel, risky and speculative enterprise, for that would impede the new energies which each flood of youth contributes to our forward progress.

In my experience—a long one—and survey of this remarkable country and the life of Britain, nothing has struck me more than the numberless uncounted springs, rills and rivulets which flow unseen into the broad stream of national economy. If once you dry these up by some mechanical pump you may find yourself deprived in a night-time of resources which can neither be measured nor replaced. Therefore, I venture to think that this Conservative and National Parliament should make it quite clear that they have no prejudice against new businesses and rising businesses, no prejudices against adventurous or speculative enterprises, and that they should assert with courage that these businesses ought to have their profits under the law, and ought to make their way if they can—subject, of course, to the Income Tax, the Super-tax, the Surtax and the Death Duties.

With these, I am afraid, rather elaborate, but not wholly irrelevant preliminaries I would like to come more directly to the issue before us. I listened very closely to the Budget statement. Up to the last quarter of an hour my impressions were the same as those of the rest of the House, namely, that my right hon. Friend the then Chancellor of the Exchequer was terminating smoothly and successfully the very remarkable process of rehabilitating our finances and providing with masterful ease the cash and credit necessary for re-armament. Indeed, after he had spoken for an hour I thought the whole Budget was balanced and done with. But in the last 15 minutes my right hon. Friend seemed to be opening up a whole vista of doubtful, superfluous and troublesome new matter which we have now come to recognise under the initials N.D.C. The House, of course, has realised from the first that the National Defence Contribution is not at all required under the finances of the current year, and I have not yet been convinced that it is required by the finances of next year, but I must say that some parts of the speech of the right hon. Member for Keighley (Mr. Lees-Smith), to which we have just listened, seemed to make out a rather stronger case for the anxieties of the Chancellor than I have yet heard put forward—I mean about the future. So far I have not felt convinced that this is required for the finance of next year, though I may be wrong.

I should like the House to think a little about the conditions of this Budget. It has one characteristic which makes it different from every other Budget. Budgets are usually the result of facts which are ungovernable and largely unforeseeable—the weather, the crops, the reaction of the sun upon the thirst of the public, the state of trade, the yield of various taxes, the arrival or non-arrival of windfalls, the javelins of death striking at hazard at the very rich. All these are the factors by which the Chancellor of the Exchequer is confronted, in a grim array, on the 3rst March, and with which in the following two weeks he endeavours to cope with all his apparatus of taxation. In this case we are not dealing with uncontrollable factors. The structure of this Budget is not shaped by external events. It has been shaped by the plenary discretion of the late Chancellor of the Exchequer. He it was who decided whether we were to borrow £500,000,000 or £400,000,000, whether we were to borrow £400,000,000 in five years or £500,000,000 in four years. He it was who decided what draft should be made upon borrowing in relief of Estimates and what must be defrayed out of annual taxation. It was a matter for his decision and discretion.

The House has not been told of any principle which governs the use of the Defence credits by any particular fighting Department. We have not been told what class of services are to be paid for on the nail, and what class may fairly be assigned to the use of Defence credits, though it looks as if the Departments had been told by the Treasury precisely how much they were to borrow in each case. Such manipulation is perfectly proper and is part of the management of a great undertaking, but none the less—and this is the point I make—it remains an entirely controllable process. In all £80,000,000 has been borrowed in aid of the armaments programme, but that is the result of the late Chancellor of the Exchequer's personal decision. It might as well have been £70,000,000 or £90,000,000; he could adjust it as he chose.

Similarly, when we came to the actual Budget we saw an item of £10,000,000 thrown in for Supplementary Estimates. That is an entirely novel practice. To mention Supplementary Estimates in a Budget was done, I think, last year, though I believe it has never been done before, at least I do not remember it; and anyone acquainted with our procedure will readily understand that it is a contradiction in terms. If the regular Estimates of the year are honest Estimates it is not normal to stick alongside them a Supplementary Estimate which says that they are a miscalculation. It is not to be regarded as a satisfactory process to place Supplementary Estimates in the Budget which would tend to loose estimating. No doubt h is prudent in times like these to leave a margin for Supplementary Estimates and excess spending, but that has customarily been done in the past by declaring a prospective surplus of several millions, which has a healthy effect, and also secures the necessary margin for what no human being can foresee.

I say frankly that I was astonished to see my right hon. Friend, in the Budget statement, slip in the remark that he would allow £10,000,000 for Supplementary Estimates. Clearly that sum is only a guess. It might have been £8,000,000 or £12,000,000 or any other figure. The sum was £5,500,000 last year. No one can tell what the figure will be; that is what I am pointing out; and this was a figure my right hon. Friend chose to write. If he had chosen to make no provision for Supplementary Estimates he could have declared a balanced Budget showing a prospective surplus of £8,250,000, which would have had a very good effect, and would have left him with an ample margin for any normal contingency. That would have been an entirely straightforward and orthodox procedure, and would have rounded off the Budget very smoothly. But my right hon. Friend was not satisfied, and by this very anxiety—to follow out, I think, a train of thought which he pursued—he felt it necessary to produce a deficit so as to set on foot this new tax which he wanted for next year. Accordingly he threw in this £10,000,000 for Supplementary Estimates, which swamped the surplus he otherwise had in view, and showed a prospective deficit of £2,000,000, and this he declared it was our duty to meet by the National Defence Contribution. I am only laying these matters before the House because I can conceive a powerful justification being made for his action. But let us follow what is happening.

Our finances in the main are dealt with annually. We meet the troubles of one year with the resources which come to hand. It is extremely important that it should be realised that nothing in the present year requires this additional tax. If it is to be introduced, it is as a result of deliberate policy in fact, my right hon. Friend, as I said, went out of his way to create a deficit in order to drag in this tax by the heels. There is nothing reprehensible in it. Nearly everyone, I think, understands and sympathises with the motives of the late Chancellor of the Exchequer which led him to this tax. First of all, it proves the serious and grave view which he takes of the future of our affairs; secondly, it shows his habit of looking ahead; thirdly, it shows that he is not afraid, quite disinterestedly and without any immediate reward, to take upon his shoulders extra work and trouble; fourthly, it shows—I think this ought not to be misunderstood—his resolve that every effort should be made to convince the munition workers, who are now beginning to be numbered by many hundreds of thousands, that he and the National Government of which he is the head are no champions of profiteering, and do not intend to tolerate it if they can possibly stop it. Those motives demand our respect, our general respect, but one may say and feel all that with sincerity and yet wonder whether the tax is, in fact, a good one or whether it will achieve the purpose which animated its author and with which we sympathise, namely, to provide effectually for the Defence programme.

Now let us see what has happened since the Budget was opened. Many things have happened. First of all, this particular tax has been riddled and shown to be virtually unworkable; secondly, an altogether excessive and exaggerated, but none the less costly, reaction has been produced in the markets and in industry; thirdly, both the parties of the Left, the Liberals and the Socialists alike, have denounced and derided the tax, so that it cannot be made very great use of in inspiring the munition workers; fourthly —[Interruption]. Well, I was Minister of Munitions during the War, and I know that if the Government cannot maintain a mental and moral relationship with those who are producing arms they may be confronted with the gravest difficulties. Certainly, this relationship requires the most careful study, and I am absolutely sure that that was the root of the process that led the right hon. Gentleman to this tax—fourthly, so many concessions have been made—have had to be made—that the yield, we were told yesterday, has fallen from £25,000,000 to something like £10,000,000 in the full year. Inevitably, in everybody's mind, is the thought: "Is not the business more trouble than it is worth?"

Let me now say that I hope that the free and full discussion to which Parliament is entitled will not be complicated by any question of personal prestige. In China, face-saving is usual, but it is less important in this country. Indeed, the successful avowal of mistakes was one of the most important arts in the armoury of the late Prime Minister, and one that was frequently practised to the discomfiture of those who had pointed out, with much precision and much toil, the error which he had committed. The doctrine that the Chancellor of the Exchequer is infallible and that the Budget statement is one of the laws of the Medes and Persians has no foundation in our Parliamentary life. I seem to remember having heard that Mr. Gladstone, or perhaps it was Mr. Disraeli or some very eminent and respectable statesman in the past, said, when he was reproached for giving way on some point, something to this effect: "In a democratically governed country, possessing powerful, representative, Parliamentary institutions, it is sometimes necessary to defer to the opinion of other people." In House of Commons finance and on questions of ways and means, it is right that the Executive should, from time to time, yield to the sense of the House. In nine times out of 10, and 19 times out of 20, the Government will prevail; but their status will be increased and not decreased, if, on the tenth or the twentieth occasion, they bow to the opinion of the Assembly.

There were many such occasions in our history. There was Walpole, who, after the Division on the Excise Bill, came into the Chamber and said to his colleagues: "This dance can no further go." Then there was Mr. Lowe with his tax on matches "Ex lute lucellum." I myself remember Sir Michael Hicks-Beach, in 1901, when he increased the tax on cheques. We have got used to it nowadays, but in those days it seemed infinitely horrible; the shock was almost intolerable when the tax was raised from 1d. to 2d. He introduced this tax, which had a most chilling effect upon the Conservative party and the Liberal leaders. Two days later, I saw him come down to the House. I pushed my way through the crowd at the Gangway, which was enormous. It was a moment of great excitement and they said to me: "Black Michael is giving up the tax." But what happened? Was he regarded as having done anything wrong? On the contrary; he was praised. He was cheered. In those days, the Conservative party used to live, or at any rate, used to lunch, at the Carlton Club, and for weeks afterwards they were talking about the magnificent way in which Black Michael had extricated himself from this difficult situation, and of the courage and good feeling he had shown.

Perhaps the House may remember that only seven or eight years ago I got into some trouble myself about the Kerosene Tax. It was a very good tax. I was quite right about it. My right hon. Friend slipped it through a year or two later without the slightest trouble and it never ruined the homes of the people at all. Anyhow, the Chief Whip of those days telephoned me. I was resting in the country after the Budget speech. He said: "You had better come up. All our fellows are against the tax, and all the others too." I do not know whether any similar communication has been made by the present occupant of that most important office. Anyhow, I acted with great promptitude. I came up to London immediately. It was said to be very difficult to withdraw the Kerosene Tax; it was said to me by the experts, who so often turn out to be wrong, to be impossible to withdraw it without wrecking the whole of the oil tax, which was a very good tax. May I remind hon. Members that more than £50,000,000 from the oil tax is being derived this year? It was so much abused but, so far as I can make out, it has not stopped motoring. I came down to the House in the nick of time. Lord Snowden—Mr. Snowden, he was then—was rising, full of pent-up, overwhelming fury, to fall upon me. I got up. I withdrew the tax. Was I humiliated? Was I called weak? Was I accused of running away? Not at all. There were loud and prolonged cheers. Nor only did people say: "How clever how quick; how very well he has outwitted them"; but others came along and said: "How very right it is to meet with respect the opinion of the House of Commons." I hope you will pardon me. Mr. Speaker, for referring to those matters, but that was one of my best days.

How has this tax been examined hitherto? I am all for the Chancellor of the Exchequer being master of the Budget for the year; that is to say, he should present to the Cabinet in a very advanced condition his solution of the financial problem, as it is revealed when the accounts are closed on 31st March. It is a great advantage to this country that this decision is the project of one man's brain and not the result of a hugger-mugger disputation in a finance committee, such as you have in the French Chamber, where the Chancellor of the Exchequer is surrounded by his predecessors, his rivals, and potential successors, and has to unfold all his plans to them. Although the general layout of financial policy should emanate in its full integrity from the Chancellor of the Exchequer personally, and should be submitted to the Cabinet only in its final form, there ought to be, and there nearly always has been, a special procedure in respect of new and novel imposts. I remember, for instance, that we sat for five months and had at least a dozen Cabinet Councils, on the Land Tax and Mineral Royalty duties. That was in 1909, and for five months those matters were continuously argued out. They were very important—important politically, anyhow, to us. When the Betting Tax, of inglorious memory, was being considered, a strong Cabinet Committee was appointed in November, and sat for over four months before they reported, wrongly, that, on the whole, it was worth trying.

It would be, in my opinion, a departure from custom, for any Chancellor of the Exchequer to present to a Cabinet, only a few days before the opening of the Budget, some great scheme of new taxation which had not been examined. When I say "examined," I mean by people who have the right and the mood, and are encouraged to criticise and pick holes in the plan. It is in the last degree imprudent to go into action upon a political or financial scheme which has not first of all had a good knocking about behind the scenes. It is only by that process that you can find out whether it can stand up to the battery to which it will, and ought to be, exposed when it comes to the House of Commons. New propositions ought to be tested and hammered out, and they ought not to slip through, easily from permanent officials —if that was where they emanated—to Minister and from Minister to the Royal Assent. Both the Cabinet and the House of Commons—in this I agree with the right hon. Gentleman opposite—have a real duty to test and prove them.

In this case, we know that, owing to the unhappy events of last year, there was held to be special need of secrecy, and we know that the Cabinet were not consulted upon the Budget until the day before the announcement. We know that the Cabinet sat on that day for only about two hours. We do not know what other business there was. It is quite certain that it would have taken more than 40 minutes for the Chancellor of the Exchequer to summarise, even in the briefest manner, the financial proposals for the year, let alone go into the special details of this tax. No real opportunity, therefore, seems to have been afforded to the Cabinet of examining and, if they chose, of criticising or pointing out flaws in these new proposals. My right hon. Friend the new Chancellor of the Exchequer tells us that subsequently he has weighed them all in his capacious brain and finds them O.K., and anyone who heard him yesterday would feel that he has mastered all the details with his customary industry and efficiency. But I have also heard that he has had quite another set of preoccupations about the Treasury during these last few weeks, which may well have prevented him from giving absolutely unprejudiced and dispassionate consideration to this National Defence Contribution. I cannot, of course, say, but I do not think that at any stage in this business anyone who has been free and independent in the matter has had a chance, of bringing another point of view to bear.

Just as the great question of how much we should borrow for armaments and how much we should provide by taxation was settled by the then Chancellor of the Exchequer, just as the figure of £10,000,000 for Supplementary Estimates was interpolated in the Budget and settled out of hand by him, so this tax emanated from him, with the aid of only a very few confidential advisers with whom he felt himself at liberty to discuss it. He has told us of the great need of secrecy, and we all sympathise with that, but still it would have been much better, and, if I may say so, more in accordance with practice, to have a high degree of confidence and secrecy among Ministers and to be able to thrash these matters out in private among themselves before they are flung out upon Parliament and the country as the decisions of a united Cabinet and driven through with the force of a loyal party. I cannot, of course, speak with any authority upon City finance, but, taking a broad point of view, it would seem from all that is said that the check to enterprise, the restrictions on business, the fall in values, have already lost to the revenue far more than the £10,000,000 or £12,000,000 which I gather is all that this tax is estimated to yield in 1937 and 1938 put together. Perhaps the loss is very much greater.

When we are told that there are 35,000 firms which must be rummaged from top to bottom, which must subject their whole method of life to the sharp teeth of the Revenue, which must be combed over from a different angle from that of the Income Tax collector, all for the sake of such comparatively small sums, the situation produced is one which certainly calls for very searching Parliamentary examination, and, I would add, for very serious Ministerial defence. When we are told that 11,000 of these 35,000 will probably be hit, but that whether they are hit or not, or how much they are hit, bears no relation to the class of work in which they are engaged or to the merits of their contribution to the process of national wealth getting, we must feel misgivings; and it is on these considerations that the decision that the House has to take will turn.

I have already referred to profiteering. Ministers boast that their costing system prevents profiteering in Government contracts, and they have assured us that their view is confirmed by the Public Accounts Committee; but I am not so sure that profiteering is entirely excluded. I think that the whole question requires careful vigilance. But why all the ordinary business of the country should be dragged into the tax collector's machine and re-rummaged for this purpose, I cannot conceive. Certain it is that the Socialist party are unable to accept the tax as any assurance that there is no profiteering. I should deprecate the imposition of a tax merely to satisfy our political opponents, but it gives them no satisfaction. They have already derided and denounced it. Both parties of the Left are going to vote against it. It certainly seems to be bad finance, but is it not bad politics too?

Our Parliamentary procedure is built mainly around finance. All financial proposals are, of course, subject to special stages of elaborate discussion; the House will have ample opportunity of resisting or reshaping the new tax. Therefore, there can be no need for any supporter of the Government to vote against the Finance Bill as a whole; indeed, I think there can be no excuse for it. We must all remember that the Finance Bill is the sole vehicle which carries supplies of money to National Defence. Therefore, there are far better opportunities of dealing with this tax in Committee. Then will be the opportunity, if we desire it, to vote against a particular tax entirely separated from the rest of the Budget; then will be the opportunity to vote for some special improvement: and I hope and trust that we may be met in some way in the matter then, if the worst comes to the worst. But no one who wishes to see the rearmament programme carried out, and who is pledged to that, will think of giving an adverse vote upon the Second Reading of the Finance Bill. [Interruption.] Hon. Gentlemen will be disappointed if they have any hopes of that. The arguments are so overwhelming that any Conservative supporting the National Government and supporting the Defence programme is absolutely bound to vote for the Second Reading of the Finance Bill; and he is absolutely free to do so, because the future is left entirely at his disposal when we reach the Committee stage.

I have pointed out some of the changes which have occurred since the tax was first announced, but there is one still greater change which I have not yet mentioned. The Chancellor of the Exchequer has become Prime Minister; and, the more one understands his point of view in the early stages of this tax, the more one feels that he ought to change it now. I can understand him, as Chancellor of the Exchequer, taking the view that he did, but as Prime Minister, with the whole weight and burden of these hazardous times upon his shoulders, he is in an altogether different position. His success in his new office is a matter, not only of party, but of national importance. We all want him to have a fair start. He has a perfect right to take a new decision, and in my opinion he is bound to do so. The only trail worth following at any given moment is the well-being of the nation. The Bible says: "Lay aside every impediment".—[An HON. MEMBER: "Weight."] I have the quotation here. In spite of my knowledge, I am always glad to refresh my memory. It says: Wherefore seeing we also are compassed about with so great a cloud of witnesses, let us lay aside every weight, and the sin which doth so easily beset us, and let us run with patience the race that is set before us. It also says: If thine eye offend thee, pluck it out. I hope the Government will not degenerate into half measures, quarter measures. I hope that we shall not have a draggle-tailed, tattered tax forced through sulky Lobbies, while the great mass of the trade and business of the country stands agog and agape, with recovery impeded and the Session spoiled, all for the sake of a beggarly £10,000,000 out of a Budget of over £800,000,000. That matter is urgent. Every day's delay will be damaging to the credit of the Government; every day's uncertainty will hamper business and rob the revenue. I believe that the new Prime Minister and the new Chancellor of the Exchequer will be right and courageous if they drop the whole thing, and if they make a virtue of dropping it, if they drop it in the grand manner, if they drop it now. By so doing they will return to the canons of sound finance, they will restore and revive public confidence and enterprise, and they will, I venture to say, even recover a large proportion of the losses which have been incurred. So far from being impoverished, they will be enriched; so far from being humiliated, they will be strengthened; so far from neglecting the future, they will find themselves in a better position to cope with it. I hope that my right hon. Friend, at the outset of his Premiership, will show the flexibility and resiliency of mind, and the necessary detachment from personal and departmental aspects, to enable him to take the simple, bold, manly decision which good sense, Parliamentary opinion, and, as far as I can judge, the interests of the nation, urgently require.

5.28 p.m.

Major Owen

I am sure the House will sympathise with me in attempting to follow the right hon. Gentleman the Member for Epping (Mr. Churchill), who, in a speech so humorous but so devastating in character, has destroyed the last vestige of support for the proposals of the National Defence Contribution scheme. The House, I readily believe, fully sympathises with the Chancellor of the Exchequer, as he then was, in the problems that he had to face. With the increasing expenditure that was required in order to deal with the rearmament policy, he also had to face the fact that, apart from general recovery, a special recovery was taking place in industry, due, directly in many cases, indirectly in others, to the increased expenditure on armaments. The prospective profits of industry, it appeared to everyone, were being affected by the large sums of money that were being spent in all directions on armaments. There was also the difficulty of the propaganda which had been taking place throughout the country against profits from armaments and against the private manufacture of armaments. In those very serious difficulties, it is not surprising that the Chancellor of the Exchequer had to look around for a new source of taxation. But the House, I think, feels generally that his attempt to deal with that position has been most unsatisfactory.

The method he adopted was to resurrect the old Excess Profits Duty under another name, and with a graduated instead of a flat rate of duty. I think it is generally felt throughout the country that his answer to the problem was totally incorrect and a blunder of the first magnitude, and I rise to follow on the same lines as the right hon. Gentleman the Member for Epping in pressing upon the Prime Minister and the Chancellor of the Exchequer to withdraw these proposals before more harm is done to industry generally. A good deal has been said about a good tax. Perhaps the Chancellor will be a little cheered by a quotation from Burke: To tax and to please, no more than to love and to be wise, is not given to man. Still I think a good definition of a good tax is one which will be cheap to collect, fair in its incidence and readily understood by all. By every one of these tests, at any rate, the National Defence Contribution is a bad tax. I have tried, as I think many others have tried, to find some good points in it. I will refer to only one or two. It probably appealed to the Chancellor of the Exchequer on the ground that it might lend itself to the painting of an alluring picture of the Government's determination to deal with profiteering from rearmament. Another one is to give the Government and its successors a new taxation framework and some idea of the capital sunk in industry which might be useful in connection with a capital levy later on. Thirdly, it would be possible after some experience to modify the rates of duty from year to year as the rise and fall of armament expenditure might require, and, as a friend of mine told me the other day, this in effect would give the contributor a reversionary interest in peace.

Let us take, first of all, the political aspect of the tax. This, I think the House will generally agree, is what led to its selection in the first instance—the taxation of armament profiteers. The late Chancellor of the Exchequer thought he had found on Old Master but, as so many others have found, the Old Master is only a fake, and the political effect of the new tax has been less than nil. With regard to its usefulness for the purpose of framing fresh taxation in the future, whatever information might be obtained through all the calculations which will be necessary in ascertaining capital and so on, the information which will be obtained must for technical reasons be far removed from reality and in any case will be most incomplete. As to the yield, originally we were told it was going to yield in a full year £25,000,000. Now it has been reduced to £15,000,000, and after various deductions it will be something between P£8,000,000 and £10,000,000. Therefore, that point in favour of the tax goes overboard with the others and there is nothing left to justify its imposition at the present juncture when industry is beginning to revive from the trough of the depression in which it has found itself for so many years.

I appeal to the Chancellor and the Prime Minister at this eleventh hour, although we have had only a day and a-half of discussion of the Bill. When the land taxes were discussed in 1909, the Government of the day allowed four days for their discussion. From the point of view of Parliamentary custom and procedure this is a really serious point. No Government has a right to bring in a tax of this kind, which makes fundamental differences in our fiscal policy, at such short notice and on such short consideration. This, I think, is a further reason why the Prime Minister and the Chancellor should reconsider their decision, make a brave show of it and withdraw the whole proposal.

5.36 p.m.

Mr. Simmonds

My right hon. Friend the Member for Epping (Mr. Churchill) has given the House a number of reasons why the Prime Minister need feel no hesitation in withdrawing this tax and, if we cast our eyes back since the date of the Budget statement, there is another and an important reason which possibly my right hon. Friend overlooked. It is that in the early days after examination of the National Defence Contribution a large number of representatives of trade and industry inside and outside the House told the Prime Minister, as I believe, in the thought that they would make more easy a redrafting of the National Defence Contribution, that in fact the principle was right. After we have had an opportunity of re-examining particularly the revised form, there is almost unanimity that the principle is wrong, and, however much the Chancellor may redraft its details, this wrong principle must in fact remain.

Coming from Birmingham, where industry has passed through the deep gloom of depression in the last few years, if I may analyse the thoughts of industry there, perhaps the Chancellor will appreciate the intense indignation that the tax is causing in industrial centres. Whatever may be the principle—it is announced as a tax on the growth of profits —the fact remains that the principle as seen by industry is that those firms and companies which have been consistently prosperous during the last few years of depression will pay almost no tax whereas the full force of the tax will fall on others which almost closed down in many instances, so difficult has it been for them to obtain orders—companies which are now gradually ascending the hill of prosperity. When in a great city such as Birmingham industry sees certain companies which have been making vast profits—I can think of one great company which for the last three years has made 100 per cent. profit almost every year—does industry think that those companies should be passed over by the National Defence Contribution whereas other firms which have almost gone into liquidation but are now cheering up again should bear the whole weight of this contribution?

May I turn from the issue in the country to the issue in the House? Mr. Baldwin spoke on a very large number of occasions of the nature of our democratic institutions, and the point that he always dwelt upon was the absence of force in our Constitution. Indeed some of the legislation that we have passed during the last 12 months has been to prevent force entering into the political life of the country. I think that also applies in the deliberations of this House. It must be manifest that, if the Government will not reconsider this National Defence Contribution, it will be forcing the proposal through in face of the opinion of the House and of the country. The Chancellor said yesterday that no tax is good. That may be, but it can be said that there are many taxes which are not unwise, and certainly there are very many more which are not unjust, and it is because industry, and a much wider circle in the country far removed from industry, regard the tax as unjust, that we make a particular plea at the commencement of a new regime that we should see some vast modification if not a withdrawal of the tax.

I agree whole-heartedly with my right hon. Friend the Member for Epping that there is no reason why the Prime Minister should not take his courage in both hands and withdraw the tax and, speaking, as I do, as a humble representative of the city which the Prime Minister also represents, may I say to him that in his own city, where his advent to the greatest office in the State had been looked forward to with so much hope and promise, an immense load would be lifted from our shoulders if even at this hour he would bow to public opinion both in the House and in the country and withdraw the tax?

5.44 P.m.

Colonel Wedgwood

One of the advantages of our democratic institutions is that, even if you are in a minority of one, you are allowed to speak in this House. I hope to be ultimately supported by one on the other side, but at least I may state my case for this N.D.C. Let us realise where we are. £500,000,000 is being borrowed to spend on armaments. We have already seen a certain amount of that money spent. Shares in the aircraft building companies have rocketed. Companies which were paying no dividend two years ago, or perhaps 5 per cent., are now paying 100 per cent., and are contemplating far higher dividends when they have cut the melon and are able to conceal their enormous profits by paying a lower rate of interest on a higher capitalisation. This is going on all over the country, not merely in aeroplane manufacture but particularly in the whole of the iron and steel trade, and very largely in the building trade, in the building of new factories, and in all subsidiary work in connection therewith.

The Government are contemplating spending in the next five years £1,500,000,000 in exceptional ways, much of which eventually must stick in the pockets of the lucky people who get the Government orders. I do not say that it is a perfect way of getting money. But the Government will have infinite difficulty with the workpeople employed in these industries if profiteering on this scale goes on. You cannot expect men to be content to draw the same wages whether a company is paying 10 per cent. or 100, 200, and 250 per cent. We saw it all particularly during the War when we had D.O.R.A. invented to prevent strikes and to prevent people securing for themselves some share in the swag. That, I take it, is the reason why the Chancellor of the Exchequer and the Prime Minister introduced this tax, and if he drops it he will not escape the denunciation from the Labour party and the natural reaction of the people working in the war industries, nor, I add, will he secure the respect of all those other industries which are getting no benefit from the war orders and from this artificial boom that has been created.

Mr. Bracken

The right hon. and gallant Gentleman says that the Prime Minister will be denounced by the Labour party, but has not the Labour party already denounced the tax?

Colonel Wedgwood

I will deal with that presently. I was saying, when I was interrupted by the hon. Gentleman, that the large majority of the manufacturers in this country will resent it most bitterly if this tax is taken away and another tax is imposed which will fall upon all, upon the unprosperous as upon the prosperous. Really, we have to consider at the present moment the alternative. What is the alternative to the Government's tax? It was a shock to hear my hon. Friend the Member for Bishop Auckland (Mr. Dalton) advocating an alternative which apparently he had learned from the City editor of the "Daily Herald," on the ground that the City editor of the "Daily Herald" was a Fellow of All Souls. I learnt my political economy not at All Souls, but in this House of Commons. When I considered the alternative of the gentleman from All Souls which had been adopted by the hon. Member for Bishop Auckland, I felt that the House of Commons had better go back to some of the old-fashioned economics which we used to talk 20 years ago in this House.

What is the idea? It is, that, instead of putting this tax upon people who are making excessive profits, you must accept the offer of the City editor of the "Daily Herald" and of the people who wrote that letter to the "Times," and impose instead the old Corporation Profits Tax, which we knew so well only 15 years ago. That was a tax on the profits of all firms. I have no doubt that it would bring in more money, but would it have the same effect, first of all, upon profiteering, and, secondly, upon the people of the country as a whole? Really, it does not ever matter who pays the tax in the first instance. What does matter is upon whom the ultimate incidence of the tax falls. It may be old-fashioned political economy, but, surely, we all know that when a tax is laid upon, and paid by, the importers of tea or sugar, or wheat, the person who pays the cheque is only the nominal taxpayer, and the tax falls upon the consumer, upon the people who drink the tea or eat the sugar. In all taxation you have to consider who is the ultimate person who pays.

This alternative which was advocated by my hon. Friend the Member for Bishop Auckland and by the spokesman of the Liberal party, and, of course, welcomed by the Forty Thieves, and I believe, by my hon. Friend behind me, the alternative that we should have the Corporation Profits Tax, is advocated frankly by right hon. Gentlemen and hon. Gentlemen opposite because it can be transferred to the consumer. It will be just as well that we should realise the aims and objects that are behind our temporary allies opposite. My right hon. Friend the Leader of the Opposition will remember that, when the Corporation Profits Tax was imposed, it was, in the first place, put upon all profits, and promptly the railway interests rose in this House and pointed out that if it was levied upon the profits of railway companies, the railway companies could not pass the tax on, and that, therefore, it was unfair and unjust that they should have such a tax levied upon them. No sooner was there a protest made than the Chancellor of the Exchequer at the time saw the point and relieved the railway companies of the tax because they could not pass it on, and could not push up the fares and rates which were under statutory control. Now this profits tax is being welcomed.

The big business people who write to the "Times" say that they are willing to have the Corporation Profits Tax instead of the Excess Profits Duty. The reason is quite simple. A tax upon profits can be passed on to the consumer, and it will increase the cost of living. A tax on selected persons who are making large and exceptional profits because of Government orders cannot be passed on, and rests where it was originally put. That is the only difference, and it is the reason why there has been this prolific opposition to it in the City of London. This N.D.C., they say, is a tax which cannot be passed on, and, therefore, it is an unjust tax; because they cannot collect the money from the consumer they are being penalised. There is doubt as to whether the Income Tax can be passed on, but there is less doubt that Death Duties cannot be passed on. Certainly a tax on land values could not be passed on. I ask the House to note that every attempt to tax land values has been met by just such a storm as this from just the same people, and my hon. Friend the Member for Bishop Auckland has exactly the same views on that as he has on this. Thanks to the hon. Member for Bishop Auckland and the hon. and learned Member for East Bristol (Sir S. Cripps) the taxation of land values has been removed from the Labour party's policy because it could not be passed on.

Now the whole House is rejoicing in the idea that here is an alternative tax that will bring in more money, and which will please everybody except the unfortunate people who have ultimately to pay it. The other alternative is to put an extra 3d. on the Income Tax. That will mean, of course, that all the people with fixed incomes will contribute to the profits of the warmongers who are making the gigantic incomes. Just at the time when the cost of living is going up and equity shares are rising everywhere, and when fixed incomes are bringing in less and less, the whole House are making the people who are suffering pay more in order to remove the burden from those people who are exceptional profiteers. There is a third alternative—that of the right hon. Gentleman the Member for Epping (Mr. Churchill)—which is to do nothing at all except inflate, which is just another way of increasing the cost of living and making the poor pay. We had much better be honest and get the money from those now in an exceptional position to benefit. I am certain now that we have an alliance between the Labour party, the Liberal party and the Forty Thieves, and the right hon. Member for Epping, and even an hon. Member from Birmingham apparently, the Government will execute the usual skilful strategic movement to the rear.

Mr. Bellenger

May I inquire who the Forty Thieves happen to be?

Colonel Wedgwood

I thought they were known by now, but they are particularly interested in big business, and they get their way inevitably. My main object is to impress upon the House that the Corporation Profits Tax is thoroughly bad, and that inevitably it will be passed on to the consumer at a time when the cost of living is going up, certainly by 10 per cent. I do not know whether anybody in the House doubts lit being passed on. I will take the case, for instance, of the Potteries. There are a great many small pottery firms. If you put a tax on their profits, all similar factories are taxed equally so much per cent. on their profits and they all suffer equally, much as they do from the rates, with the result that they can all put up their prices, because nobody is specially exempt and therefore able to cut their profits. As the tax goes up, the cost of production goes up. The tax is added to the cost of production of the article, and as far as the home market is concerned the whole of the tax is paid by the consumer; but as far as the foreign market is concerned, it is not so easy. The Corporation Profits Tax can be recovered from the home consumer, but it cannot be recovered from the foreigner, with whom you are in competition.

So that tax is not merely passed on to the British consumer, but it injures very materially all those industries which have a foreign export trade. They are hit particularly because they have to pay the tax on their profits, whereas their competitors abroad or in the Dominions are not paying the tax at all. While they can recover from the home market, they cannot recover from the foreign market, so that in order to make good they have to sell at two prices. They get a bigger price on the home sold article, and sell at a lower price to the foreigner, whereby the consumer in this country is conferring a permanent benefit upon, and paying hard cash to, the foreigner all the time. I remember the time when we built up the jam trade in this country because France and Germany both gave large bounties to sugar exported abroad. We got cheap sugar and we established the jam manufacturing trade in this country. Under the Corporation Profits Tax exactly the same thing happened. But what would have happened under this exceptional form of tax that the Chancellor of the Exchequer proposed? Selected factories make exceptional profits because they have a monopoly. They would have had to pay the special tax. They would not be able to raise their prices, because of competing factories which had not that monopoly. Their untaxed activities would keep the prices down. Therefore, that tax could not be passed on to the consumer. It would be paid for by the monopoly owners.

The right hon. Member for Epping in that admirable conclusive speech in which he slew the tax, himself pointed out that there was some distinction in this world between monopoly and capital. If we tax monopoly, monopoly cannot pass the tax on; monopoly pays the tax. If we tax capital, the tax is passed on to the consumer. It is because the proposed tax has in it something of a tax on monopoly that I support it, and I hope that we shall vote for it. I have always stood in this House for taxation of the fundamental monopoly of land, and because this tax is something of that nature I welcomed it when it was brought forward, although I doubted even then whether the Government could possibly stand up to the coming storm. I hope that some day we shall see the triumphant vindication in this House of the taxation of monopolie's as the only sound system of taxation.

6.3 p.m.

Colonel Sir John Shute

I do not often intrude myself on the notice of the House, but as one who has been engaged all my life and am still engaged daily in industry and commerce, both as partner in a private firm and also as chairman of one of the great groups of Lancashire cotton mills, and also as representative of a division in Liverpool in which the whole of the commercial exchanges are situated, it is only right and proper that I should take part in this Debate to register my emphatic protest against that portion of the Finance Bill which deals with the National Defence Contribution. I do not wish to detain the House unduly long, because much of what I should like to say has already been said. I listened with interest to the most brilliant speech of the right hon. Member for Epping (Mr. Churchill), and it would be almost supererogation on my part to add anything to it, because I am in entire agreement with almost the whole of his speech.

I should like to say a few words in regard to the cotton trade in which I am engaged. In yesterday's Debate the cotton trade was mentioned and the hope was expressed by one hon. Member that someone connected with the cotton industry would speak. Having been engaged in that trade all my life I am entitled to speak on this subject. Our trade is divided into two portions, one portion, the raw cotton end, being centred in Liverpool and Manchester, while the spinning part of the trade is carried on in other parts of Lancashire. It is notorious that during the last to years great numbers of firms have gone out of business because of the losses they have suffered and the heavy depletion of their capital. That state of affairs applies to many firms which had been in existence for a large number of years and had provided employment for many people. Other firms managed to struggle through the last Do years, eating into their capital, and desirous as far as they could of retaining their business and keeping on their employés. These are firms which will be seriously hit if the projected tax goes through.

Since the presentation of the details of the projected tax the Liverpool Cotton Association, of which I am a member, called in the services of three leading auditors in the City and asked them to prepare a report as to how the tax would affect many of the firms engaged in the cotton business, and it is interesting to note the sequel to that examination. The accounts of 20 to 25 representative firms in Liverpool were examined. During the last nine years the best year of those 20 to 25 firms gave combined profits aggregating £683,000. The average of the three years as originally proposed by the Chancellor of the Exchequer showed aggregate profits of £248,000, or practically one-third of the best year of the nine. In 1936, which must be to a great extent an estimate, the aggregate profits are likely to be £377,000. If we reckon the figures on the basis suggested by the deputation to the Chancellor of the Exchequer, the average of two years out of six or three of the best years out of the last nine years, the figures vary from £440,000 in the first case to £534,000 in the latter case. I mention these figures to demonstrate the fact of the enormous difficulties with which one is confronted when one starts to try and get a datum line of business which had to be carried on during the very difficult times of the last 10 years.

Let me turn now to the question of trying to arrive at a datum line based on capital. Here again the position seems to me, as a business man with a knowledge of a great number of firms, to be very difficult. I ask myself what is the capital of a private firm. The capital of the firm of which I am a member is everything that I, my partner and my partners possess in the world, right down to our households, and the contents of our households because, naturally, behind the name of the firm has to stand everything of which we stand possessed in the world. While what have said is strictly true the capital in the company is by no means the total wealth of the partners. It is very often only a small quota of that wealth because, as I have said, behind that capital is the whole of their personal wealth, which stands behind the contracts that they make. With regard to the cotton business the technique of that trade is such that a firm with comparatively small capital can, by the process of utilising the "futures" market, as temporary hedges for purchases of cotton made for ultimate sale to the trade, carry on a much larger amount of business as represented in capital value than would seem to be justified from their capital. That is because they are able to raise bank advances upon the security of the commodity to be imported, pending resale. Sometimes the advances are to the extent of 90 per cent. of the value.

In many instances, also, the utilisation of these enhanced credits, based on a comparatively limited amount of actual cash capital, does not actually become effective because the capital has been raised by means of what is known as 60 to 90 days bills or drafts. Very often before these drafts mature the cotton is sold to its ultimate user, that is, the spinner, and the whole transaction is closed without the necessity of actually utilising the total amount of the prospective loans. That process is repeated according to the convenience of the market. In the course of a year these operations are continuous and are governed only by the exigencies of the markets and the rapidity with which cotton so bought is sold to the spinner. In the course of a year the actual turnover of a firm which may have actual cash facilities of only £8.000 or £10,000, may run into many hundreds of thousands of pounds, perfectly legitimately.

There is another aspect of the question to which I would draw attention. It is one which has come under my immediate notice. During the last few years, owing to the circumstances of which I have spoken, many firms found themselves unable to function owing to the great depreciation of profits, which were out of all proportion to their overhead expenses. Consequently there has been a movement to amalgamate smaller houses into joint partnerships, which has resulted in cases known to the Income Tax people in Liverpool in which firms which might previously have contained in their separate existence one or, at most, two partners find themselves combined in one firm of seven or eight partners, in order to cut down operating expenses. The Chancellor of the Exchequer in his original suggestion very rightly and generously decided that those firms or companies with profits of less than £2,000 per annum would not be subjected to this new impost. I would suggest that in any further alteration of the tax that £2,000 should not only relate to firms in circumstances such as I have quoted, but should also relate to the individual members of such firms which have combined for the purpose which I have outlined.

There is another point. During the last few years we have accumulated many bad debts due to the difficulties abroad, exchange restrictions, and the general depression in business. The point arises as to how these can be dealt with equitably. There is always the hope that such bad debts having been written off in any one year, thus reducing the normal profits for that year, might conceivably be recovered owing to the general improvements in trade—we are always optimistic in the cotton trade and have tried to keep going in the hope of improved conditions—and if they are to be added back in a year of recovery a firm finding itself in such a position would be mulcted twice. It would be mulcted by the reduction of their average arriving at the datum line and also by the enhanced profits which would appear in later years, the datum line having been previously established.

There are other minor points in relation to the cotton business which will have to be dealt with in Committee, such as the question of employés starting business on their own account or joining a firm in partnership with a little capital, which may be supplied by the firm. The question is whether these employés ought not to be dealt with in a special manner. I could quote many instances.

There is no need to tell the House what is unfortunately too well known—the disastrous years which the Lancashire cotton trade has gone through. The stories of its deficits and profit and loss accounts are sorry reading, but those directly interested can say that they now see daylight at last coming through the gloom. The improvement in the trade has been brought about to a great extent by a rise in commodity prices throughout the world. All Governments have been consciously working towards that end, and very rightly so, in order to provide a better margin between the costs of production and the selling. values of commodities for the producer: That has more than anything else tended to improve the condition of the textile trade, aided to some extent by understandings which have been reached to prevent internal price cutting, which has been the curse of our trade for so many years. It may be true that in many instances where the capital structure of the mill has not been altered a datum line based on the capital may not prove unduly harsh. We should not in some cases be badly hit. That is true, but many mills and combines, for reasons which have appeared good to them, have reconstructed themselves during the last few years, and we all desire to know on what basis of capital the datum line will be founded. As to the value of the assets, how would the valuation of assets be taken? Would it be at what they stand in the books to-day as reconstructed groups of mills, or the replacement value of the mills if they had to be reconstructed. In many cases debentures have been issued but no interest has been paid or even earned upon them. I am not quite clear whether these debenture issues will be counted in the basis on which capital standard profits can be earned. These are matters upon which I hope we shall have some elucidation.

It is idle to contend, as I have heard some hon. Members contend, that the outburst against this tax is manufactured, primarily by the Stock Exchange and those people who are disgruntled at having lost money in the last slump. I am not a speculator and am not interested whether stock market prices go up or down, but I say that it is idle to contend that the opposition has been manufactured. Only within the last five days a meeting took place under the auspices of the Associated Chambers of Commerce in London, at which all the great firms of the country, including the association to which I belong, came to the conclusion which I cannot better express than in the words used by the Manchester Chamber of Commerce— It was emphasised again that there is no unwillingness to subscribe to the principle that the sum in question, which is part of the burden of rearmament, should be found by industry out of profits, but an examination of the Finance Bill has deepened the conviction of the Chamber that the new tax is not a satisfactory method of giving effect to that principle. I agree with that view. I believe that the boldest plan is also the wisest, and that is for the Government absolutely to withdraw the tax and remodel it entirely. Industry knows that it will have to pay this extra sum of money. We have known it ever since the decision was come to, all too late as some of us think, to bring the defences of our country up to the desired standard. We knew that industry would have to bear, and rightly bear, further taxation to supply the money which the Chancellor of the Exchequer would naturally want. We have no complaint on that score. The Chancellor of the Exchequer said yesterday that no tax is a good tax. We hate taxes and wish to avoid them. But if no tax is a good tax there are taxes which are fair, and those are the taxes which we want imposed. This is not a fair tax; indeed it is a bad tax. It is not a tax on prosperity so much on those trades which after years of depression are gradually arising out of the sea of depression and are now rehabilitating their capital which has been so badly missing for a long period of time. I trust that even my last few words will impress the Chancellor of the Exchequer. I would ask him to believe that it would have a great effect on the country, and help towards its further recovery, which surely he must desire, if he would announce absolutely the withdrawal of the tax to-night. I hope that the Chancellor of the Exchequer or the Prime Minister, who has done so much to help us to get back into the better times which are now coming within view, will go one further step to assist us by absolutely withdrawing the tax, and thus earn the undying gratitude of the bulk of the industries of the country.

6.29 p.m.

Mr. Barnes

The reception which this Budget has had is unprecedented in the history of this House. I have heard II Finance Bills introduced, and this is the first occasion on which I have witnessed the Government virtually defeated on the Second Reading of a Finance Bill. I do not propose to spend much of my time discussing the National Defence Contribution, because I anticipate that very shortly the Prime Minister will bow to the wishes of the City of London. When we know the fate of this particular tax I suggest that we can turn from the conditions in the City of London to the conditions of the people. The Amendment which has been moved from these benches certainly proposes to deal with that aspect of the Budget. I regret that the tax which has been proposed should have obscured consideration of a Budget which levies taxation of £900,000,000. Despite the immensity of that sum, it fails to meet our national obligations. In this Budget, £333,000,000 is raised by indirect taxation and £452,000,000 by direct taxation. Despite those enormous figures, the Government propose to borrow £80,000,000. They have upset finance and industry, and have failed to meet our debt obligations. In his Budget statement, the right hon. Gentleman admitted a saving of £40,000,000 a year on a previous conversion, but the whole of that amount has been eaten up in the Budget and there is still no provision for debt redemption.

In the case of the 11 Budgets that I have heard introduced in the House, there has been no other occasion where the consequences of the Budget have been so overshadowed by a prospective tax, and where the situation has been that before the Finance Bill receives its Second Reading, the Government are compelled to go back on their major new tax proposal. I think this illustrates very clearly the different standards prevailing in politics and industry, for in industry if a person had been responsible for the muddling which has occurred with regard to the Finance Bill, he would have got the sack. Instead of that, the Conservative party has raised the Chancellor of the Exchequer to the Prime Ministership, although I think that if it had happened six months ago there might have been some doubts. I cannot help contrasting the present attitude of the Press, the House of Commons and the City of London with their attitude towards the Labour Government in 1931. I trust that the people at large will recognise that this is the second time that the City of London has intervened in the framing of a Budget, although on this occasion it prefers a different method of defeating the Government from that of forcing a General Election.

The record of the National Government is one of rising national expenditure, rising taxation, rising prices and rising profits. [Interruption.] I emphasise that statement. [An HON. MEMBER: "And rising wages!"] I will deal with that point later in my remarks. I do not think it can be disputed that this tax, which so much concerns hon. Members, is the Government's first effort to deal with rising prices. Let me, in the first place, deal with the Government's policy as regards taxation as it affects the masses of the people. In introducing his Budget, the right hon. Gentleman confessed that in 1936–37 he received in indirect taxation £17,500,000 more than he did in 1935–36, and in this Finance Bill the Chancellor is anticipating another in- crease of £12,000,000 in indirect taxation; that is to say, an increase of £30,000,000 in two years in taxation on goods, mainly foodstuffs, which the masses consume.

With regard to the record of the Government in the matter of rising prices, I would like to refer to the speech of the hon. and gallant Gentleman the Member for the Exchange Division of Liverpool (Sir J. Shute), who seemed to find some cause for satisfaction in the rise in commodity prices. Such a rise may be of value if it is natural, but I submit that if it is artificially stimulated by vast armaments expenditure, and is not created by a natural increase in the purchasing power of the community, it is not a healthy sign for industry, but is merely storing up trouble for the, future. During the last 12 months the cost of food has increased by 7 per cent. With regard to the rise in wages, I will emphasise, first, that taxation has increased by £30,000,000 on this class of the community, that the cost of living has increased by 7 per cent. during the past 12 months, that wages have increased only by 1.5 per cent., and that the general average of profits has increased by 13 per cent. Hon. Members should consider those four figures in relation to one another. They mean that real wages—the buying power of wages—have actually declined by 3 per cent. during the last 12 months. That is one of the reasons there has been no enthusiasm on this side of the House for the Chancellor's proposal. If the proposal had represented a real effort to grapple with the problem of profiteering, the right hon. Gentleman would have had support from this side of the House and from the country as a whole.

The difficulty in which we find ourselves is that the general rise in prices, which is leading to wholesale speculation, is not covered by the proposal and is not intended to be covered by it. How can such prices help the economic life of the country? I will give as an illustration the percentage rises in the prices of a number of commodities from 13th May, 1936, to 11th May, 1937, and I would point out to the House that those are the prices after the proposal for the National Defence Contribution had been published, so that it cannot be argued that they are fictitious prices. Copper has increased by 35 per cent., lead by 45 per cent., tin by 21 per cent., timber by 28 per cent., motor spirits by 10 per cent., wool by 38 per cent., and linseed oil by 31 per cent. During 12 months, there has been a rise in commodity prices ranging from 20 to 45 per cent.

What we protest against is the definite policy of transferring the burden of taxation from the rich to the masses. From 1930 to 1937, years which cover the whole period of National Government in this country, indirect taxation has been increased to the extent of £87,000,000, whereas direct taxation has increased only by £42,000,000, and within the latter figure I have included the increase of 3d. in the Income Tax which is imposed in this Budget. If one further analyses the position, one sees that the burden of taxation is still more unfair in its incidence. In the earlier part of their administration, the National Government lowered the exemption limit in such a way that they brought 1,000,000 more persons into the Income Tax-paying class, those people being the higher wage-earning groups and the lower middle classes. By bringing those 1,000,000 persons within the Income Taxpaying class, the Government further accentuated the inequality to which I have referred. Moreover, they lowered the exemption limit from £162 to £125 a year, which means that the well-to-do section of the community is not in any way bearing its fair proportion of the increased expenditure embodied in the Budget.

I will now bring my remarks to a close. [Interruption.] It is not very often that I take part in the Debates in this House, and I would remind hon. Gentlemen opposite that it is the provilege of the Opposition to put down Amendments to the Finance Bill. Hon. Members opposite have occupied the bulk of the time in talking about the tax in which they are particularly interested, and which I venture to suggest does not concern the masses of the people very much. Although I have given an undertaking that I will finish my remarks at a certain time, I do not intend to be shouted down, and I propose to make my speech in my own way. A reasonable test of a Budget is the charge that it represents on the pro- ductive values of industries. I feel that points of that sort have not been given sufficient attention in our post-War financial Debates. Before. the War, the whole of the taxation of the country, both State and local rates, represented a charge of 7 per cent. on the productive value of our industries. The charge of national taxation and local rates now represents £13 out of every £100 of goods produced in this country. We cannot continue to increase this overhead charge on British industry without serious effects on our export trade on which the country so much depends.

Another phase of the problem of rising commodity prices is the effect on local rates and local social services. For instance, consider the cost of housebuilding to local authorities now as compared with 12 months ago. While there has been an increase in the number of houses for sale which have been provided, hundreds of thousands of houses for letting are still required before we ca n claim to have provided a solution of the housing problem. One of the disastrous effects of the Government's policy of forcing up commodity prices has been to increase the cost of building working-class dwellings by 25 per cent. and that is likely to slow down the provision of houses, especially by municipal enterprise. Then there is the cost to local authorities resulting from the rise in food prices. The Glasgow Corporation bill for food alone for its hospitals and institutions has increased by £26,000 in the past year.

Important as the sum of £15,000,000 involved in the National Defence Contribution may be, the House of Commons cannot consider a Bill involving £900,000,000 of taxation without considering also the reactions of the policy which lies behind it, a policy which is starting us once again on the vicious circle of rising prices, rising taxes, and rising rates with the inevitable slump later on. Therefore, I trust that when the City of London has settled about this tax, we shall be able to get more consideration for the conditions that really matter to the people of the country.

6.48 p.m.

The Prime Minister (Mr. Chamberlain)

In listening to this Debase—and I have heard most of it—I have derived the impression that it has been somewhat lopsided, inasmuch as something like 90 per cent. of the speeches have been devoted to a subject which is only intended to provide a very small proportion of the revenue of the year. It is evident that the interest in that particular part of the Budget is out of all proportion to its productivity. Indeed the right hon. Gentleman the Member for South Hackney (Mr. H. Morrison) last night described the rest of the Budget as being dull and mediocre. I am not sure that it is not the finest compliment that he could pay to a Budget. When it is possible to raise, not £900,000,000 as the hon. Member who spoke last said, but £861,000,000 out of £863,000,000, by methods which can be characterised as "dull and mediocre" we can, at any rate, congratulate ourselves, if among all these things that have been rising and have been enumerated by the hon. Member for East Ham, South (Mr. Barnes), the revenue, too, has been rising so substantially that it has been possible to provide this enormous sum this year with an addition of only 3d. in the £ in the Income Tax. Of course, when the right hon. Gentleman describes the Budget as "dull and mediocre," what he really means is that it is one which it is extremely difficult for a Socialist to attack, seeing that all the new taxation is raised by direct taxes and not a penny has been put on in indirect taxation.

I propose to devote some part of my speech to that subject which has been talked of so much, but before I come to it, I think, if only in courtesy to hon. and right hon. Gentlemen opposite, I should devote some attention to some of the more general considerations which were put forward and which are embodied in their Amendment. I gathered from the speech of the right hon. Gentleman the Member for Keighley (Mr. Lees-Smith) this afternoon that what is really concerning him and his friends is a fear that presently there is going to be a reversal of the trade cycle which will coincide with the cessation of the armament programme and will also coincide with the presence of a Socialist Government in this House. Though that is very unlikely, I think that if it did occur it certainly might add considerably to their troubles, because I should imagine that the very fact of a Socialist Government coming into office would be sufficient to reverse the trade cycle. Nevertheless I can assure him that we are so far from taking that view ourselves that we are considering the prospect on the assumption that there will be a National Government in office when the armament programme comes to an end, and even when the trade cycle begins to reverse its course.

I think prophecies about what is going to happen in the future must not be taken too literally. Above all, it would be unwise to assume that you can predict with any degree of certainty the wavelength of the trade cycle. All sorts of things are apt to turn up which have not been thought of beforehand, and the effect of which may completely upset what, in th,1 study, appears to be an unassailable academic theory. Let me say, however, that any Chancellor of the Exchequer who looks at all beyond the present year must have constantly in his mind the sort of considerations which were present to the minds of hon. and right hon. Gentlemen opposite, and that if and when the Government think that the time has come when some positive steps should he taken, either to restrict public works or in any other way to "iron out" the extreme point of the cycle, I am certain that my right hon. Friend the Chancellor of the Exchequer will be prepared to recommend those steps to the House.

A good deal of criticism was directed by right hon. Gentlemen opposite to the fact that we were borrowing at all. They have repeated over and over again with that ardour of conviction which possesses right hon. Gentlemen when it comes to orthodox finance, that they are distressed at the thought that this is what they call an unbalanced Budget. We had a considerable amount of discussion on the subject of borrowing when we were debating the Defence Loans Act. I do not think I should serve any useful purpose if I were now to take up the time of the House in repeating the arguments which I used on that occasion. I will only say, in regard to borrowing, that we are providing now out of revenue £198,000,000 for expenditure, whereas two years ago our expense on that head was only £124,000,000, so that we are now providing over £70,000,000 more out of revenue than we were providing two years ago. Moreover, we did discuss at considerable length the composition of the work which we were carrying through in connection with the armaments programme and it appeared from that discussion that very considerable parts of it could, undoubtedly, be classified as capital expenditure. Therefore, at least, we are not open to the accusation that we are paying for current expenditure out of capital resources.

But when the Members of the Opposition keep on comparing what we are doing now with what the Socialist Government did in 1931 they are comparing two things which are quite unlike. That, it seems to me, only shows how completely they have failed to grasp the real mischief of what they did at that time. If you like to say that our Budget is unbalanced because we are including in it £80,000,000 for part of the expenditure upon armaments, I am not going to argue upon that point, because it is quite unimportant. The really important thing is what is the effect which it produces outside. Does it create a feeling of anxiety, of doubt, of uncertainty as to the future course of our finances. Does it affect our national credit? [An HON. MEMBER: "Yes, it has affected it already!"] I deny that, and I would point out that it cannot have that effect because our scheme is one which provides not only for a limit on the amount we are going to borrow, but also for the method of repayment and for a definite return to balanced Budgets after a period of time. The real trouble about the position under the Socialist Government was that there was no limit to their borrowing. They came from time to time sporadically and asked for fresh powers to increase borrowing, and there was no guarantee or assurance given to us that they would ever be able to stop. Further, there was no provision for repayment, and it was those two facts which really constituted the viciousness in the financial procedure which they followed.

Let me speak again on the question of the American debt. I am really surprised at the right hon. Gentleman, who ought to know better, bringing forward the American debt as though he thought that in that respect his Government had a better record than the National Government. Of course, it is not true to say that we have repudiated the American debt. When the right hon. Gentleman and his friends speak of the American debt they never speak of the debts and reparations that were owed to us. When my hon. Friend interrupted the right hon. Gentleman to remind him about the Russian debt, the right hon. Gentleman professed total ignorance of the fact that the Russian Government had ever owed us anything. If he will look at page 6 of the Financial Statement he will see that the unfunded Russian debt to this country is £1,377,654,000. I do not think that all of us have yet forgotten that in the two years the Labour Government were in office they paid out, it is true, £46,500,000 to the United States, but they received in war debts and reparations £54,000,000, whereas the National Government have paid £32,250,000 to the United States, but they have received in payment of war debts and reparations to them not more than £800,000.

I come now to another subject on which there is confusion of thought opposite—the National Debt. I think that one of the right hon. Gentleman's accusations against us was that the National Debt, when we had added the £400,000,000 which it is proposed to borrow, would reach a higher level than it has ever reached before. That, of course, is perfectly true. The National Debt to-day is £7,797,000,000, against a peak figure of £7,829,000,000. When you acid to that £400,000,000, of course it will bring it up to over the peak. But the right hon. Gentleman must have forgotten that that figure includes the amount of the Exchange Equalisation Account, £350,000,000. He has perhaps also forgotten, or rather chosen to ignore, that if you are to measure the burden on the people you do not take the nominal amount of debt; you take the cost of interest and management. That is what we have to find every year, and it is in the amount of that figure that you find whether things are better, easier or more difficult. The peak figure 'was £328,000,000. It is now £211,000,000. It has come down to that extent. If you exclude the American Debt the Budget estimates now show a saving in 1937–38, in interest alone, of £60,000,000, compared with the actual expenditure in 1931–32.

It is quite untrue to say, as has been said again in the course of this Debate, that the whole of the increased taxation this year is being used for armaments and none of it for social services. Of course the cost of our social services is expanding every year and at a very rapid rate, and if we did not have that expansion it would not have been necessary to raise Income Tax. I put together a number of social services, old age and widows' pensions, housing, health insurance, unemployment insurance and assistance and education. In 1925 the total cost of these social services was just over £100,000,000. In 1936 it was £212,000,000, more than double, and again it rose this year to £215,000,000. Already this year we have had fresh schemes of social service. What is the voluntary insurance scheme but social service? What is physical training but social service? What is the increase in the block grant to local authorities but social service? And the grants to the Special Areas may be classed under the same head. When the right hon. Gentleman last night told us that the whole purpose and object of this Budget was to protect the rich who were the friends of the Tories and to protect whom the Tories existed, he was talking political claptrap which he does not believe in and which hardly any of his followers believe in.

These were the principal points that were touched on in the speeches of the right hon. Gentleman opposite, with the exception of that part of the Budget which is known as Part III or N.D.C., to which also hon. and right hon. Gentlemen devoted some of their attention to-day and yesterday. It is perfectly true, as was said this afternoon by my right hon. Uncle—few nephews have had such an amount of good advice from their uncles as my right hon. Friend gave me this afternoon, expressed in such an entertaining manner; I will endeavour to treat this advice with the respect proper from a nephew to an uncle—it is quite true, as he said, that I could have balanced the Budget this year without imposing any N.D.C. at all. It is not correct to say that I created the deficit for the purpose of introducing the tax. As a matter of fact, as I think my right hon. Friend clearly perceived, the final result of the Budget was determined mainly by the amount which I chose to borrow this year, and if I had argued that it was right to borrow something less than the average of the five years for which I have power to borrow, the sum would have been a good deal less than £80,000,000 and instead of having a deficit of £2,000,000 I would have had one of even more.

My right hon. Friend criticises my making an allowance for Supplementary Estimates. That was a matter which was raised also in the Debate on the Budget Resolutions. I dealt with it at the time and pointed out that there were certain items for which Estimates had not been presented, but that I knew we were going to have Estimates presented for them in the course of the year, and I thought it was more honest to put down as nearly as I could what I thought was likely to be the expenditure on those items to which we were already pledged than to leave them out of account altogether. But while it is true that I could, by leaving out that allowance or otherwise manipulating the borrowing powers, have balanced the Budget without imposing the N.D.C., the House knows that I took a different view. I took the view that we were at the beginning of a period of exceptional expenditure which could not altogether be regarded year by year in isolation but which must be taken as a whole, and I further had in my mind something of what was referred to by the right hon. Gentleman the Member for Keighley this afternoon, the fact that as we get back to what we may call normal times we would still be left with the increased current expenditure on the Defence services, we would still have to think of returning to payment of a Sinking Fund, and we should still have to find the Sinking Fund and interest on the amount of the money we had borrowed.

Although I agree with what the right hon. Gentleman said on all these heads—and if anything, if I differ from him at all, it would be rather that he somewhat under-estimated the amount which we may hereafter have to find for these purposes—it may be that my right hon. Friend or whoever is at the Exchequer when this period does come to an end will be glad to think that there is still something which can be put on existing taxes, direct or indirect, for undoubtedly he will have to find a very much higher level of what will then become ordinary expenditure than what we are facing to-day. If we have financed a substantial part of the extra expenditure in the meantime from this new tax, T do not think that those who come after will look back on the proposition I have made in any very critical spirit.

Looking then, as I had to do, at the finances of the future as well as the finances of the present, I sought for a new source of taxation, and it seemed to me that the natural thing, to use a phrase of the right hon. Gentleman the Member for North Cornwall (Sir F. Acland), was to go where the money was. Seeing—there is no question about it—that business generally is doing well, is making increasing profits, it seems to me that it was a fair and a right as well as a practicable course to ask them to make a special contribution for Defence. I have said on more than one occasion—I say it again now—that I do not associate myself with those who every time that profits are mentioned speak of them as though they were the same thing as profiteering. I do not take that view. I agree wih my right hon. Friend in saying that I see nothing wrong in making profits. People are not in business for their health. I see no reason why they should not make profits out of the work they do, any more than a workman who receives wages. You may abuse the position and, given favourable circumstances, that position has been abused in the past, notably during the Great War, although it was not always the fault of the manufacturer, for I remember an experience of my own when a contract was given to a firm with which I was connected. In consequence of it being repetition work to an extent which had never been done before, it proved to be far more profitable than the firm had ever anticipated that it would be. I sent the managing director up to the Ministry of Munitions at the time to ask them to reduce the price of the contract, but they refused.

It was not always the fault of the manufacturer, and I give that instance from my personal experience to show it. We tried to lower our prices, and we were asked to work out the contract and then offer a lower price next time. But we are not at war now. We are not exercising compulsory powers upon industry. We are inviting industry, as I think often against industry's own interests, to give priority to Government armaments work, and while we are inviting them to do that, we are at the same time taking every step that we can think of to prevent their making more than a moderate profit. As I have said before, you can control the people with whom you make your direct contracts, but you cannot control, or we have not found the means of controlling, the subcontracts which the contractor makes with the people who supply him with some of his material, and in times like this, with rising prices and with favourable conditions, it is not only armament firms who make exceptional profits. Other people too may make exceptional profits, and it seems to me to be right and just, when we get exceptional expenditure, that we should ask those people to help to find it.

What struck me when I first made this proposal to the House was the general acceptance of the principle. Again and again hon. Members said, "We accept the principle, but we criticise the details, the method." That being so, it seemed to me that the right thing for me to do was to obtain, as early as I could, the information which I could not obtain before I made public the contents of the Budget, and then maintain the principle and make such alterations in detail as I could in order to meet the objections which had been raised. I carried out my pledge to the House, both in the letter and in the spirit. I received deputations, I saw individuals, I had arranged and classified a very large number of letters upon the subject, and when hon. Members or representatives of some of those who came to see me say that I turned a deaf ear to what they said, or that I paid no attention, I think that is hardly generous. The House can see for itself that the Finance Bill contains a number of very important concessions, which were made in order to meet the points that had been put before me, and it can measure the extent of the concessions by the fact that the yield has been so much reduced.

Let me, by the way, point out to my right hon. Friend, if I may, that he somewhat exaggerated the amount by which the yield had been reduced by these concessions, because, if you are going to take from the £15,000,000 £5,000,000 for a consequential loss of Income Tax, Surtax, etc., you must do the same by the original estimate of £20,000,000 to £25,000,000. The £20, 000, 000 to £25,000,000, dealing with Income Tax alone, would be reduced to £15,000,000 or £18,750,000 respectively, and that would compare with the £11,750,000 after allowing for Income Tax now. I hoped that by the alterations which I made, which were directed towards those points of criticism which had been made, I could have proceeded with the proposals as they appear in the Finance Bill without too much opposition, but I must say that, listening to the speeches of hon. Members, I have not been able to detect any considerable amount of enthusiasm for the proposals as they stand to-day. It is a matter of the greatest regret to me that I happened to me out of the House on both occasions when a speech was made in support of them. One was by my right hon. and gallant Friend opposite, arid another one, which I have had the opportunity of reading, was the admirable speech of my hon. and learned Friend the Member for the West Derby Division (Mr. Maxwell Fyfe). He did not altogether omit criticism from his observations, but he did say—and I must say I agree with him—that in his opinion the picture which had been drawn of the results which were likely to follow the adoption of these proposals was greatly exaggerated.

I must say, frankly, that I think the business world has shown a certain amount of hysteria in criticising these proposals. When you think that as they are now the net yield is under £12,000,000 and that the profits of industry must be, I suppose, something between f600,000,000 and £700,000,000, it IS really rather difficult to accept the sort of picture which was painted for us last night by my hon. Friend the Member for East Aberdeen (Mr. Boothby), who spoke of the complete crushing of enterprise and the horror of the brunt of this frightful tax falling upon the youth of the country ready to branch out into new enterprises, I do not think that the complexities of the scheme would in practice turn out to be nearly so formidable as many people have represented. I feel satisfied that the effect of widening the step, the zone, from 6 to 12 per cent. would mean that a very large number of companies would never have had to have their capital computed at all, because it would be perfectly obvious that if their profits were under the 12 per cent., it would not, therefore, have been necessary to compute capital for the purpose of deciding what rate of charge should be made upon them.

All the same, I have to admit that there does appear to be genuine alarm in the mind of industry generally and that the anxieties and doubts which they feel about the future of the tax have held up business to an extent which is very undesirable. My right lion. Friend has recognised that those who have so heartily approved the programme of rearmament could not now vote against the Second Reading of the Finance Bill. On the other hand, my hon. Friends have said that to he asked to vote for the Second Reading of a Bill embodying these proposals would be to put them in a position in which they ought not to be placed. I have to think not only of the position of hon. Members in this House, but I have also to think what would be the result if we did force the Bill through this House and we still found industry held up, still found industry making no progress because it felt uncertainty, still found a general feeling that the tax was unfair.

My right hon. Friend has endeavoured to make the way easy for me to withdraw these proposals, as he put it, by putting a number of most respectable precedents, including his own, but I do not think, looking back upon my own record, that I have ever been inclined to show a pig-headed obstinacy. Provided I could get what seemed to me to be the important thing, I have never boggled over particular ways of achieving it nor allowed anything in the way of amour propre to prevent my taking what I should call a common-sense attitude. In this particular case I am told that this tax is expected to give a great deal of trouble, to cost a great deal of money in investigation, to distract people from attending to the ordinary routine of their business in order to see that calculations were properly made, and that, when all is said and done, it is going to produce a sum which is very much less than that which I originally estimated for. On the other hand, I am told that industry wishes it to be understood that it does not challenge the propriety of its finding the amount that I want out of its profits.

Well, Sir, it seems to me that I should not only be something less than prudent, but that I should be stupid, if I were to persist in a particular method of getting what I want, which already is not going to get me what I want, if I can get it by a simpler method, and get it in larger amounts and in a much better way. The hon. Member for Bishop Auckland (Mr. Dalton), in the course of his speech, introduced a slogan and said, "Let us have a simpler tax with a larger yield." I think perhaps it would be a good thing to adopt that suggestion. That is what, after consultation with my right hon. Friend, the Chancellor has proposed to do.

Mr. Gallacher

You have thrown me over.

The Prime Minister

I thought that the hon. Gentleman had some secret method of getting the money which he was thinking, under certain conditions, of imparting to me. I hope he will not go back on that. I will give the House this information then, that my right hon. Friend proposes when we get to Part III in Committee, not to move the inclusion of the Clauses in that Part, or of the Schedules which are associated with them. In the meantime, he will proceed to work out other proposals on the assumption that those proposals will be devoted to finding a simpler tax upon the profits of industry and a tax which is estimated to produce not less than £25,000,000.

Colonel Wedgwood

Will it be a tax on the profits of all industries, or on profiteering industry only?

The Prime Minister

If the right hon. and gallant Gentleman is asking whether it will be a tax on industries that do not make profit, I do not propose to include them.

Colonel Wedgwood

We ought to have this quite clear. Does the right hon. Gentleman now intend to include in the tax all those industries which would not have been taxed under the old form of the tax?

The Prime Minister

It is not for me to anticipate what the proposals of my

right hon. Friend will be. When they are tabled the right hon. and gallant Gentleman will see whether they are agreeable to him. This change will require new Financial Resolutions before the proposals can be embodied in the Bill. Therefore, the first intimation which the House will have of the nature of the new proposals will be when my right hon. Friend tables the Financial Resolutions, which he will move on the earliest possible occasion. I have stated what are the conditions which, in my opinion, are necessary for any new tax of this kind. The new prosposals will not involve any increase of Income Tax or of indirect taxation. They will still be based on the principle which is generally agreed in the House, namely, a tax on the profits of industry. They are to be made as simple as may be to avoid the difficulties which have been mentioned, and they are to produce the requisite amount of money. In that way, we have, at any rate, met the general desire of the majority of the House.

7.34 P.m.

Mr. Attlee

I do not desire to detain the House, but we ought to recognise that the Prime Minister has met the opinion of the House. We are here in a democratic assembly and it is just as well that we should record that we have a Government which is responsive to the will of the House. I should like to thank the Prime Minister for adopting the proposal made from this side of the House that he should abandon this ill-advised experiment and raise a larger sum by a better method.

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

The House divided: Ayes 340; Noes, 149.

Division No. 199.]	AYES.	[7.35 p.m.
Acland-Troyte, Lt.-Col. G. J.	Baldwin-Webb, Col. J.	Bossom, A. C.
Adams, S. V. T. (Leeds, W.)	Balfour, G. (Hampstead)	Boulton, W. W.
Agnew, Lieut.-Comdr. P. G.	Balfour, Capt. H. H. (Isle of Thanet)	Bower, Comdr. R. T.
Albery, Sir Irving	Balniel, Lord	Boyce, H. Leslie
Alexander, Brig.-Gen. Sir W.	Barclay-Harvey, Sir C. M.	Bracken, B.
Allen, Col. J. Sandeman (B'knhead)	Baxter, A. Beverley	Brass, Sir W.
Amery, Rt. Hon. L. C. M. S.	Beamish, Rear-Admiral T. P. H.	Briscoe, Capt. R. G.
Anderson, sir A. Garrett (C. of Ldn.)	Beaumont, M. W. (Aylesbury)	Brocklebank, Sir Edmund
Anstruther-Gray, W. J.	Beaumont, Hon. R. E. B. (Portsm'h)	Brown, Col. D. C. (Hexham)
Apsley, Lord	Beit, Sir A. L.	Brown, Rt. Hon. E. (Leith)
Aske, Sir R. W.	Bennett, Sir E. N.	Brown, Brig.-Gen. H. C. (Newbury)
Assheton, R.	Bernays, R. H.	Bull, B. B.
Astor, Major Hon. J. J. (Dover)	Birchall, Sir J. D.	Bullock, Capt. M.
Astor, Viscountess (Plymouth, Sutton)	Bird, Sir R. B.	Burgin, Rt. Hon. Dr. E. L.
Astor, Hon. W. W. (Fulham, E.)	Blair, Sir R.	Burton, Col. H. W.
Atholl, Duchess of	Blaker, Sir R.	Butler, R. A.
Baillie, Sir A. W. M.	Boothby, R. J. G.	Campbell, Sir E. T.
Cartland, J. R. H.	Hamilton, Sir G. C.	Moreing, A. C.
Carver, Major W. H.	Hanbury, Sir C.	Morgan, R. H.
Cary, R. A.	Hannah, I. C.	Morris, O. T. (Cardiff, E.)
Castlereagh, Viscount	Hannon, Sir P. J. H.	Morrison, G. A. (Scottish Univ's.)
Cayzer, Sir C. W. (City of Chester)	Harbord, A.	Morrison, Rt. Hon. W. S. (Cirencester)
Cayzer, Sir H. R. (Portsmouth, S.)	Harvey, Sir G.	Muirhead, Lt.-Col. A. J.
Cazalet, Thelma (Islington, E.)	Haslam, H. C. (Horncastle)	Munro, P.
Cazalet, Capt. V. A. (Chippenham)	Haslam, Sir J. (Bolton)	Nall, Sir J.
Chamberlain, Rt. Hn. N. (Edgb't'n)	Heilgers, Captain F. F. A.	Neven-Spence, Major B. H. H.
Channon, H.	Heneage, Lieut.-Colonel A. P.	Nicholson, G. (Farnham)
Chapman, Sir S. (Edinburgh, S.)	Hepburn, P. G. T. Buchan	O'Connor, Sir Terence J.
Chorlton, A. E. L.	Hepworth, J.	O'Neill, Rt. Hon. Sir Hugh
Christie, J. A.	Herbert, A. P. (Oxford U.)	Ormsby-Gore, Rt. Hon. W. G. A.
Churchill, Rt. Hon. Winston S.	Herbert, Major J. A. (Monmouth)	Orr-Ewing, I. L.
Clarke, F. E. (Dartford)	Herbert, Capt. Sir S. (Abbey)	Palmer, G. E. H.
Clarke, Lt.-Col. R. S. (E. Grinstead)	Higgs, W. F.	Patrick, C. M.
Clarry, Sir Reginald	Hills, Major Rt. Hon. J. W. (Ripon)	Peake, O.
Cobb, Captain E. C. (Preston)	Hoare, Rt. Hon. Sir S.	Peat, C. U.
Colfox, Major W. P.	Holmes, J. S.	Percy, Rt. Hon. Lord E.
Colman, N. C. D.	Hope, Captain Hon. A. O. J.	Perkins, W. R. D.
Colville, Lt.-Col. Rt. Hon. D. J.	Hopkinson, A.	Peters, Dr. S. J.
Cooke, J. D. (Hammersmith, S.)	Hore-Belisha, Rt. Hon. L.	Petherick, M.
Cooper, Rt. Hn. T. M. (E'nburgh, W.)	Horsbrugh, Florence	Pickthorn, K. W. M.
Courthope, Col. Rt. Hon, Sir G. L.	Howitt, Dr. A. B.	Pilkington, R.
Cox, H. B. T.	Hudson, Capt. A. U. M. (Hack., N.)	Plugge, Capt. L. F.
Cranborne, Viscount	Hudson, R. S. (Southport)	Ponsonby, Col. C. E.
Croft, Brig.-Gen. Sir H. Page	Hulbert, N. J.	Power, Sir J. C.
Crooke, J. S.	Hume, Sir G. H.	Pownall, Lt.-Col. Sir Assheton
Crookshank, Capt. H. F. C.	Hunter, T.	Radford, E. A.
Croom-Johnson, R. P.	Hurd, Sir P. A.	Raikes, H. V. A. M.
Cross, R. H.	James, Wing-commander A. W. H.	Ramsay, Captain A. H. M.
Crossley, A. C.	Jarvis, Sir J. J.	Ramsbotham, H.
Crowder, J. F. E.	Joel, D. J. B.	Ramsden, Sir E.
Cruddas, Col. B.	Jones, Sir G. W. H. (S'k N'w'gt'n)	Rankin, Sir R.
Culverwell, C. T.	Jones, L. (Swansea W.)	Rathbone, J. R. (Bodmin)
Davies, C. (Montgomery)	Keeling, E. H.	Rayner, Major R. H.
Davies, Major Sir G. F. (Yeovil)	Kerr, Colonel C. I. (Montrose)	Reed, A. C. (Exeter)
Davison, Sir W. H.	Kerr, J. Graham (Scottish Univs.)	Reid, Sir D. D. (Down)
De Chair, S. S.	Keyes, Admiral of the Fleet Sir R.	Reid, W. Allan (Derby)
Denman, Hon. R. D.	Kimball, L.	Remer, J. R.
Despencer-Robertson, Major J. A. F.	Knox, Major-General Sir A. W. F.	Ropner, Colonel L.
Dodd, J. S.	Lamb, Sir J. Q.	Ross, Major Sir R. D. (Londonderry)
Doland, G. F.	Lambert, Rt. Hon. G.	Ross Taylor, W. (Woodbridge)
Donner, P. W,	Latham, Sir P.	Rowlands, G.
Dorman-Smith, Major Sir R. H.	Law, Sir A. J. (High Peak)	Russell, Sir Alexander
Duckworth, Arthur (Shrewsbury)	Leckie, J. A.	Russell, R. J. (Eddisbury)
Duggan, H. J.	Lees-Jones, J.	Russell, S. H. M. (Darwen)
Dunglass, Lord	Leigh, Sir J.	Salmon, Sir I.
Eastwood, J. F.	Leighton, Major B. E. P.	Samuel, M. R. A.
Eckersley, P. T.	Lennox-Boyd, A. T. L.	Sandeman, Sir N. S.
Eden, Rt. Hon. A.	Levy, T.	Sanderson, Sir F. B.
Edmondson, Major Sir J.	Lewis, O.	Sandys, E. D.
Elliot, Rt. Hon. W. E.	Liddall, W. S.	Sassoon, Rt. Hon. Sir P.
Ellis, Sir G.	Lindsay, K. M.	Savery, Sir Servington
Elliston, Capt. G. S.	Little, Sir E. Graham	Selley, H. R.
Elmley, Viscount	Llewellin, Lieut.-Col. J. J.	Shakespeare, G. H
Emery, J. F.	Lloyd, G. W.	Shaw, Major P. S. (Wavertree)
Emmott, C. E. G. C.	Loftus, P. C.	Shaw, Captain W. T. (Forfar)
Errington, E.	Lovat-Fraser, J. A.	Shepperson, Sir E. W.
Erskine-Hill, A. G.	Lyons, A. M.	Shute, Colonel Sir J. J.
Evans, Capt. A. (Cardiff, S.)	Mabane, W. (Huddersfield)	Simmonds, O. E.
Fildes, Sir H.	MacAndrew, Colonel Sir C. G.	Simon, Rt. Hon. Sir J. A.
Findlay, Sir E.	M'Connell, Sir J.	Smiles, Lieut.-Colonel Sir W. D.
Fox, Sir G. W. G.	McCorquodale, M. S.	Smith, Bracewell (Dulwich)
Fremantle, Sir F. E.	MacDonald, Rt. Hon. J. R. (Scot. U.)	Smith, L. W. (Hallam)
Furness, S. N.	MacDonald, Rt. Hon. M. (Ross)	Smith, Sir R. W. (Aberdeen)
Fyfe, D. P. M.	Macdonald, Capt. P. (Isle of Wight)	Somerset, T.
Ganzoni, Sir J.	McEwen, Capt. J. H. F.	Somervell, Sir D. B. (Crewe)
Gilmour, Lt.-Col. Rt. Hon. Sir J.	McKie, J. H.	Somerville, A. A. (Windsor)
Gledhill, G.	Maclay, Hon. J. P.	Southby, Commander Sir A. R. J.
Gluckstein, L. H.	Macmillan, H. (Stockton-on-Tees)	Spears, Brigadier-General E. L.
Glyn, Major Sir R. G. C.	Magnay, T.	Spens, W. P.
Goodman, Col. A. W.	Maitland, A.	Stanley, Rt. Hon. Oliver (W'm'l'd)
Gower, Sir R. V.	Makins, Brig.-Gen. E	Stewart, J. Henderson (Fife, E.)
Graham, Captain A. C. (Wirral)	Manningham-Buller, Sir M.	Storey, S.
Granville, E. L.	Margesson, Capt. Rt. Hon. H. D. R.	Stourton, Major Hon. J. J.
Gretton, Col. Rt. Hon. J.	Markham, S. F.	Strauss, E. A. (Southwark, N.)
Gridley, Sir A. B.	Mason, Lt.-Col. Hon. G. K. M.	Strauss, H. G. (Norwich)
Grigg, Sir E. W. M.	Mayhew, Lt.-Col. J.	Strickland, Captain W. F.
Grimston, R. V.	Mellor, Sir J. S. P. (Tamworth)	Stuart, Lord C. Crichton (N'thw'h)
Gritten, W. G. Howard	Mills, Sir F. (Leyton, E.)	Sutcliffe, H.
Guest, Maj. Hon. O. (C'mb'rw'll, N.W.)	Mills, Major J. D. (New Forest)	Tasker, Sir R. I.
Guinness, T. L. E. B.	Mitchell, Sir W. Lane (Streatham)	Tate, Mavis C.
Gunston, Capt. D. W.	Moore, Lieut.-Col. Sir T. C. R.	Taylor, C. S. (Eastbourne)
Guy, J. C. M.	Moore-Brabazon, Lt.-Col. J. T. C.	Taylor, Vice-Adm. E. A. (Padd., S.)
Hacking, Rt. Hon. D. H.

Thomas, J. P. L.	Ward, Irene M. B. (Wallsend)	Windsor-Clive, Lieut.-Colonel G.
Thomson, Sir J. D. W.	Wardlaw-Milne, Sir J. S.	Winterton, Rt. Hon. Earl
Titchfield, Marquess of	Warrender, Sir V.	Withers, Sir J. J.
Touche, G. C.	Waterhouse, Captain C.	Womersley, Sir W. J.
Train, Sir J.	Wayland, Sir W. A.	Wood, Hon. C. I. C.
Tree, A. R. L. F.	Wedderburn, H. J. S.	Wood, Rt. Hon. Sir Kingsley
Tryon, Major Rt. Hon. G. C.	Wells, S. R.	Wragg, H.
Turton, R. H.	Wickham, Lt.-Col. E. T. R.	Wright, Squadron-Loader J. A. C.
Wakefield, W. W.	Williams, C. (Torquay)	Young, A. S. L. (Partick)
Walker-Smith, Sir J.	Williams, H. G. (Croydon, S.)
Wallace, Capt. Rt. Hon. Euan	Willoughby de Eresby, Lord	TELLERS FOR THE AYES.—
Ward, Lieut.-Col. Sir A. L, (Hull)	Wilson, Lt.-Col. Sir A. T. (Hitchin)	Mr. James Stuart and Captain
		Dugdale.
NOES.
Acland, Rt. Hon. Sir F. Dyke	Griffiths, J. (Llanelly)	Pethick-Lawrence, Rt. Hon. F. W.
Acland, R. T. D. (Barnstaple)	Groves, T. E.	Potts, J.
Adams, D. (Consett)	Hall, G. H. (Aberdare)	Price, M. P.
Adams, D. M. (Poplar, S.)	Hall, J. H. (Whitechapel)	Pritt, D. N.
Adamson, W. M.	Harris, Sir P. A.	Quibell, D. J. K.
Alexander, Rt. Hon. A. V. (H'lsbr.)	Harvey, T. E. (Eng. Univ's.)	Richards, R. (Wrexham)
Ammon, C. G.	Henderson, A. (Kingswinford)	Ridley, G.
Anderson, F. (Whitehaven)	Henderson, J. (Ardwick)	Ritson, J.
Attlee, Rt. Hon. C. R.	Henderson, T. (Tradeston)	Roberts, W. (Cumberland, N.)
Banfield, J. W.	Hills, A. (Pontefract)	Rowson, G.
Barnes, A. J.	Hopkin, D.	Salter, Dr. A. (Bermondsey)
Batey, J.	Jenkins, A. (Pontypool)	Sanders, W. S.
Bellenger, F. J.	Jenkins, Sir W. (Neath)	Seely, Sir H. M.
Benn, Rt. Hon. W. W.	Jones, A. C. (Shipley)	Sexton, T. M.
Broad, F. A.	Jones, Sir H. Haydn (Merioneth)	Shinwell, E.
Bromfield, W.	Jones, J. J. (Silvertown)	Short, A.
Brown, C. (Mansfield)	Jones, Morgan (Caerphilly)	Silkin, L.
Brown, Rt. Hon. J. (S. Ayrshire)	Kelly, W. T.	Silverman, S. S.
Buchanan, G.	Kennedy, Rt. Hon. T.	Simpson, F. B.
Burke, W. A.	Kirby, B. V.	Sinclair, Rt. Hon. Sir A. (C'thn's)
Cape, T.	Kirkwood, D.	Smith, E. (Stoke)
Chater, D.	Lansbury, Rt. Hon. G.	Smith, Rt. Hon. H. B. Lees (K'ly)
Cluse, W. S.	Lawson, J. J.	Smith, T. (Normanton)
Clynes, Rt. Hon. J. R.	Leach, W.	Sorensen, R. W.
Cocks, F. S.	Lee, F.	Stephen, C.
Cove, W. G.	Leonard, W.	Stewart, W. J. (H'ght'n-le-Sp'ng)
Cripps, Hon. Sir Stafford	Leslie, J. R.	Strauss, G. R. (Lambeth, N.)
Daggar, G.	Logan, D. G.	Taylor, R. J. (Morpeth)
Dalton, H.	Lunn, W.	Thorne, W.
Davies, R. J. (Westhoughton)	Macdonald, G. (Ince)	Thurtle, E.
Davies, S. O. (Merthyr)	McEntee, V. La T.	Tinker, J. J.
Day, H.	McGhee, H. G.	Viant, S. P.
Dobbie, W.	MacLaren, A.	Walker, J.
Dunn, E. (Rother Valley)	Maclean, N.	Watkins, F. C.
Ede, J. C.	MacNeill, Weir, L.	Watson, W. McL.
Edwards, Sir C. (Bedwellty)	Mander, G. le M.	Wedgwood, Rt. Hon. J. C.
Evans, D. O. (Cardigan)	Marshall, F.	Welsh, J. C.
Evans, E. (Univ. of Wales)	Maxton, J.	Westwood, J.
Fletcher, Lt.-Comdr. R. T. H.	Messer, F.	White, H. Graham
Foot, D. M.	Milner, Major J.	Whiteley, W.
Frankel, D.	Montague, F.	Williams, D. (Swansea, E.)
Gallacher, W.	Morrison, Rt. Hon. H. (Hackney, S.)	Williams, E. J. (Ogmore)
Gardner, B. W.	Morrison, R. C. (Tottenham, N.)	Williams, T. (Don Valley)
George, Major G. Lloyd (Pembroke)	Muff, G.	Wilson, C. H. (Attercliffe)
Gibbins, J.	Nathan, Colonel H. L.	Windsor, W. (Hull, C.)
Gibson, R. (Greenock)	Naylor, T. E.	Woods, G. S. (Finsbury)
Graham, D. M. (Hamilton)	Noel-Baker, P. J.	Young, Sir R. (Newton)
Greenwood, Rt. Hon. A.	Oliver, G. H.
Granfell, D. R.	Owen, Major G.	TELLERS FOR THE NOES.—
Griffith, F. Kingsley (M'ddl'sbro, W.)	Paling, W.	Mr. Mathers and Mr. Charleton.
Griffiths, G. A. (Hemsworth)	Parkinson, J. A.

Bill read a Second time, and committed to a Committee of the Whole House for Thursday.