HC Deb 26 April 1938 vol 335 cc60-3

I now approach the pinch of the matter. The result is that there is a gap of nearly £30,000,000 which has to be filled before the account for the year balances. The all-important question to be decided is whether the gap is to be closed by resorting to fresh taxation or by resorting to further borrowing. The prospective deficit is due to rearmament expenditure, to the carrying out year by year of the five-year programme announced in February of last year, originally estimated to cost at least £1,500,000,000, but which in fact is going to cost a good deal more than that. It has from the beginning been said that this rearmament expenditure should not be financed entirely from taxes, and the Defence Loans Act of last year has already authorised the borrowing of £400,000,000 for Defence purposes during the five years. Under that authority we have already borrowed £100,000,000. The balance remains to be raised from time to time when circumstances are favourable for the purpose. So large a borrowing is an immense operation, and one that must be carefully timed and spread.

What I have said will serve to remind the Committee that it would be a mistake to imagine that this deficit, if it were to be met out of borrowed money, would call for fresh borrowing powers. Unexhausted borrowing powers are there, and the question is whether we can wisely and properly use borrowed money to fill this particular gap of £30,000,000. In order to form a proper judgment on that question there are three things which must be borne in mind. The first is this. In the Defence Estimates for the current year we have already taken £90,000,000 from sources outside the revenue of this year. £28,000,000 will come from last year's surplus, which is thus diverted from the payment of debt. £62,000,000 is new loan money, and the whole amount, £90,000,000, counts against the total authorised by the Defence Loans Act. The point I am making is that if we were to confine ourselves to this year's revenue on the existing basis, the gap to be filled would really be £120,000,000, and of that we have already decided that £90,000,000 shall not be got from additional taxation. Secondly, I must remind the Committee that we have announced our intention, and are already in course of carrying it out, to accelerate our rearmament and to increase the production of munitions. The whole country, I think, realises the necessity for that decision and approves of it. It means that we must expect to have Supplementary Estimates for Defence later on in this year of substantial amount, which are not included in the total expenditure against which I am now providing. When these Supplementary Estimates come along this year for further Defence expenditure I intend that they shall be met out of loan money, by further drawings on the fund provided under the Defence Loans Act; and this, therefore, will be a further amount which will not be provided from the revenue of the current year.

I come to my third consideration. Those I have mentioned are serious, but the most important consideration of all remains to be stated. We have to look beyond the present year. It is the traditional and convenient course that we should hold these financial inquests in the month of April once every twelve months, but there is nothing in the nature of the case to justify our con-of twelve months, and refusing to look forward and see what is likely to happen later. This is what is going to happen later. The peak year of Defence expenditure will not be reached until next year or perhaps the year after. The Committee will have in mind, of course, the warning contained in the Defence White Paper last month, that the total expenditure for the five years will exceed the sum of £1,500,000,000. I cannot give the additional figure, but it may well be something substantial. And there is a further warning I must give to the Committee. In view of this huge outlay on war material, and of the character of the annual maintenance which it will subsequently require, the drop in estimates in future years may not be as rapid or as steep as we could desire. We may expect a sensible diminution of the annual burden before the end of the quinquennium, but though the fall in the curve should be considerable, future maintenance expenditure, replacement and maintenance, must remain very substantially higher than in the past, when our armaments were so much smaller.

I have stated these three considerations to the Committee as clearly as I could and with complete frankness, and I would only wish to add this before I announce my conclusion. Nothing would contribute so much to the ultimate reduction of the burden as the increase of international good will and the general reduction of armaments which should flow from it. The policy which we are pursuing—the actual achievement of the Anglo-Italian Agreement is a striking and encouraging example—is aimed at this end. But until the end is more fully achieved, we are bound to pursue the plan of rearmament which we announced and which the country has so generally approved. In these circumstances, I have had to meditate long and anxiously to decide whether I should be justified in taking what for the moment, but perhaps only for the moment, would be the easier course of covering this £30,000,000 by loan money. I have come to the conclusion that I should not be doing my duty if I followed that easier course. If this year stood alone, if the Estimates so far presented for Defence were the total of such Estimates for the year, if we did not foresee higher maintenance charges in the future, another view might be possible; but when fining ourselves rigidly to a period expenditure on Defence is mounting, and will mount further, bringing heavier maintenance in its train, we must take some portion of the increase on our own shoulders by additional taxation now. By so doing, hard as that may seem for the moment, we shall reduce our difficulties hereafter, we shall assist our further borrowings, and we shall show the world that this country does not quail when it faces the burden of its task.

How is it to be done? In framing my plans for raising £30,000,000 by additional taxation, I have examined a large range of proposals, some of them suggested from outside sources, some of them the result of cogitation by myself and my advisers. The taxes selected must be such as to give an adequate yield, they must be capable of effective administration and, taken together, they ought to represent a contribution for the common needs of our defence from the country as a whole. Every citizen is vitally interested in defence, though the money contribution will, necessarily and rightly, differ in amount. It follows that the extra sum in my judgment must be found partly by direct and partly by indirect taxation. I am proposing that the major contribution should come from direct taxation.