HC Deb 28 April 1938 vol 335 cc325-451

Considered in Committee [Progress, 27th April].

[Captain BOURNE in the Chair.]


Question again proposed, That it is expedient to amend the law relating to the National Debt, Customs and Inland Revenue (including Excise) and to make further provision in connection with finance."—[Sir J. Simon.]

3.59 p.m.

Mr. Dalton

Yesterday, the "Times," in commenting on the scene on the day when the Chancellor of the Exchequer introduced his Budget proposal, said: Certainly, no Budget speech in recent time has been received with less enthusiasm in any part of the House. That is the judgment of the "Times." There was not much enthusiastic support generated behind the Chancellor of the Exchequer yesterday. Perhaps that enthusiasm will gradually develop to-day. I will begin with a few observations on the rather sombre expenditure side of the financial statement. With regard to the National Debt, after a slow decline over a period of years, principally due to conversions, the interest charge is now again creeping up. The Chancellor of the Exchequer did not emphasise the point, but the White Paper makes the position very clear, that in the coming year the interest and management charge on the National Debt will rise from £224,000,000 to £ 230,000,000, an increase of £6,000,000 under this head alone, despite the exceedingly cheap money, on which the Chancellor of the Exchequer commented. I presume that it is anticipated that money will remain cheap. If, however, interest rates should rise sharply, either for long or short terms, the increase in the interest and management charge on the National Debt would become much more strongly marked, and would further increase the large deficit which is in any case inevitable. I merely comment in passing on this relatively minor point. It is a thoroughly unhealthy symptom in our national finance that the interest charge is now again trending upwards again. This means, if I may use a metaphor, that the amount of dead wood in the financial tree is increasing at an unhealthy rate.

I pass from the debt charge to the expenditure on arms. The Chancellor has told us that this year we are to spend on arms—I here exclude air-raid precautions— under the head of the three Service Departments. £343,000,000, plus a quite indefinite sum for Supplementary Estimates. I do not think I shall be wrong in estimating that the total cost of arms will lie somewhere between £ 350,000,000 and £400,000,000. I shall be surprised if the Chancellor will rise later and say that the amount will be nearer the lower than the higher figure. If Supplementary Estimates come along in great magnitude we may even reach a total of £400,000,000, as I judge the position. I wish to ask a question of the Committee. Is it the opinion of anyone, despite this portentous expenditure on arms, that we can now sleep more safely in our beds, particularly those of us who live in London, than we could in 1931 when the Government of a different complexion was in office? The answer is clearly in the negative. In 1931 we were spending round about £100,000,000 for arms—a million or two over. We were spending only, perhaps, one quarter of what the Chancellor is to spend this year, certainly less than one-third, and we were planning to spend less still, not by any project of unilateral disarmament but because we were planning negotiations which we believed would eventuate in a general disarmament treaty.

In the conditions of 1931—it is so long ago that it demands an effort of the imagination to recall them—I assert without fear of contradiction that this country was incomparably safer, and that we had a security then that we have not today. I would add for completeness that in 1931 there was an emphatic superiority of arms in this country and in other countries standing behind the League, so that none of the potential aggressors of to-day would have dared then to adopt the truculent policy with which we are now becoming familiar. We have not got that superiority in arms now. We had a position therefore of great moral and material strength in 1931, a position which to-day has been lost, and if there be one man more responsible than another for the fact of that loss it is the Chancellor of the Exchequer himself.

In the prelude to his Budget statement the right hon. Gentleman said that he was going to present a problem play in three acts. He has presented it in his ministerial career since 1931. The problem play in three acts is this: Act 1, at the Foreign Office, wrecking the Disarmament Conference and running away from League obligations; Act 2, having at last been dislodged from the Foreign Office, at the Home Office neglecting and delaying air-raid precautions; and, Act 3, when dislodged from the Home Office in one of the periodical readjustments made in the composite Government which still holds a majority in this House but not, I believe, in the country, at the Treasury reaping in the third act what he had sown or failed to sow in the previous acts. [HON. MEMBERS: "What about the fourth Act."] The fourth act remains to be played. Quite evidently the Chancellor's mind is already on the fourth act. In dread of a brilliant young Labour candidate in the Spen Valley he has decided that the fourth act is to be played somewhere else.

I do not think that anyone will dispute what I have said, and it is not necessary therefore for me to bring further evidence in support of my statement that the Chancellor is more than any other man responsible for the failure of the Disarmament Conference and consequently for the enormous expenditure to which we are now inevitably committed. If no one challenges that statement I will pass on and we can accept it as being universally agreed. But I see that one hon. Gentleman opposite looks rather incredulous. I will therefore call a new witness for the prosecution. I hold in my hand a book by a very eminent gentleman who refers to the Spring of 1934 at Geneva, and this is what he says, referring to Herr Hitler's proposals: M. Barthou's ' No ' and Sir John Simon's echoing negative marked the end of the Disarmament Conference, as well as the loss of a golden opportunity of settling differences amicably with Germany. In the opinion of a brilliant publicist, Mr. A. L. Kennedy, at that time Assistant Foreign Editor of the "Times," which I cannot but endorse, the failure to face that great opportunity was perhaps the lowest point of depression to which British diplomacy has sunk in recent history.' The witness that I have called is Lord Londonderry. My quotation is from a book, "Ourselves arid Germany," just published, and I am very grateful to the Noble Lord the Member for Down (Viscount Castlereagh) for sending me this book and enabling me to cite it. Lord Londonderry had exceptional opportunities for observing the performances of the right hon. Gentleman the present Chancellor of the Exchequer. He was at that time a Cabinet colleague engaged upon similar work at Geneva in connection with the Disarmament Conference.

Now I pass from the right hon. Gentleman to the problem of arms. We have been led by the policy pursued by the National Government away from efforts at arms limitation which might well have succeeded if properly handled, to a straightforward arms race. What the Committee desires to know is what is happening to us in that arms race. There is no question that is giving graver concern to thoughtful people of all sections of opinion all over the country. What is happening, especially as regards the air? There is this enormous expenditure which we are asked to vote for the Air Force. Are we getting value for the money? I have not been present in the House for some months, having been absent elsewhere, but I have read with great attention the reports of the many Debates in the House on these matters, and I find that it has been asserted by authoritative people, and it has not been denied, that Germany has an Air Force at least twice as large as ours. In 1931, when the Labour Government was in office, Germany had only a clandestine and negligible Air Force and we had a substantial Air Force. Now, we hear, she has twice as great a Force as ours and she is increasing it at least twice as fast as we are increasing ours.

I would emphasise that this is one of the most important questions behind the whole of this Budget discussion. It is quite idle for the Chancellor to put forward any proposal either for expenditure or taxation unless we can be assured that we are not simply losing the arms race by reason of the incompetence of his colleague, Lord Swinton. My right hon. Friend the Leader of the Opposition has given notice that on an early occasion we shall raise the whole question of the aircraft construction programme of the Government and the very grave allegations of incompetence which are made both against the politicians at the Air Ministry and against a number of other persons concerned in this affair.

I have excluded for the purpose of considering the total of arms expenditure the sum spent on air-raid precautions. The right hon. Gentleman's White Paper shows us that in the coming year we are to spend £ 8,500,000 on air-raid precautions; £6,500,000 direct from the Treasury and £2,000,000 by way of grants-in-aid to local authorities. The right hon. Gentleman the Chancellor of the Exchequer is greatly to blame for the long delays that occurred when he was at the Home Office before any effective beginning was made in this branch of Defence. For the moment the right hon. Gentleman who is now at the Home Office cannot be held to blame, except in a minor degree, for those delays. But there have been many Debates on the matter, and it is the general view of my hon. Friends that the air-raid precautions are most inadequate both in scale and in scope, in addition to having been started very late in the day.

I turn to one other matter on the expenditure side. It is the savings that have been made on unemployment. We want to hear more from the Chancellor about them. They were the only savings to which he referred at all in the course of his Budget speech. He took credit for the fact that last year he had saved £8,500,000 on unemployment assistance. On referring to the White Paper on page 8 it appears that in the coming year the Chancellor has hopes of saving another£ 6,500,000 on unemployment assistance. He did not tell us that in his Budget speech. We want a few more details about these figures. It is not clear whether the £8,500,000 is to be added to the £6,500,000, so that in two years the Chancellor will have saved £15,000,000 on unemployment assistance, or whether it is only a smaller total than that by reason of the fact that the £6,500,000 is to be compared not with the actual expenditure last year, but only with the estimated expenditure.

I want him to explain something else. I want him to explain how it comes about that there is a saving of this magnitude on unemployment assistance. Unemployment is not decreasing. The figure of registered unemployed rose between April of last year and the last return for April of this year from 1,400,000 to 1,750,000, an increase of nearly 25 per cent. In the face of that increase how can the Chancellor of the Exchequer explain and justify these savings on unemployment assistance? Those who represent the distressed areas know that, in spite of any figures which may be quoted about new training estates or other minor operations of the Commissioner, there are thousands of families who are half-starved, with no money for clothes, no money for boots, no money for pots or pans, or bedding, when these things wear out. At the same time that the Government are talking so much about physical fitness they are by these economies in unemployment assistance payments deliberately starving and lowering the physique and the morale of some of the best of our population.

What else did the Chancellor of the Exchequer say in his Budget speech? He said that they would be proud to pay a little more for their tea. What mockery! The Chancellor of the Exchequer, if he is seeking a new and safer seat than Spen Valley, will be well advised to find one far away from a distressed area. At any rate, I ask him to give us a further explanation as to how these figures are made up, and why these economies are taking place at all at this time.

The Chancellor of the Exchequer (Sir John Simon)

The hon. Member has studied the White Paper carefully, and if he will look at the beginning of page 7 he will see that the table given is clearly labelled "Estimated Expenditure."

Mr. Dalton

Therefore, the right hon. Gentleman is proposing to save £6,500,000 in the coming year on unemployment assistance as compared with the Estimates which were presented to the Committee a year ago. He is proposing this year to cut by £6,500,000 the provision that was made last year for unemployment assistance. I think that statement will be all the better for a little further elaboration by the right hon. Gentleman.

Let me now turn to the question of taxation. Tax-dodging on a large scale by a number of rich men is now admitted. It may be that not a very large number of taxpayers resort to these devices, but it is admitted that in terms of money a lot of revenue is lost through the methods of tax evasion which the Chancellor of the Exchequer explained in his statement. My right hon. Friend the Member for East Edinburgh (Mr. PethickLawrence), in his able and interesting speech yesterday, quoted a passage from the "Times" in which it said that Surtax has now become a purely voluntary payment by the rich. [Interruption.] I think that sums up the position, at any rate, it is in the "Times," and that must predispose some hon. Members in its favour. I have heard it said by a good authority in the public service—it would be improper to quote names—that in his judgment we are probably losing in respect of the yield of the Surtax alone some £20,000,000 a year. In other words, the yield of the Surtax is now some £60,000,000, but if all Surtax payers were reasonably honest and patriotic, it would be about £80,000,000.

If that is approximately true, what a miserable and small contribution the Chancellor is making to this problem in his tax avoidance Clauses. The revenue to be derived by these tax avoidance Clauses is less than £1,000,000 this year, and less than £4,000,000 in a full year. If there is any truth in the statement that we are losing £20,000,000 in revenue on Surtax alone through these dishonest devices, what a small contribution indeed is the Chancellor of the Exchequer making to secure for Caesar those things which are Caesar's. This is a technical matter on which it is not necessary that any heat should be generated, but I hope the Chancellor of the Exchequer will carefully consider whether he cannot do a bit better. He has competent advisers at the Treasury, and if he told them that he wanted wider and more drastic powers I am sure that they would be able to advise him. I hazard the guess, and I do not think I am wrong, that the Treasury officials take the view that he has gone too slow rather than too fast, and that if he asks them for advice as to how he can get back more of these discreditable avoidances, I am sure they are in a position to help him. So far as my hon. Friends are concerned, if he has any trouble with the composite following behind him, we will see him through in the Division Lobby, if he will really play the man over these tax avoidances.

Let me now consider the taxes actually being imposed. We on this side of the House do not understand why the rates of Surtax and Death Duties have become stabilised for years during this critical financial period. If you want to get increased revenue by way of direct taxation, part of your scheme to ensure an increased yield should be to raise the scale of Surtax on the higher incomes and to raise the scale and to develop the scope of the Death Duties. We do not understand why the Chancellor of the Exchequer has passed by these two excellent devices for making rich men pay their footing, either before or after death, in the country of their adoption.—[Interruption.]—I speak, of course, in a theological sense—the Committee will understand. The National Defence Contribution was introduced last year in response to appeals from this side of the House to produce something which would give us quickly a reasonably large revenue towards the growing cost of armaments from people who would be profiting by the arms programme. The first National Defence Contribution was a complete fiasco and had to be withdrawn. A second version was produced, for which the present Chancellor of the Exchequer was responsible, and we adopted the view that it was rather a better performance than the first. But it was so inadequate in regard to the revenue to be obtained that we asked the Chancellor of the Exchequer to take it back and do better. The right hon. Gentleman anticipated to get £25,000,000. He will not get that amount. He will get only £20,000,000, and we should like to know why he has not raised the 5 per cent. rate to 7½ per cent. to get £30,000,000 instead of £ 20,000,000, as he could easily have done. The administrative machinery is there now. All he had to do was to turn the screw, a mere touch, and he would have got his £ 30,000,000 instead of £20,000,000.

What the Chancellor of the Exchequer has done is to increase the standard rate by 6d. with certain adjustments to prevent this increase falling on the poorest classes of the people who now pay Income Tax. I want to look at the consequences of what he has done, because I submit they are very inequitable indeed towards what are commonly called the middle class, persons with incomes of £500 up to £ 1,000—at any rate people below the Surtax limit. I have looked at the tables in the White Paper and I have discovered what I think any hon. Member will discover if he spends a little time in doing some arithmetic. What I have discovered is that the tax contribution required from the different Income Tax levels is very unfair as between people in the small middle-class range and the very wealthy. The Chancellor of the Exchequer has compared the existing charge with the proposed charge in parallel columns in the White Paper. If you take the existing charge and the proposed charge you will find that in the small middle-class incomes of £500 and upwards the increased charge never reaches 10 per cent. I am taking the first of the tables, single persons and unearned income. In the case of a person with an income of £500 the existing charge is £77 10s. and the proposed charge £84 2s. 6d., an increase of just over 8 per cent. But what is very disgraceful from the point of view of equity is that the richer the taxpayer the smaller the percentage increase he has to pay. A man with an income of £500 will pay rather more than 8 per cent. more, but if he has £10,000 a year he will pay only 6 per cent. more; if he has £50,000 a year he will pay less than 5 per cent. more, and if he has £150,000 a year he will pay less than 4 per cent. It is quite clear from a study of the figures that this will hit the middle classes very hard as compared with the Super-tax payers in the higher ranges. It is grossly inequitable as between the different classes of people who will be required to pay more Income Tax this year.

I think the Chancellor will agree with me that it is an arithmetical truism that that is bound to be the case as long as, under the existing Income Tax and Surtax system, one merely makes an addition to the standard rate of tax without scaling up the Surtax on the higher incomes in correspondence with it. To proceed in that rough and ready way is bound to cause gross injustice. I admit that the smallest Income Tax payers will pay no additional amount, but when one comes within the range of those who will pay additional Income Tax under the scheme, a grave injustice will be done to those below the Surtax level and those above it will be unduly favoured. On grounds of equity, the Chancellor has been too simpliste in his scheme this year. He ought to have added to the proposal for modifying the standard rate further proposals regarding the scale of Surtax and Death Duties.

With regard to arms profits, there has been some dispute about the facts, although they have frequently been published in many forms. Some hon. Members have tried to persuade the Committee that no large profits are being made from the manufacture of armaments or that, if they are, in some way or another the figures do not mean what they seem to mean. The right hon. Baronet the Member for Caithness and Sutherland (Sir A. Sinclair) quoted some figures yesterday which were in accord with the figures which I had prepared to quote had he not done so. The right hon. Baronet gave some striking figures of the profits secured by the fortunate shareholders in some of the arms firms, but there are one or two aggregate figures which he did not quote and which I will mention briefly. They have been extracted from the "Economist" from time to time. In the case of the 30 most important firms manufacturing arms in this country, the profits increased from just under £4,000,000 in 1934 to £11,750,000 in 1937; that is to say, the total profits increased by £8,000,000, or by more than 200 per cent., in three years. The profits which are being made to-day by this industrial group are three times as great as they were before rearmament began.

Sir Patrick Hannon

Will the hon. Gentleman give the percentage increase in the dividends of those companies during that period of time?

Mr. Dalton

I have a number of figures, regarding the dividends, and although I am anxious not to take up too much of the Committee's time, I will give some of them later. Let us begin, however-by considering the profits they are making. Over a three-year period, the profits have risen to a figure which is three times as great annually as it was before the rearmament programme began. That refers to the published profits. I do not know whether the hon. Gentleman who so ably represents in the House not only Moseley but a large range of industrial undertakings, will deny that published profits do not always tell the whole story. There are ways and means of tucking things away so that they are not observed or commented on, and we may reasonably guess that the total increase in profitability in that branch of industry is much greater than is admitted. Moreover, I read in the "Times" that firms which use elaborate and expensive machinery, as all these firms do, will really not pay any additional Income Tax this year, since the Chancellor's concession with regard to increased depreciation allowance will set off, for firms of this type, any additional liability in respect of the higher standard rate of Income Tax. Therefore, the armament manufacturers are not only not joining in the general sacrifice about which we have heard so much, and which the unemployed and the old age pensioner will join in on their cup of tea, but in many cases they will perhaps be even better off, as a result of these financial adjustments, than they were last year. That casts a very interesting light on the principle of equality of sacrifice as preached by the Chancellor.

The hon. Member for Moseley (Sir P. Hannon) was interested in the dividends of these concerns. I do not wish to detain the Committee too long, but it would be discourteous of me not to furnish some sample information in reply to the hon. Member's request. The ordinary dividend of English Steel went up from nil in 1934 to 20 per cent., tax free, last year. I hope the hon. Gentleman has got a hit of that. The dividend of John Brown—a famous old name—went up from nil in 1934 to 15 per cent., tax free, plus 66⅔ capital bonus, last year, so that John Brown, who had been down at zero in 1934, now goes marching on. The Whitehead Iron and Steel Company was not quite so derelict in 1934, and paid 15 per cent. —

Sir P. Hannon

I apologise for interrupting the hon. Member, but does he suggest that these increases in dividends were due to the rearmament programme? Were they not a consequence of the policy which the National Government have followed?

Mr. Dalton

I suggest that they are principally due to the rearmament programme. I also suggest that it is no very great advertisement for the policy of the National Government, that, in 1934, after the Government had been in power three years, those concerns were still passing dividends. It means either that they were most incompetently managed in the period before rearmament and could not make dividends for their shareholders, or alternatively, that the programme of the National Government in the first three years of its life was not very helpful to them. But in reply to the question of the hon. Member, I have not the least doubt that it is principally the rearmament programme which has helped things along for these firms. I was say ing that the Whitehead Iron and Steel Company paid 15 per cent. in 1934, so that they were not so much on the rocks as John Brown and English Steel, but in 1937 their dividend had gone up to 35 per cent., plus a 25 per cent. capital bonus. That was a good thing to buy at a certain stage—it may not be now. I do not want to multiply the examples, but I think it is clear that this particular range of industry has been exceedingly profitable to its shareholders during the last few years, and I think there is not the least doubt that the Chancellor's Budget proposals, taken in the aggregate, are grossly inadequate from the point of view of getting a proper contribution from these people towards the general cost of running the country and paying for the rearmament programme.

Half a century ago, the present Prime Minister's father had a Radical reputation, and on a famous occasion he asked, "What ransom will property pay?" He asked that rather brutal question at a time of profound peace, when there was no such danger of war as to-day looms over this and other countries. What is the answer to that question now? What ransom will property in this country pay now not to be burned at the stake in another war? That is what will happen if there does come another war. All these bits of paper will go up in a blaze. That question has not been answered in the Chancellor's Budget statement, and it has not even been properly put to the wealthier section of the community. What ransom will that section pay for its great possessions? The wealthiest section, as I have been endeavouring to show by calculations in relation to Surtax payers and the standard rate of Income Tax, and in relation to arms profiteering, are getting off so lightly under this Budget that they will hardly be able to feel the additional minor burdens which the Chancellor is placing upon them. The question is one which should be in the minds of hon. Members in all parts of the Committee—What is the way in which this enormous arms burden and the larger burden of public expenditure as a whole should properly be distributed between the different sections and groups in the country? My hon. Friends on this side of the Committee consider that the Chancellor has produced a completely unsatisfactory answer to that question.

I do not intend now to deal with the question of an unbalanced Budget and the degree of borrowing that is taking place, but I do say that in this country at this critical time there is as gross an inequality of wealth and opportunity as ever there has been. I will quote some figures, not from any political source, but from the well-known estimates of the late Professor Daniels and Mr. Campion, published by the University of Manchester in a purely non-political study. It is still true that in this country 6 per cent. of the population own 80 per cent. of the property and that 40 per cent. of the property is held by less than 2 per cent. of the people. At a time of assured peace we can put forward in a peaceful atmosphere proposals for modifying such grotesque social injustices as these figures show. How much more necessary is it to do that when the danger of war is upon us and when we are conscious of the enormous expenditure we are being called upon to make in order that we shall not fall further behind the highly-armed and dangerous foreign countries who have become highly-armed and dangerous through the incompetence of the foreign policy of this Government? We on these benches are Socialists and make no pretence to the contrary. We found our faith upon our detestation of these grotesque inequalities of income, opportunity and the chances of health and happiness in this brief span of man's life, and we say that we have no doubt, as we believe the country at large has no doubt, where the Chancellor of the Exchequer, hard pressed for great sums of new revenue, ought to go in order to collect that revenue.

4.44 P.m.

Sir Hugh O'Neill

The hon. Member for Bishop Auckland (Mr. Dalton) has, as I am sure the Committee will agree, greatly benefited from the blue skies and the crisp clear air of Australia, for since he has returned from his trip we see by his vigour and the emphasis of his speech that he has been very much fortified by that trip. There are one or two points I would like to make with regard to the Budget. The Chancellor stated, at the end of his speech, that it was the ambition of every Chancellor to be in a position to remit taxes rather than to impose them. On this occasion tax remission has been impossible. Nevertheless, from the review which the Chancellor has made of the past year it does appear that the main sources of our revenue continue to be healthy.

If we look, for example, at the revenue from Customs and Excise we find that there is an increase. In Income Tax there was an increase last year of nearly £10,000,000, which shows that that great source of revenue is to-day still as buoyant as, if not more buoyant than, it has been at any time in recent years. Estate Duty at £88,000,000 is, I think, a remarkable source of revenue. I remember speaking on the Budget of about 10 years ago when I said, and I think it was then the view of nearly everybody, that Estate Duty was bound greatly to decrease as the great profits made in the War became realised through death. But that view has been proved wrong, and I think one of the most remarkable features of our financial structure to-day is the extraordinary buoyancy and resilience of Estate Duty. Of course, everybody knows that the Estate Duty is a tax upon capital and is used for revenue purposes. That is a very undesirable object and result. It used to be said that as long as one was paying off debt at about the same rate as Estate Duty was being collected, it was all right, but that cannot be said now. However, one, obviously, cannot expect any Chancellor of the Exchequer to make any inroad upon the great source of revenue which Estate Duty provides.

I should like to remind the Committee of one or two figures of revenue. Customs Duties in 1927–28 produced £112,000,000. Last year, they produced £221,500,000, or more than double the figure of 10 years previously. That increase is due primarily to the tariffs which were imposed soon after the National Government came into power in 1931. I wonder whether anybody in any quarter of the Committee would to-day suggest that those tariffs which are producing so great a revenue should be abandoned. There was a time when not only the Liberal party, but even the Labour party were opposed to tariffs for any purpose, but since then tariffs have been in operation for some seven years, and the results have been a greatly increased revenue, and also a considerable measure of protection. In the old controversies of the days before the War it was always maintained by the Free Traders that you could not have tariffs which would, at the same time, produce revenue and act as protection. In my view that argument has been falsified by results. To-day, we have this large revenue from our duties and tariffs on imported foreign articles, and, at the same time, we have undoubtedly got a considerable measure of protection for our industries.

There is one point in connection with the revenue on which I would like to ask the Chancellor of the Exchequer a question. The item "Miscellaneous Revenue" represents a sum of £13,500,000. I do not know whether the Chancellor has stated exactly of what that figure is composed. I believe that "Miscellaneous Revenue," which is always a considerable item in the annual accounts, used to consist of the realisation of stores which had been accumulated during the War. I am not certain of what it consists now, and if the Chancellor of the Exchequer would enlighten the Committee on that point it might be to our advantage.

It seems to me that any Chancellor of the Exchequer must be guided by two main principles. First, he has to guard and nourish the revenue. Secondly, he has to be careful in watching expenditure. Our national revenue is the most vital of our institutions, if I may so call it. Everything in this country depends upon our having an adequate revenue. Our place in the world, our security, the power which we can exercise in conferences with other nations, our credit, our social services, the well-being of our people and the standard of their lives—all depend upon there being adequate revenue to meet the various expenses which have to be paid by the Government. If the revenue does not come in, the money cannot be paid out. That is fundamental. A good revenue will be as necessary to the party now in opposition if they ever come into power, as it is to the Government of the day. We have heard many times from the exponents of Socialism that when they come into power it is their desire and intention to break up the existing capitalist system. A statement very commonly made is that we ought to take away from the rich to give to the poor. That is very easily said, but it is not so easily done.

Mr. Charles Brown

You will break it up yourselves if you are there long enough.

Sir H. O'Neill

The hon. Member for Bishop Auckland referred to a certain class of rich people in this country. I think he said that they were imported. He used some word which suggested that they were not native to this country.

Mr. Dalton


Sir H. O'Neill

Yes, the hon. Member said that this was the country of their adoption. Surely there are some advantages as regards the revenue of the country in having a number of rich individuals. Obviously, you will not get so much revenue from a large number of small incomes as you will from one large income of the same total amount. If you take, for instance, a block of income of £100,000, obviously that block of income will produce more if it is in the hands of 10 people with £10,000 a year each, than it would if it were in the hands of 100 people with £1,000 a year each. I do not suppose that it is the intention of anybody, not even of the party opposite, to impose direct taxation at the rate of 13s. 6d. or 14s. in the pound, or whatever is the rate on the highest incomes, on incomes of £1,000. There are, of course, obvious advantages to a country which must have a big revenue, as we must have, in having a certain number of rich individuals from whom it is possible to get a much greater proportion of the revenue than would be otherwise available.

Mr. Bellenger

Will the right hon. Gentleman explain why then it is that the Chancellor of the Exchequer expects to get nearly £300,000,000 from the general body of Income Tax payers, and only £57,000,000 from the Surtax payers?

Sir H. O'Neill

Certainly the Surtax payer does not find as much as the whole body of Income Tax payers, but that does not affect my argument. It is obvious that you will get more revenue if the income is distributed partly among very rich people. The whole structure on which our revenue depends can be easily upset. We hear a lot about confidence, and we know how easily confidence can be dissipated and how much successful finance depends upon confidence. We have seen the situation in France in recent years—a rich country, but a country in which, owing to various considerations, there has not been confidence of late, with the result that they have been going from one financial crisis to another. In fact, they never seem to be free from financial crises, and to-day they are being compelled to recognise that things which they thought and believed to be possible for their people cannot now be done without giving up the whole structure of their finance. Another case in recent years where the lack of confidence and extreme Socialist principles brought about financial chaos was the case of Mr. Lang in New South Wales. As we know, his financial policy brought about practically the bankruptcy of the State, and, as a result of that, a moderate form of government has, I think, for the first time in history, been returned in New South Wales on three successive occasions.

Mr. George Griffiths

The right hon. Gentleman has been to Australia. Will he now go to New Zealand?

Sir H. O'Neill

I have been both to Australia and New Zealand.

Mr. Griffiths

Will the right hon. Gentleman give us a bit of New Zealand? He knows who is in power there.

Sir H. O'Neill

I think we shall all watch with great interest the immediate financial future of New Zealand. I said that the second main duty of the Chancellor of the Exchequer was to watch expenditure. We in this country have an annual expenditure of nearly £1,000,000,000 and I always think it most remarkable that the House of Commons which contains the elected representatives of the people, exercises no detailed control whatever over that expenditure. Under our system the Estimates come up for discussion, but their details are never debated. On the Estimates, we always consider broad questions of policy. It is true that we have two committees, the Committee on Estimates and the Committee on Public Accounts, both of which do admirable work in their respective spheres, but they are both of them really in the nature of post mortemcommittees, and there is no method whatever, under our financial procedure here in the House of Commons, by which expenditure can be scrutinised, examined, and discussed before it is passed.

That is one of the points which have been discussed over and over again. I myself was, a few years ago, on a Select Committee of this House which went into these matters, and one of the things which we discussed most fully was the possibility of creating some machinery under which the House of Commons could really act as an assembly for dealing with expenditure. But no solution was possible, and the result is that whenever the time comes, as it does now and then, when expenditure has to be reviewed and when economies have to be made, it is always some outside committee, such as the May Committee, by whom the duty is undertaken. It may be that before very long our expenditure will become so great, and if there is anything like a depression, the revenue may so shrink, that it may again be necessary to appoint a committee to examine carefully the expenditure of the country and to make recommendations for its reduction. This year we are proposing to spend £81,500,000 more than we spent last year. When you deduct from that the £55,500,000 which is to be spent on Defence and the £6,000,000 extra which is to be spent on the Debt service, you still have what I may call a more or less ordinary or normal expenditure of £20,000,000 more this year than it was last year. Some people are beginning to ask how long this rising expenditure can go on, what the position would be if there were a serious setback and if we were to lose the great advantage of cheap money from which we have benefited now for so many years, and what would happen if war were to come, with the Income Tax at 5s. 6d. in the £.

With regard to the method which the Chancellor of the Exchequer has adopted in meeting the gap between revenue and expenditure this year, I think that his proposal to meet it by taxation rather than by borrowing has had a far more friendly acceptance, not only in this House, but in the country, than probably the Chancellor himself thought possible. I think he has certainly adopted the wise and cautious course, and that, I think, in the last two days has been on the whole the verdict of the country. It would have been easy to borrow the money, and it is not pleasant to have to find it by extra taxes, but the people of the country, I think, realise that it is better, while we are enjoying a considerable measure of prosperity, to obtain a large proportion of our expenditure for Defence from the pockets of the people to-day than that we should place it upon our descendants to bear in the future. The small duty—or not small; in some cases it may be very onerous—of 2d. per lb. on tea does seem to me to be not unreasonable. Everybody knows that there may be some people in this country who will find it a hardship, but I think the Chancellor of the Exchequer was right when he said that in these critical days expenditure on armaments for our Defence must be spread over all sections of the population, and that all sections of the population will with courage bear the burden which has been placed upon them respectively.

One word more. Crushing though the burden of taxation is in this country, on the whole I think it is true to say that we get good value for it, and I have no sympathy with the person who always grumbles about the taxes that he has to pay. We get security for them. While I agree that there is poverty, and while I admit that there are inequalities in wealth, on the whole we have a contented people and a people who have a considerable amount of wellbeing and of prosperity. I often feel that, when the British taxpayer looks around the world to-day and sees the conditions which exist elsewhere, he may well be thankful that, largely because of what he has to pay, he is privileged to live in a country where internal peace, order, and security prevail as nowhere else in the world.

5.7 P.m.

Major Owen

The right hon. and gallant Gentleman the Financial Secretary to the Treasury, in his opening remarks last night, said: My right hon. Friend the Chancellor of the Exchequer has good cause to be pleased with to-day's discussion. I have seldom heard a full day's discussion of a Budget when there has been less criticism than there has been to-day of the central proposals of the Budget."—[OFFICIAL REPORT, 27th April, 1938; col. 256, Vol. 335] Perhaps that is not surprising, as the Budget contains not a single new kind of tax. All the taxes in the present Budget are familiar to the Committee and have been familiar for many years, but no one, I think, will pretend that this is popular Budget. It is indeed very significant that the "Times," in yesterday's issue, described it as "an unpleasant and chilling surprise," and, as the hon. Member for Bishop Auckland (Mr. Dalton) also said just now, it was obvious to everybody in the House on Tuesday that no Budget speech in recent years has been received with less enthusiasm in any part of the House. Its unpopularity perhaps was largely inevitable, and no one, I think, will envy the Chancellor of the Exchequer the task which he has already had to face, and still less the more onerous task which he will have to face in the future. Government expenditure is rapidly on the increase, mainly as the result of the rearmament programme, and taxation must be increased to meet it. But the present Budget receives such a markedly chilly welcome because, while it is no doubt realistic and practical, it is rigid and entirely lacking in imagination or in any quality which would tend, either by its psychological effect or by its economic encouragement, to assist the nation to face the heavy burdens which it imposes.

There are, it seems to me, three problems which arise out of a consideration of this Budget. The first is this: Is the level of expenditure provided for in the Estimates necessary? Secondly, are the methods by which the revenue is to be raised the most desirable in the general economic interest of the country? And, thirdly, can anything be done to increase the economic strength of the community so as to lessen the strain of national expenditure on this enormous scale? Let us take the first point first. Beyond question, the cost of rearmament upon such an enormous scale as that now being pursued by the Government must involve a heavy increase in national expenditure, but it by no means follows that all the expenditure actually being incurred or contemplated for this purpose is inevitable or that the country will be getting full value for its money. Uneasy rumours reach most Members of this House from many directions, which indicate that the fact that the Government have decided on this huge expenditure and at all costs to make these increases in our defence, is opening the door to numerous devices on the part of armament manufacturers to obtain profits from the public purse in excess of anything to which they are reasonably entitled.

The right hon. Gentleman the Chancellor of the Exchequer, in opening his Budget on Tuesday, warned us and the country that he proposes to use all the resources of the Treasury for tracing down and checking the subterfuges adopted by certain wealthy people to escape payment of Income Tax and Surtax. I can assure him that it is just as likely that equal ingenuity will be employed to devise methods of increasing the profits obtained from armament orders. Some of the figures recently published and quoted in this House, as well as those quoted by the hon. Member for Bishop Auckland this afternoon, of the profits secured by these firms, strengthen the presumption that this is taking place. While the country must expect to pay for its defence, it may reasonably demand that it shall not be held to ransom in the hour of its need by those of its citizens who have the opportunity of doing profitable business for themselves. The Minister for the Co-ordination of Defence is doubtless doing all that he can to ensure that such undue profits shall not be made. But it is futile to expect that with his inadequate staff—I am not sure whether his staff is as inadequate as was represented to the House some time ago by the right hon. Member for Epping (Mr. Churchill), namely, a secretary and a typist—he can single-handed cope with the ingenuity of manufacturers across a field of expenditure running into hundreds of millions of pounds, and make certain that in every instance the recommendations of the Commission on the Private Manufacture of Armaments are being fully carried out. It is almost impossible for him to ensure that the utmost wise economy is being practised in the acceptance of tenders and the giving of orders for our arms.

It must be remembered that we are now faced with an Income Tax of 5s. 6d. in the£ This is only 6d. lower than the highest level to which Income Tax has ever risen in this country—the maximum of 6s. in the £which it reached at the end of a devastating war and of colossal national expenditure which had the effect of immensely inflating available money supply of the country. In 1917, when Income Tax was 5s. and we were in the middle of the War, this House decided that a drastic investigation should be made into the scale of public expenditure with a view to effecting economies in the cost of our armaments. On 6th July, 1917, a Motion on the subject was moved in the House. My right hon. Friend the Member for Caithness and Sutherland (Sir A. Sinclair) has referred to this matter, and the right hon. Gentleman the Member for Antrim (Sir H. O'Neill) also referred to it indirectly. The Motion was not accepted exactly in the terms in which it was proposed, but the late Mr. Bonar Law, who was then Chancellor of the Exchequer, afterwards set up a Select Committee with the following terms of reference. It would be well if the House for a moment considered what those terms of reference were: To examine the expenditure now being defrayed out of moneys provided by Parliament and to report what, if any, ecoonmies consistent with the execution of the policy decided by the Government may be effected therein; to make recommendations in regard to the form of public accounts, the system of control within the Departments and by the Treasury, and the procedure of this House in relation to Supply and Appropriation so as to secure more effective control by Parliament over public expenditure. The Committee may appoint one or more sub-committees to investigate such matters as the Committee may deem necessary for the purpose of making such recommendations, and the Committee may appoint from outside its own body such additional members as they may think fit to serve on such sub-committees. That was decided on in 1917, and Income Tax at that time was only 5s. in the£ In view of the very heavy expenditure which the Government are now incurring, and of the fact that Income Tax has risen to a height in excess of that which existed in the middle of the War, I would earnestly suggest, as did my right hon. Friend the Member for Caithness and Sutherland yesterday, that a similar committee should now he set up to assist the Minister of Defence and the Chancellor of the Exchequer by scrutinising with rigid care the outgoings from the national pocket.

Mr. Dalton

Do we understand that this proposal which is being made from the Liberal party is not only to cover Defence expenditure but is designed to investigate social services expenditure with a view to economies?

Major Owen

No, I think I made it clear that the object of this committee was not to economise but to prevent waste. The hon. Gentleman must have heard a good many of the rumours with regard to waste, and that was the function of the committee during the War. I am not for a moment suggesting a committee on the same lines as the May Committee. It would be a committee of Members of all parties in the House of Commons who would investigate and have power, not like the Public Accounts Committee to examine expenditure after it had been made, but to examine expenditure before it had been undertaken.

Sir William Davison

The hon. and gallant Gentleman said that the setting up of this committee would not be with the object of securing economy. What, then, is its object? Is it to secure additional expenditure?

Major Owen

If the hon. Gentleman understood the question which my hon. Friend the Member for Bishop Auckland asked me, he would know that my hon. Friend was trying to catch me out. I took the question in the spirit in which it was put. I know perfectly well what my hon. Friend wanted me to say, so that there might be an opportunity of attacking the party to which I belong. [Interruption.] I am not putting a wrong interpretation on what he asked me. The question was put in a jocular way, and I took it in a jocular way. It would be an excellent opportunity for the party above the Gangway to attack the party to which I belong if I suggested that this committee should carry out economies in the social services. I have no intention of suggesting anything of the kind, nor has the party to which I belong. Of course, it would naturally be a committee of economy. We are spending enormous sums, amounting to about £400,000,000 this year, on armaments, and it is idle to tell us that there is no waste taking place in all that expenditure. We know there is waste. We hear of it from many sources, and I am putting forward this suggestion with the object of enabling a committee to recommend such measures as may tend to reduce the burden on the nation, and to secure full value for what we are being compelled to spend. We on these benches are not putting forward this proposal in any hostile spirit, and we trust that the Chancellor will not receive it in a hostile spirit. We feel sure that at a time of rising national expenditure the right hon. Gentleman has no desire to spend any more money than it is absolutely essential should be spent. He would. I feel sure, find that a committee of this kind would be of real assistance to him, as undoubtedly it was in 1917. Of 52 specific recommendations made by that Committee, the Government of the day immediately adopted 34. Others were left over for further consideration, and only seven were rejected as being impracticable.

Let me say a few words on the question of the incidence of taxation. The Chancellor of the Exchequer has gone directly to the most obvious sources from which he can hope to derive further revenue. He required £30,000,000, so, without over-exercising his ingenuity, he fell back on the Income Tax, the Tea Duty and the Petrol Duty. I think he might have done much better if he had chosen something other than the Petrol and Tea Duties. I cannot see why beer is not taxed in this Budget. A duty was put on beer a few years ago in a time of depression. The result was that the yield from it went down. On the next occasion when things were improving, the Beer Duty was taken away. It might have been much more beneficial to the country had this extra sum been taken out of beer. Let us consider the position of the Income Tax payer. The imposition this year on the Income Tax payer is undoubtedly likely to have a far more disheartening effect than might at first be supposed. Last year's incomes, on which the tax will be assessed, were showing a healthy recovery from the preceding years of depression; but there was a halt in the recovery in the second six months and the full height of the national earnings was not attained. Latterly a fresh recession of trade has intervened which the increased expenditure on armaments is not succeeding in counteracting. I was told by friends of mine engaged in business that the volume of business transacted by many firms to-day was only about 50 per cent. of that transacted 12 months ago. There is a well-known corporation in Manchester, the Lancashire Cotton Corporation, which 12 months ago was using 6,000 bales of cotton, and now they are using only 3,000 bales while a large number of their mills are closed down.

Those people who, on last year's earnings, were doing fairly well, will this year have to pay on a diminishing return from their businesses, and they will have practically no profit at all except just sufficient to pay their taxes. The consequence is that, apart from those firms which are directly benefiting from the Government's armament expenditure, the tax-paying public will be called upon to pay a much heavier tax than they expected, and that upon a temporarily high level of income, out of an income which has meanwhile markedly shrunk. This charge, therefore will have a depressing effect, both morally and materially. It will encroach upon the margin of profit which might have been available for maintaining and expanding business enterprise. It is thus likely to affect adversely the taxable capacity of the nation in subsequent years when the burdens of our national commitments will be still more serious.

This objection would not apply in the same degree to a steepening of the Surtax levies upon the higher levels of income, as these are less widely spread, and in any case betoken an affluence of fortune which is superior to the encroachments of taxation and is out of proportion to the recipients' value to the community. It is a hard thing to pretend that any man receiving an annual income of £50,000 or £100,000 a year is rendering in return to the community services so immensely disproportionate to those of his fellows. It is also disappointing, as has already been pointed out, that the Chancellor expects so small an increase in the returns as a result of the provisions he is making, some of them retrospective to prevent tax evasion. It has been estimated that on a conservative valuation—I have practically the same figures as the hon. Member for Bishop Auckland—the amount lost to the revenue annually from tax evasion is somewhere between £20,000,000 and £25,000,000. Yet the Chancellor, despite the retrospective character of some of his measures, hopes to get only £1,200,000 this year and only £4,000,000 in a full year from this source. If he were only to devise measures which fully prevented tax evasion he would, on the estimates which I have mentioned, be able to dispense with the additional 6d. in the £ which he is placing on the Income Tax.

Yesterday evening the hon. Member for Stockton-on-Tees (Mr. H. Macmillan), in a brilliant exposition of the present financial position, referred to the danger that the national income is about to become static at a figure somewhere in the neighbourhood of £4,500,000,000, and that there is very little likelihood of an increase in view of the dwindling population and of our inability to make use of our unemployed to increase production in this country. I would agree with everything which he said in regard to that. It is the duty, indeed, the task of the Government, to tackle that question now, to see that the resources of this country both in men and in materials and in machinery are properly used to increase largely the nation's annual income.

There are one or two smaller points to which I would like to draw the attention of the Committee. The economically depressing effect of raring Income Tax at the very moment when commercial earnings are tending to shrink is of very great importance in connection with the general question of maintaining the national capacity to pay not only for rearmament but for social services. Another important matter, in my opinion, is the prevention of undue rises in prices. If prices go up they will still further increase the cost of rearmament. They will intensify demands for wage increases, which will react further on the costs of production. They will impoverish the general body of the nation, which, after all, consists mainly of wage earners, because wage increases never overtake the rising cost of living in a period of price increases. It is, therefore, of prime importance that the Treasury should keep a watchful eye on the national price level and adapt its general financial policy, so far as is practicable, to holding this level stable. In this connection it is imperative that armaments' profits and prices should not be unduly inflated. I, therefore, end my remarks by emphasising once again the need of a committee such as I have mentioned to secure full economy in this sphere, and I appeal to the Chancellor to give this suggestion serious and unprejudiced consideration.

5.35 p.m.

Mr. Boothby

I greatly enjoyed, as I am sure the rest of the Committee did, the genial badinage of the hon. Member for Bishop Auckland (Mr. Dalton), who opened the day's Debate; and I particularly liked his very generous reference to the Surtax payers and the tribute he paid to their pride in giving all this money every year for the sake of the country without being under any legal obligation to do so. I am sure that they will greatly appreciate that tribute, especially since it came from him. I liked also his reference to the composite following of the Chancellor of the Exchequer. I think that when some of us on this side survey what I suppose we can now call the "unpopular front" opposite that it is to him rather than to us that the term "composite following" should be applied; and certainly his back-chat with the Liberal benches did not seem to suggest that the following of the hon. Member was becoming any less composite. I do not see any signs of any great rapprochement between the various sections of the Opposition in the speeches which have so far been made in the Budget Debate.

I also listened yesterday with great interest and attention to the right hon. Member for East Edinburgh (Mr. Pethick-Lawrence). What a long way he has gone since the old inflationary days, when he used to advocate great expenditures on public works. How orthodox he has now become. He drew a sharp distinction between the National Government of to-day and the Labour Government of 1931, greatly in favour of the latter. Why, he asked—rather plaintively I thought— was the National Government allowed to get away with this colossal deficit, when there was all that howl about the Labour Government? I venture to suggest quite a simple answer, and I think that it is the right one. The National Government does possess the confidence of the country, and the Labour Government of 1931 did not. That is indeed a simple answer, but I am afraid it is the true one. He also said that this was a War Budget in time of peace. But I think it is not untrue to say that we are living to-day under what amount to war conditions; and the question that confronts us is whether those conditions are going to be aggravated or mitigated in the near future. We are so near war conditions that I think it is just as well that the country should realise it.

Finally, the right hon. Gentleman said that inflation is now under way. I am sure that on reflection he will withdraw that statement. We have had a steady deflation for the last five months—not acute, but quite continuous—and to say that we are suffering from an inflation which is well under way is, if he will allow me to say so, nonsense. He laid great stress, as did the hon. Member for Bishop Auckland, upon tax avoidance; and both complained bitterly that the Chancellor had not done nearly enough in this connection. It is tremendous, this new-found zeal of the party opposite for tax evasion. But they had more than one chance when in office of bringing in comprehensive and detailed legislation to deal with tax avoidance. My right hon. Friend himself was Financial Secretary to the Treasury in 1930 and 1931. Why did the Labour Government not bring in these detailed measures for stopping tax avoidance which they now advocate?

Mr. Pethick-Lawrence

The hon. Member will not forget that we did bring in most extensive proposals, which met with the very greatest degree of opposition from the House. The right hon. Member for Epping (Mr. Churchill) kept us up night after night, and it was only after many days and nights of anxious work that we were able to get through such provisions as we did, and had we intended to do anything like what the hon. Member is now suggesting we should have been sitting here till now.

Mr. Boothby

I am sure that we are very glad that did not happen. The right hon. Gentleman knows that the right hon. Member for Epping (Mr. Churchill) enjoys keeping people sitting up at night as much as possible, as often as possible, and as long as possible; he does that because he thinks it is fun to do so, and from his point of view, at that time, it was fun. The fact remains that the right hon. Gentleman's proposals got through this House, and that the Labour Government produced no further or more comprehensive proposals. He knows, having been in the Treasury, that it is very difficult indeed to frame legislation, from a purely technical and drafting point of view, which will stop up all the holes. All that we say is that there is no man more competent to do so than the present Chancellor of the Exchequer, and that he has made a very good start.

I should like to make a passing reference to what the hon. Member for Bishop Auckland said about the taxation of the rich. I dare say they are not taxed as much as they ought to be. But still, 13s. in the £ is not bad going, and that is about what the taxation comes to in the higher ranges of incomes, and to it has to be added Death Duties. I think that the rich do pay a pretty good share of the taxation of the country; and while there may be some arguments in favour of scaling it up still further, it is untrue to say that the richest class of all in this country gets off more lightly than do the rich in other countries. I should say that the well-to-do classes in this country were far more highly taxed than in any other country; and they pay, which is an important consideration.

With regard to the Budget itself, I think it has had a wonderful reception, considering everything, in all quarters. The Chancellor himself must have been rather surprised at the good reception, particularly in industrial and financial circles. As a matter of fact, it is not at all a bad Budget, and I cannot help saying that it does justify to a very great extent those of us who were so very critical of the National Defence Contribution proposals last year. We pointed out then that the trading and commercial community would much rather deal with a devil they know than have something shot at them which they do not understand. Everybody knows what 6d. on the Income Tax means. People do not like it, but they understand it. There is no uncertainty about it, and that is one of the reasons why I believe the reaction to this Budget, particularly in financial circles, has been so good. They feel that though they have a heavy burden to bear, at least there is no uncertainty or doubt about it. They know now precisely what awaits them for 12 months to come.

If we take into account the amount actually borrowed last year, plus the realised surplus, we are borrowing only £126,000,000 in the first two years of intensive rearmament as against an anticipated £170,000,000. The Chancellor of the Exchequer in his calculations did not take this into account. He may answer, and no doubt he will answer, that he is faced with large Supplementary Estimates. All that we on this side of the Committee can say is that we hope they will be as large as he has led us to expect. From our point of view the larger the Supplementary Estimates for rearmament are the better we shall be pleased. He has made provision amounting to £230,000,000 for debt. I think that, in the circumstances, that figure is on the high side. He has estimated for a lower yield from Death and Stamp Duties, implying that he is not quite confident that we are going to get a revival in values or in Stock Exchange activity. I think that, in estimating for less, he has taken an unduly pessimistic view. Even so, even putting the debt service at £230,000,000, and estimating as I think unnecessarily, for a lower yield from Stamp and Death Duties, he cannot make his deficit greater than £30,000,000. In the circumstances this is very satisfactory.

My hon. Friend the Member for Hastings (Mr. Hely-Hutchinson), in what I think everybody who had the pleasure of hearing it agrees was a most brilliant and fascinating maiden speech, pointed out yesterday that we must now anticipate an annual expenditure of the order of something like £1,000,000,000 for many years to come, and he asked some searching questions in this connection. I think he was right. And I really think that the proposal of the Liberal party for a committee of members to examine economies at this time is what can only be described, if I may say so without offence, as a typical Liberal proposal for meeting the gravity of the present situation. It does not really meet anything at all. We all know perfectly well that no substantial economies can possibly be made at the present time. From all sides we are hotting-up the Government to spend as much money as they possibly can. What then is the good of setting up an economy committee composed of Members of this House in these circumstances?

What the hon. Member for Hastings was really asking was whether this country could stand, for many years to come, an annual expenditure of approximately £1,000,000,000; how great a weight of debt we could sustain; and how much of the national income could be taken in taxation. It is very difficult to answer the hon. Member in a short speech on the Budget Resolutions, but if he will turn to the Bible he will find a lot of sound economics. Moses started it. He laid down the principle of the jubilee year, which was not a bad principle. Every 50 years you scratch out and begin again. There is a good deal to be said for that policy, on a long-term view. Indeed, while I do not advocate repudiation —[HON. MEMBERS: "Oh."]—If you examine and study carefully the long history of the contractual system—it is a much better name than "capitalist system "—you will be surprised to discover how often the time has come when it has been necessary to "take the bill and write fifty." It has happened many times in the history of the world, and it will happen many time again.

There are several ways of doing this. One way is to put capital to use in a manner calculated to bring about the greatest possible production of goods, and the greatest possible efficiency in their distribution, without expecting to get it all back, either quickly or even in the long run. In this connection it is of relatively little importance whether the State puts that capital to such use, or whether individuals do so, provided that it is done. I suggest to my hon. Friend the Member for Hastings that that wise old man from Dundee who taught him his economics did more than any other single individual, over many years, to put British capital to productive use all over the world. I suggest that when he did it he was much more concerned to see that he produced goods and distributed them than to see that he got the capital back. A good deal of that capital has been lost, and many of those who invested it will never see it again. But that does not mean that it did not do a great deal of good to the economic and social conditions of the world as a whole. Another way of achieving that end is to increase the value of gold. It has been done in the United States, and it may well have to be done again.

The only way out, in the long run, is through an expansion of production and revenue. And here I am bound to say that I do not think that this extra taxation of £30,000,000 was necessary at the present time. The gap could have been bridged if the Chancellor of the Exchequer had been brave enough to budget for a natural expansion of revenue. I am not instinctively afraid of unorthodoxy; but I do not think that such a course would have been very unorthodox. The danger of inflation, in spite of what the right hon. Gentleman said, is now remote; on the contrary, we are trying to swing our way out of a deflationary spiral. There is no doubt that, in time of peace, a 5s. 6d. standard rate of Income Tax is pretty stiff. It does not leave much reserve. As against that, there are always two nice hen-roosts which some day will be raided by somebody. One is the gold stocks, which have still to be revalued; and the other is the Exchange Equalisation Fund, which, I understand, shows a very nice profit. I only hope that when the time comes to raid these hen-roosts we shall have a National Government, and not a Socialist Government. It is a useful reserve, and we might just as well bear it in mind. But the only ultimate way through is increased production, increased national income, and expansion of the national revenue. They all go together, and we shall not get through in any other way.

In a very few minutes I would now like to deal with one aspect of the situation which has been raised by many hon. Members, and notably by the right hon. Gentleman the Member for Caithness and Sutherland (Sir A. Sinclair), and that is the question of how the money is being spent. This Committee has an absolute duty to make sure that we are getting value for the immense amount of money that is being poured out of the Treasury at the present time. The hon. Member for Bishop Auckland referred to profiteering in the armament industry, but I think he greatly exaggerates the position. I believe that 80 per cent. of the increased dividends which he read out were due to natural recovery in trade and industry in this country, and not more than 20 per cent. to the actual armament proposals of the Government. But there is another aspect of the problem which gives hon. Members on this side of the House very considerable anxiety, for we are not wholly without sources of information. The German air production, I assert, is now running at the rate of approximately 500 machines a month. And when the new factory in Austria is completed, as it will be fairly soon, their production will rise to about 600 machines per month. Our own production is not reaching anything like that figure. I doubt whether it is reaching half that figure at the present time. It is, therefore, not true to say that we are catching up; on the contrary, we are still losing ground, and that is a very serious situation indeed. Our production programme is not yet being fulfilled, although our engineering industry is not working to capacity. We are therefore not getting the results that we are entitled to demand in the light of this Budget, and which it is our duty to demand. Manufacturers and industrialists are dissatisfied. Some hon. Members have no doubt had an opportunity of talking to serving officers of the Royal Air Force; there is also a murmur of dissatisfaction there which is extremely unhealthy at the present time.

Two things emerge clearly: there is a lack of co-ordination on the supply side, and there is no adequate organisation of the mass production of aeroplanes. I believe it to be true that factories have recently dismissed skilled men for short periods simply because there has been a hiatus in the orders coming in, or in the delivery of some particular part, and that—

The Deputy-Chairman

The argument of the hon. Member is getting rather remote from what is appropriate to a Committee of Ways and Means.

Mr. Boothby

I venture to point out that the Leader of the Liberal party dealt with the matter at very considerable length, as did the hon. Member for Bishop Auckland; and, while I bow to your Ruling, Captain Bourne, I would say that my point in this matter is that £400,000,000, which we are being asked to vote in this Budget, is being expended in armaments, and particularly in Air armaments, and that I am only pointing out that it is the duty of this Committee to satisfy itself that we are getting the fullest possible value for this vast expenditure. It is quite exceptional expenditure. I submit that, in a general debate on the first Budget Resolution, I am in order.

The Deputy-Chairman

The hon. Gentleman is quite in order in pointing out that we are spending a lot of money and in asking that the money should be well spent, but he must not go into details on matters for which the Treasury cannot answer. There will be an opportunity, I understand, of raising those matters in another Debate before long.

Mr. Boothby

I bow to your Ruling; but I would like to put forward one suggestion, if I may. I think it is relevant to the discussion. There is a great deal to be said for setting up, in connection with this expenditure, something in the nature of a Ministry of Supply, or at least a Minister for the Co-ordination of Supply; so that you would have one Minister to deal with the strategic side, and another to deal with supplies, priorities, manufacture, contracts, and the rest of it. I believe that that would be a very desirable thing, and I hope that when the Chancellor of the Exchequer comes to reply this evening he will be able to give us some reassurance on that point. I think the Committee is uneasy. Many hon. Members are uneasy about this question, and we should not be right in passing Resolutions authorising this expenditure and the raising of such vast sums unless we are satisfied that we really are getting full value for the money.

I shall not go into details on the question of personnel; but some of us have been glad to see that there have already been considerable changes in personnel. We hope that the Government will have no consideration for individuals in this matter, but will go on searching for the right man or men until we get the maximum possible efficiency. I would remind the Government and the Prime Minister of the celebrated saying which Lord Fisher used to reiterate, and which was that some day the British Empire would go down because it was "Buggins's turn." We must give old Buggins a turn, and then something disastrous happens. By Buggins I am referring not only to political heads, but to all executive members of the administration; and I am not suggesting that we have any Bugginses at the present time. It is, however, absolutely incumbent that, in this matter, at any rate, we should have the maximum possible efficiency and the best possible brains.

The Chancellor of the Exchequer very rightly said, on the subject of revenue, that we could not expect to get a substantial revival of confidence or of revenue, or indeed of good international relations, until we got some measure of restoration of international trade. I would like now to put forward, as a constructive suggestion, that the Government might make a real attempt to reopen some of the channels of trade which are at present closed in Central and Eastern Europe. The traditional policy of this country has always been not to make military alliances all over the world, but to bring economic and financial assistance to our friends abroad, thus enabling them to strengthen themselves, and enabling ourselves to grow prosperous in a manner which a great exporting country can never otherwise hope to do. We have many friends in Europe to-day; we have France and now Italy, in spite of what has been said; and there are also Poland, Rumania, Czechoslovakia, Yugoslavia and Turkey—a very good friend of this country which we are often inclined to forget. There is also Greece. How can we help those countries? Is it possible? I believe it is.

I venture to suggest four lines of approach which the Government could immediately undertake which would do a great deal of good in the present situation. First of all, we might purchase some of the necessary supplies of raw materials and war materials directly from these countries. This is where the totalitarian States have an advantage over us at the present moment. It is where Germany has an advantage. She can swing her purchases all over the place, arbitrarily. The Government are now purchasing more and more materials. Why could we not direct some of these purchases to those countries which can be very valuable to us in the future? Take, for example, the question of oil. Why should we not get some of our surplus requirements of oil from Rumania instead of from Mexico? Take another point. I believe that the Export Credits Department is unnecessarily hampered, and tied up with restrictions, at the present moment. It is a bad idea that the Turkish Government should acquire from Germany all the credit that they want for rebuilding and reconstructing their railroads at the present moment instead of from us. We should adopt a far more expansive policy in this connection.

There is also our old friend the van Zeeland Report, about which the Prime Minister has been most sympathetic in all his references. There is one bit of machinery which still might be set up, possibly through the Bank of International Settlements, and that is a multilateral clearing arrangement between the Danubian States, with a view to enabling them to liquidate some of their frozen clearing balances. We could also help them to stabilise their currencies at reasonable levels against sterling, and this would ultimately facilitate a better distribution of gold. I throw out these four suggestions, because I think that if they were adopted they would be a great step in the direction of reviving trade with friendly nations which has been frozen for far too long. It requires to be thawed out; but it will not be thawed out except by constructive action on our part.

It is, I think, possible to view the future with restrained optimism, provided that we are not paralysed by some new neurosis, such as the "gold scare" which afflicted us over so many weeks last year, and which did so much unnecessary damage. I have heard from many friends how in Germany they have been pointing out the difference during the last nine months between the totalitarian States and the democracies. On the one hand, you are told: "Look at us. We have had stability, employment, and even a certain measure of prosperity." On the other hand," Look at the great democracies, such as France, America, and Great Britain. There you have had a considerable recession, caused largely by fears that were not legitimate; and although you have all the gold and most of the raw materials of the world, you have not made nearly such a good job of the economic side as we, without any of the raw materials, have made during the last 12 months." That is the argument which they are putting to their own people in Germany, and to the people who go to visit them; and there is just a sufficient element of truth in it to make one sit up and take notice. It ought to make us resolve upon a real effort to restore prosperity in the immediate future. A deflationary spiral, such.as we have recently encountered, is far more dangerous than an inflationary one, because it is much more difficult to cure. It is easier to destroy confidence than to rebuild it. We must never forget, even when we are talking about aeroplane production, that the fundamental strength of the democracies of the world lies, and must always lie, in their economic strength. It is only by increasing our trade, our income, and our revenue, that we can hope, in the years that lie ahead, to find salvation.

6.0 p.m.

Dr. Summerskill

As a newcomer, I must, in the first place, crave the indulgence of the House. I am extremely sorry to see that the Chancellor of the Exchequer has gone out to tea just at this time, because what impressed me most in the speech he made on Tuesday was the faith that he expressed in the people of this country, and particularly the poor and needy people of this country, who were to be called upon to pay the tea tax in order to pay for armaments to implement the foreign policy of the National Government. That surprising faith of his does not arise from ignorance of the people. I have a feeling that that probably is not the cause, for I claim to know more to-day of what the people of this country are thinking than the Chancellor of the Exchequer, having visited my constituency propably more recently than the Chancellor of the Exchequer has visited his, in order to find out just what the people of this country are thinking of the foreign policy that is being pursued by the National Government. On another aspect of the Budget, it pains me to think that once more the armament manufacturers of this country are going to profit at the expense of the people. I have been listening to speeches from both sides of the House this afternoon by expert economists and financiers, some of whom appear to contradict one another. Some of them say that there is inflation; some of them say that there is deflation. Some say that the inflation, if there is inflation, is the result of the profiteering of the armament manufacturers.

It has been said this afternoon that the social services are not suffering. During the last six years I have had the opportunity of observing the effect on the country's social services of the fiscal policy of the National Government, and I say that in my opinion the policy which has been adopted, from the economies which were instituted during the period of depression to the withholding of some grants now, is having a crippling effect on the social services, and the inflation which has come about as a result of the profiteering of armament manufacturers is being felt by the social services throughout the country. The Leeds City Council tell us that tenders for houses to-day have increased by £50 as compared with last year, while three-bedroomed houses in other places in 1937 cost £338, as compared with £311 in 1936. The policy which has been followed during the last six years—a policy of economy when, instead of economy, large public works should have been instituted—is having a particular effect in the county of Middlesex, where the population is increasing at the rate of 1,200 a week, and where, in the institutions, hospitals and schools, we find a condition of almost chaos.

During the period of depression, the Middlesex County Council were forced to economise. During that period of economy, the population poured into Middlesex, and to-day, as a result of the inflation and as a result of an increase in the prices of steel, iron and other commodities which are necessary for building, the county council of Middlesex finds itself unable to cope with its increased population. I would ask those hon. Members who have said this afternoon that there is no inflation, that the social services are not suffering, to go and look at the conditions which exist in the county of Middlesex. To-day we find our children being educated in parish halls and in the halls of the schools, while our hospitals are in such a condition that one blushes to mention it—a condition which makes it necessary actually to take a patient out of bed at midnight in order to accommodate a more acute case—because the builders are holding us to ransom, and we are being asked such colossal prices for building and for new institutions that the county council is being compelled to postpone new work. This is a direct result of the fiscal policy which has been pursued by the National Government during the last six years.

The right hon. Gentleman the Member for Caithness and Sutherland (Sir A. Sinclair) told us yesterday of the private profits from armament manufacture. I feel that it is rather a painful thing to think that a good deal of those profits must be obtained by taxing the tea of the people of this country. I quite understand that the Chancellor of the Exchequer probably finds it more easy to think in terms of tea, for, surely, he must always be haunted by China. I feel that if those people who are going to suffer from this tea tax, which is in effect a tax on the housewives of this country, were as well organised as the drink trade, as the armament profiteers, as the entertainment trade, as every big industry in this country is organised—if the housewives also were as well organised, the Chancellor of the Exchequer would not dare to tax them once more, because they would rise up and send their representatives to him, and he would be forced to remove the tax, just as last year the tax was removed from the armament profiteers. But this tax is being applied to a section of the community which is mute, which is unorganised, and which is once more forced to suffer under a new imposition.

This tea tax, which so many hon. Members regard as being of such small importance that it is not worth discussing, is in effect a tax which will hurt thousands of people throughout the country. A revenue tax was put on tea in 1932. It was increased in 1936, and, up to March, 1937, brought in no less than £24,000,000 to the Treasury. The other food taxes which have been imposed by the Government during the last six years amount in all to £109,000,000. Therefore, since 1932, the housewives of this country have paid £133,000,000 over the counter in additional food taxes. This works out at 12s. 6d. per year per head of the population of this country. If I might dare, in this august Assembly, to descend to such common things as milk, butter and bacon, I would point out that this 12s. 6d. per head per year would be enough to give a family of five an extra four pints of milk, one pound of butter, or one pound of bacon per week throughout the year. I suggest, therefore, that this tax, which will affect the men, women and children of this country, is grossly unjust.

There is a saying that women are no good at figures, that they have no head for figures; but I am reminded that throughout this country in thousands of homes the chancellor of the exchequer is a woman. It is said, when there is £2 or £3 coming into a home, that a good husband puts the money on the table and says, "There you are, my dear; get on with it." He may be good, but, in my opinion, he is also exceedingly clever. These chancellors of the exchequer throughout the country, unfortunately, have no permanent officials to help them to balance their budgets, and to help them to approximate income to expenditure; and, also unfortunately, they know that they have no large borrowing powers. I feel that it is an iniquitous thing that this day-to-day struggle of the women of the country should be made even more hard to bear.

Another question that I would like to mention is the question of wheat, sugar and whale oil. The Chancellor aided the passage of his budgetary pill by administering copious draughts of whale oil. He may be a lawyer of international repute, but I think that in medicine he would not be able to manage to pass his finals, because the patient to whom he has administered this pill has already discovered that he has been grossly deceived, and I am afraid that only the future will tell how confidence in the doctor has been undermined. I remember that when it was announced in the House on Tuesday that a store of wheat, sugar and whale oil had been established, there was a murmur of approval. I remember it well, because I was looking at the opposite benches, and that was the only time that they showed their approval.

I hope I shall be in order if I mention one other important item of dietary which the Chancellor omitted, and which, in my opinion, should have been mentioned. When the people of the country were told on Tuesday night and Wednesday morning that they were quite secure in the event of another war, because there was sufficient food to keep them alive and in good health, actually the people of the country in a very few hours discovered that this store of food only amounted to the equivalent of something like 5s. per head of the population of this country, so that it would not keep them alive for very long. But the Chancellor omitted a very important article of dietary, a proper supply of which must be ensured if we are to be kept alive and in good health in the event of a war in the near future. That is water. I feel that the people of this country should know that, in the event of a war in the near future, they are not guaranteed water in this Metropolis—that the Metropolitan Water Board, which administers the water supply for 8,000,000 people in this country, has again and again come to this Government and implored it to protect this vital service. It has asked them to spend money which is earmarked for air-raid precautions to protect the services. The Government have turned a deaf ear to these appeals, and at last the Metropolitan Water Board is forced to publish a report which I feel the people of this country should know. The board says: We feel that a danger of the first magnitude is not being treated with a due sense of urgency … we should be lacking in our duty to the public if we failed to emphasise the risk of horrific penalties attendant upon a lack of an adequate emergency water service. Nothing could be more serious than a crippled and contaminated water service, unable to cope with the public health services of the Metropolis or to extinguish fires which might conceivably be raging in every direction. Finally, they say: We are unwillingly obliged to disclaim any responsibility for the inadequacy of the progress made. I fear that this condition of affairs to-day, combined with the ridiculously inadequate store of all food, does not give to the people that security which they believed they had after reading the speech of the Chancellor of the Exchequer on Tuesday, and I believe that the approach of this Government to the troubles which beset us to-day is completely wrong. We shall not get protection for the people of this country by these hole-and-corner methods of just setting aside a small store of food in this way. We shall not get protection by simply indulging in an armaments race. We shall not get protection for these people by trying to form some kind of a pact with men who honour neither their word nor their bond. I believe there is only one path to safety—a path which the National Government have turned their back upon. They can, if they only have the courage, retrace their steps. That path leads to Geneva. I I believe that only by collective security shall we get that real protection which this country seeks. The National Government believe that by becoming friendly with people who have already proved themselves treacherous they can get real security. I believe the time will come when this country of ours will stand isolated, deserted by the peace-loving peoples of the world. I believe the time will come when this country will have to stretch out its hands for that collective security which it has denied to the helpless and the weak nations of the world.

6.19 p.m.

Sir John Wardlaw-Milne

I have the opportunity, which I am quite certain every Member of the House would desire to join with me in taking, of welcoming to the House of Commons the hon. Lady who has just sat down, and also, in congratulating her upon passing so successfully the first difficult hurdle of her Parliamentary life. I am sure the House will look forward to hearing her in future in her defence and championship of the oppressed housewife, not only in connection with the Budget but on more general and wider questions, on which I hope she will take part in our Debates.

The Chancellor of the Exchequer has heard, in the course of these Debates, various descriptions given to the Budget which was introduced on Tuesday; but I think that perhaps the best statement regarding its character appears in the paper this evening. There it is referred to as an honest and old-fashioned Budget. These are terms with which most of us will agree. It is very distinctly an honest Budget, and I do not think anybody will dispute that it is perhaps a little old-fashioned. There may be no harm in that. One thing the Budget will do is to bring before the people of this country, in every class and walk of life, a realisation of the responsibility which we all bear for this vast rearmament programme. To that extent I think the Budget will do good. But I wish that I were more convinced that the increased taxation which the Chancellor has imposed was entirely necessary. The Chancellor makes his deficit £30,000,000, based, as I see it, mainly on a continued fall in the revenue from stamps, increased charges for the National Debt, and various other changes in the figures from last year. Several of us last year rather criticised my right hon. Friend, when he introduced his Budget at that time, on the ground that he was under-estimating the probable revenue the country would produce. Events have proved that our criticism was just, because, in fact, the revenue produced was £28,000,000 more than was estimated. That has not gone to benefit the taxpayers directly, though, of course, it benefits every one of us in the sense that it goes towards the payment of Defence expenditure.

My second point is that when the Chancellor speaks of a charge for interest and management of the National Debt of £230,000,000 for the coming year, he is again, of course, including the probability that he will be able to set aside the necessary amount for the statutory Sinking Funds of something like £10,000,000. Although I admit that these funds are in a somewhat different category from any other fund with which he has to deal, that does not alter the fact that that £10,000,000, if available, is a repayment of debt, and, therefore, he is to some extent doing the very thing that he suggested was not desirable: namely, borrowing with one hand and paying off debt with the other. If he deducted the £10,000,000, and if he had been a little more optimistic with regard to future revenue, without being unduly so, it might have been possible for him to have avoided the imposition of extra taxation at a time like this. Whether it is desirable to work on lines of strict financial rectitude or not, is very much a personal opinion. I think it was courageous to take the view he did, and possibly it was wise. It is a matter of personal opinion whether the effect on trade and industry will outweigh the advantages of carrying out his programme.

There have been, in the course of this Debate, a number of questions touched on which arise only indirectly from the Budget itself—that is only to be expected. There is one which has evidently greatly exercised Members on all sides: that is the question of our expenditure in future, and whether the country can carry such a burden as seems to lie before us. We have had to-day a proposal from the Liberal party, the dissenting Liberals as I call them—I hope that is not offensive—

Mr. James Griffiths

The absenting Liberals.

Sir J. Wardlaw-Milne

I congratulate the hon. Member for Barnstaple (Mr. R. Acland) on arriving to bear the whole burden of his party's proposals. We had a proposal from the Liberal Party that a Committee should be set up to go into the question of expenditure, or, as I think it was put to us, waste. I could not quite gather from the rather jocular passages between the hon. Member and the Members of the Opposition Front Bench whether it was to be only in connection with rearmament or an inquiry into all services. It seems to me that if it is to be of any value at all, it would be well to go into the question of waste in connection with all services. However enthusiastic we are as supporters of social services, we are all anxious to eliminate waste in that direction as well as any other.

There is no doubt that Members on all sides have been greatly exercised as to whether the country can bear in future the expenditure which, even when our present rearmament programme is completed, is more than likely to be our annual lot. It has been put at £1,000,000,000 or thereabout. There is one aspect of that question which it seems to me is not sufficiently thought of. There are no more stalwart opponents to Fascist thought and Fascist systems of Government than the Members on the Labour benches. They are strongly opposed to the method of Dictators and, like the rest of us, are great believers in democracy. I wonder whether we are not coming, or may not come sooner than we expect, to the time when the people of this country will say, "We would much rather have the money you are taking from us in taxes and look after ourselves, than have so much done for us by the State."

Mr. Messer

You would not give it to them.

Sir J. Wardlaw-Milne

That could be very easily answered, because it is not true.

Mr. Messer

I said you would not give it to them.

Sir J. Wardlaw-Milne

It is not my point as to what is happening now. These enormous increases in our social services, desirable as most of us agree that these services are, do surely lead to this, that we may gradually get to a time when a great many people in this country will feel that they have no responsibility for carrying on the duties of their ordinary life, the education of their children, the management of their health and the rest of it, when they are provided with schools and milk and hospitals and all the other things. It may be that we shall get to the time when these people will revolt against it, and, whether they are getting it now or not, say that they should have the money and look after themselves as their forefathers did. Is it not possible also that by carrying this system of State aid too far we are leading the people to that form of State control which leads to the very Fascism to which we all object? It is possible that democracy itself will not last if State control is carried too far.

I am sure that no Member of the Committee will accuse me of stating that this will happen to-morrow, or anything of the kind. Those of us who look at it from the point of view I have suggested must feel that the question of the indigent pauper, the old and the infirm and those who have become old age pensioners, must be dealt with. That is a different problem from the position of the wage-earning population, of men capable and willing and anxious to look after their own children and their own affairs. It may well be that by carrying social services too far we shall, in fact, endanger that very stability of our own people which we are so anxious to build up. I am not putting this forward, I can assure hon. Members, as a matter of political controversy at all, but because I see a real danger which might strangely enough bring us to a Fascist form of government and be one cause of the possible downfall of that democracy which we are all so anxious to promote and retain.

There are two other matters which have not been mentioned at all in these Debates, or which have received very little comment. I think that I am right in saying, from what I have been able to hear of the Debate, that there has not been a single mention of the growing and ominous adverse balance of trade.

Mr. Pethick-Lawrence

indicated dissent.

Sir J. Wardlaw-Milne

I apologise if it has been mentioned. I may have missed it. I should have expected the right hon. Gentleman the Member for East Edinburgh (Mr. Pethick-Lawrence) to have mentioned it, and that it would not escape his attention. But there is no question that it is one of the dangerous signs of the present economic position. Frankly, I should be glad if the Chancellor of the Exchequer had felt himself able to reassure us a little as regards our position in that respect. The other thing arising out of that, and it is really a part of the same problem, is the situation in regard to our export trade. My hon. Friend the Member for East Aberdeen (Mr. Boothby), in a very able speech, referred to the necessity of increasing our trade with Continental countries, and we all agree. I wonder, however, what he expects the Government to do, because there appear to me to be great difficulties in bringing this about. We are not to-day on the Gold Standard in the old sense of the word, but that does not alter the fact that gold is still the basis of exchange of goods between nations. Many of the nations with whom we want to trade in Europe have no gold. How are we to give them a basis for trading with us?

It was said at a gathering at which I was present last night that the lending and the giving of money to these nations is exactly the same thing. It is immaterial whether it is the same thing or not. If you could distribute gold by gift no doubt they would take it gladly, but we all know that this is impossible. It would destroy the present economic systems of the other countries of the world. On the other hand you cannot lend gold to them, leaving aside the question of whether it is safe to lend or not and whether their credit is good. If they are wise they will not accept a loan. Look at the position from their point of view. If they accept your money on the basis that they will have to repay it and meantime pay interest, what is the position? They will be burdening themselves with a debt in competition with us, a debt that we ourselves do not carry. That is how they would look at it. It would be exactly like two competing businesses in the same industry, one of which was burdened with a large capital debt and the other free of debt altogether.

The consequence is that, if these dictator countries were offered loans in the shape of gold on terms which made it essential that they should repay, and pay interest in the meantime, it would be extremely unwise from their point of view to accept such loans. They would immediately put themselves into the position that they could not compete in trade without lowering their standard of life, which in turn would lower the standard of life in all countries of the world. Therefore, I am faced with the fact that, although I would be delighted to see the Government do something to improve trade with other European countries, I am in the difficulty of not knowing what they can immediately do. We are up against a problem which at the moment appears to be insoluble. I do not say that it cannot be got over in the end, but it is one of the great difficulties we have to face in reorganising our trade with a good many countries of Europe which are without any gold backing for their currency.

Fortunately for us, however, there is a large part of the world, mainly our Empire and the Scandinavian countries and other countries on the sterling basis, not in that position, and with those countries we can enormously improve our mutual trade turnover. There we are dealing on the same basis, with the same kind of money and can exchange goods, and loans can be repaid. In those cases we could do a great deal to improve our trade. But we are up against a difficulty there also and one which did not exist some years ago, in that our trade with these countries is now on a different basis. Many of our own Dominions are now manufacturing countries who desire to sell us goods which very seriously compete with the workers here at home in the United Kingdom. There is no doubt that there will have to be a readjustment of the whole position even with regard to the trade with our own Dominions.

Like most hon. Members of this House, I always hesitate when I come to say "set up anything," because we are so fond of setting up committees to deal with all sorts of subjects, and we all know that it generally means putting off a decision. But in this case I do not see any alternative but to set up some kind of inquiry as to how best we can readjust the trade of the Empire. It really comes down to a question of what we can best produce here and for what we can best lend capital for production in our own Dominions, and in that way try to prevent the two branches of industry competing one with the other. That sort of inquiry would be of great benefit not only to us but also to the Dominions and Colonies overseas, as the Colonies are also becoming manufacturing countries. It is one direction in which there might be the possibility of very largely developing our trade.

I am as much in favour as anybody of improving our trade with the countries of the Continent of Europe, but there are great difficulties in the way, unless we can readjust the whole currency situation of the world. That I am afraid we cannot do until we reintroduce the use of silver because the silver-using countries are the largest potential consumers of the future. I mention this last point because, in carrying the burden of £ 1,000,000,000 or whatever it may be annually in the future, we have to think of two things. Are we capable of raising taxation to meet that expenditure? We are getting to-day from Income Tax £160,000,000 per annum more than in 1929 and £107,000,000 more from Customs. How long will that expansion go on? Are we capable of raising the money on the present basis? If not, what is to be the new basis which will give us the money we want for ordinary expenditure at a time when all this rearmament is out of the way? I suggest that only by some marked development of our trade, and particularly of our Empire trade, is that possible. I hope that the Government will seriously consider not only the carrying out of an international inquiry on the basis of the van Zeeland report, but also go into the question of how best to develop, in consultation with the Dominions and Colonies, our Empire trade for the benefit of the peoples in all parts of the King's Dominions.

6.40 p.m.

Sir Arthur Salter

The hon. Member for Kidderminster (Sir J. Wardlaw-Milne) has just asked a question of the hon. Gentleman for East Aberdeen (Mr. Boothby), who, I am sorry, is not in his place to answer it at the moment. I will not venture to reply, except on one very limited point. There was one part of the proposal of the hon. Member for East Aberdeen with which I found myself in profound agreement. I believe that we would get a very great advantage indeed by deliberately buying a certain proportion of our raw materials and war materials from friendly countries in Central and South-Eastern Europe. I believe this to be a practical idea and that we should get advantages altogether out of proportion to the effort and small net expense involved.

Sir J. Wardlaw-Milne

I hope that the hon. Member will not think for a moment that I am opposing the idea. On the contrary, but my difficulty is how to bring about international trade on the present basis of payments and to suggest a remedy.

Sir A. Salter

I agree that that is a more difficult question to which, I hope, the hon. Member for East Aberdeen will reply on a suitable occasion, but whatever the difficulties—and they are not, I think, insuperable—they do not in any way affect the specific proposal I have just supported.

I think that it has been evident to all of us that we have during these Debates been really discussing two quite different although connected subjects. The one is the very limited question as to whether, within the limits in which we knew he would move, the Chancellor of the Exchequer has wisely framed his Budget. Do we think that he was right in taxing rather than borrowing for the £30,000,000, and do we agree that he was right in raising his revenue by taxation mainly of a direct character? The other and much wider question is, What are our views on the general policy, position and prospects which are reflected and foreshadowed in the Budget and in relation to which we must largely consider and examine the Budget? My own attitude towards the right hon. Gentleman and the Government is very different when I am dealing with the first of these questions, the very limited one, from what it is when I consider the wider one. I propose to say a few words on both.

Take the more restricted question. We knew when we entered the House on Tuesday that the Government would be borrowing £90,000,000, and we practically knew that they would rely upon borrowing for the extent of any supplementary expenditure required. We knew also that the Chancellor of the Exchequer was likely to rely mainly, if he did provide additional taxation in his Budget, upon familiar or existing taxes. Therefore, the questions to which we sought and obtained an answer were limited and restricted questions. Personally, I am in general agreement with the answers of the Chancellor of the Exchequer to both of them. He was, I think, right to tax for the £30,000,000 and not to rely on borrowing. The Financial Secretary to the Treasury was correct last night in saying that there had been very little articulate opposition to that decision. A few hon. Members indeed have said that we should have borrowed and allowed a bigger deficit, but on the whole it has been rather striking and amusing to observe the way in which the array of gloomy faces on Tuesday was succeeded on Wednesday and to-day by empty places or silent voices. I think indeed that even the hon. Member for East Aberdeen might be content with the extent of the Budget deficit. For let us riot deceive ourselves by thinking that the Chancellor of the Exchequer, by providing for the nominal £30,000,000 deficiency through taxation, has secured a really balanced Budget. We are already borrowing £90,000,000, and we shall borrow a good deal more by reason of the Supplementary Estimates.

The expenditure which we are thus meeting from loans is not in any real sense capital expenditure by any sound criterion. The things that will be bought will not retain their utility for anything like the normal period of the amortisation of a loan. They will not represent any revenue-producing asset; they will, indeed, do the precise opposite, because their very existence will involve increased expenditure for maintenance and personnel. To take a third criterion; they are not terminable within any exactly calculable time or on the completion of any calculable total of expenditure. Therefore, they are essentially items of current expenditure which we are financing not by taxation but by borrowing.

The total deficit that we must thus expect for this year is already, even apart from any supplementary expenditure, considerably greater than what was regarded as the terrifying Budget deficit anticipated by the May Committee in 1931. That committee estimated that there would be a deficit for 1931–32, in the absence of the economies which they recommended, of £120,000,000. That was not, however, a real deficit of £120,000,000, because it included an allowance of over £50,000,000 for Sinking Fund. We are already, therefore, even apart from supplementary expenditure, facing a deficit for this year of more than £20,000,000 in excess of the anticipated deficit of the May Committee for 1931–32. I really think, therefore, that those hon. Members who rather like an unbalanced Budget as a means of helping a trade recession might well be content with what we are going to get.

The additional 6d. on the Income Tax indeed comes at a rather unfortunate stage of the trade cycle. There will be certain adverse repercussions, although the experience of the market during the last few days is some encouragement for us to believe that those repercussions will not be very serious. In any case, having regard to the general Budget position, I think the Chancellor of the Exchequer was right in taking the decision not to increase the deficit by the further £30,000,000, which he is providing for by taxation instead of loan. There is one further consideration which is relevant to that decision. We have been forced to abandon the old, strict orthodoxy of balancing our Budget, with provision for Sinking Fund. We have been forced to abandon even the rather less strict orthodox position of balancing without provision for Sinking Fund. We may, however, still claim by virtue of the decision to tax for the £30,000,000 that we are maintaining not indeed our old financial orthodoxy, but at least a comparative and relative eminence in being nearer to orthodoxy than other nations. That is something. I think that we shall have increased our prestige, both among our friends and among those who are less friendly to us by this decision to tax. And I think, secondly, that the Chancellor of the Exchequer was right in resorting mainly to direct taxation. Mr. Gladstone said in 1859, and he repeated the sentiment on many occasions: Where, for the dignity, honour and safety of the country we are called on to make great and rapid efforts in the augmentation and extension of our defences, the Income Tax is beyond all others the regular and legitimate resource to which to resort. That remains true, even though we now reckon Income Tax in shillings and not in pence, and though Mr. Gladstone would have been very much shocked by an Income Tax of 5s. 6d., because he would have regarded it as exhausting Income Tax as a war reserve for the case of actual war. I thought that the Financial Secretary to the Treasury dealt rather lightly with the objection to increases in indirect taxation. He said truly that the richer classes as well as the poorer pay indirect taxation. Of course they do. They pay more per person, but they pay much less per pound of income. Broadly, it is true that indirect taxation is an inversely graduated Income Tax. It is an Income Tax that is graduated so that the smaller the income the larger is the proportion which that income has to pay in taxation. When I spoke on the Budget a year ago I congratulated the present Prime Minister upon reversing the tendency to increase the proportion of indirect to direct taxation, and I congratulate the present Chancellor of the Exchequer on continuing that policy.

In principle, if there was to be increased direct taxation there is a great deal to be said for the argument of the hon. Member for Bishop Auckland (Mr. Dalton) that it should have been accompanied by an increase in the rate of Surtax, otherwise we get a higher proportion of taxation upon the middle classes than upon the richer classes. I should have supported that suggestion very strongly but for the consideration that, in effect, the foundation of Surtax is unsound until the Chancellor of the Exchequer has stopped up the tax evasion holes. He was, I think, right in concentrating upon an attempt to stop some of the devices which particularly affect Surtax, before proceeding to increase the rate of Surtax, Apart from that consideration, I should certainly have suggested that an increase in the rate of Surtax, together with an increase in the rate of Income Tax, would have been desirable.

An increase in the Death Duties has been suggested by several hon. Members, and I think that in future Budgets it will be necessary to increase these duties. But before that happens it is highly desirable that there should be some alleviation or adjustment of the present method of calculating and applying that particular form of taxation. I suggest to the Chancellor of the Exchequer that he might have the problem of these alleviations studied very carefully in view of the probability that in future Budgets it will be necessary to increase the Death Duties. Without such modifications I think there is a good deal of unnecessary unfairness which requires alleviation or adjustment. I will say little or nothing as to the relatively minor taxes. The increase in Petrol Duty is very small, while the Tea Duty, whether for good or ill, is not very much more than a token tax, whether we regard it from the point of view of the revenue that it will yield or the burden which it entails; it is both proposed and opposed mainly because it is a tax that may be increased in the future.

As to the general calculations on which the Budget is based, I would not venture as a private Member to question the Estimates of the Chancellor. I have not the knowledge which he has at his disposal. But I should have thought he has rather underestimated the prospective fall in Customs revenue; and I do not understand why he anticipates such a high yield from Income Tax. I should have thought, on the other hand, that we might have anticipated a greater increase in Surtax revenue, but, on the whole, I have no doubt that the general balance of the Budget and the final result will work out pretty much in the way which the right hon. Gentleman anticipates.

There is only one other remark that I should like to make on the Budget as a whole That is, that I think there is a great deal more than some hon. Members have been ready to admit in the Liberal proposals in regard to economy. Economy is not just a matter of avoiding a new form of expense, but also of preventing waste in existing expense. It is, I think, natural and inevitable, having regard to the way in which we are rapidly advancing with our rearmament work, that there should be considerable room for economy with closer supervision. I will not develop this point now, because I think there must be a considerable change in our methods of organising the production of aeroplanes, and the precise methods of financial control will be dependent upon the character of the reorganisation. I would, however, remark that the proposal of the hon. Member for Ipswich (Mr. Stokes) as to auditors certainly requires careful consideration. And we have not had any adequate answer to the proposals of the Royal Commission on the manufacture of arms.

That is all that I have to say on the general Budget position, except for some comments on two parts of the Chancellor of the Exchequer's speech in which I have a particular interest, namely, the provisions as to food storage and tax evasion. I whole-heartedly welcome the announcement that the Government have purchased wheat, whale oil and sugar. Those are precisely the three commodities which I have been urging for a long time that they should first purchase. The delay of the Government in deciding, even in principle, that they would store food, has been very regrettable. The Government have procrastinated and prevaricated. They certainly exaggerated the difficulties of the operation. When I last spoke on this subject I said that I could not believe that it would be difficult to act secretly and to carry out the purchase without dislocating the market. These purchases have in fact taken place with scarcely a flicker in the market. There was, of course, the technical irregularity of spending without prior authority, which the Chancellor of the Exchequer explained to us. But I had in mind the very interesting precedent that was created when Disraeli purchased Suez Canal shares. In the present transaction, as in that one, the Government had, of course, no real doubt that they would receive the necessary sanction and cover.

Can the right hon. Gentleman tell us the amount which has been or is being expended on the provision of these food supplies? He mentioned the figure of £10,000,000 as the net result of several items on both sides of the account, but it was not possible from his statement to ascertain whether the sum applied to this particular purchase was greater or less than that total. Could the right hon. Gentleman also say whether any part of this sum has been or is being allocated to secure that these stores are placed where they will be relatively invulnerable from attack and not merely in the silos kept by the trade in vulnerable ports? In the third place I should like the right hon. Gentleman to say whether he contemplates a series of purchases and successive Indemnity Acts. Though I should like to know whether that is what he contemplates, I am not asking what would be the amounts or the dates of those subsequent operations. I should also like to ask whether the storage for which this money is provided is being in any way related to the problem of the evacuation of the civil population, whether pre-arranged or the non-arranged evacuation which will take place at the moment of the outbreak of war or after the experience of a bombardment.

There is only one other point I wish to make in this connection. It is a real anomaly, I think, that the provision of the capital stocks of food should count as a charge against current revenue and be treated as part of the current expenditure. They are quite obviously much more of a genuinely capital character than practically anything which appears in the expenditure financed by borrowing. As we are in any case borrowing a great deal more for what is not capital expenditure than this capital expenditure which we are financing out of current revenue, you may say that this is only a book-keeping point. But it may very well mislead people into thinking that the real cost of providing for this essential need is greater than it is. Those who have been associated with me have said they believed it could be done for about £5,000,000 a year, including the annual charge of a loan in respect of the first capital expenditure. I believe that.will prove to be a sound calculation. But, that figure having been mentioned a great deal, it is quite possible that when people see that more than that sum has been spent they may incorrectly think that the provision has been completely made. As far as I can gather only a small proportion of what is required has yet been done, and I hope I am right in understanding that what has been done is only an instalment of what is to be done. That is all I have to say on the subject of food storage.

Now one or two comments upon tax evasion. Here again I very much welcome the Chancellor's proposals to stop the operations of the sham trusts and sham companies to which, with other hon. Members, I have directed attention during the past year. These are, I think, possibly the two principal devices taken advantage of by people who seek to evade their Surtax responsibility. If these measures really do stop up the main forms of evasion and are not replaced by others, I think they will secure a very much greater yield of Surtax than the Chancellor has allowed for, even though only one part of his present proposals is retrospective. But of course they will not cover all operations of this kind. There is, for example, the device of the film company which, having engaged a film star, collusively makes a breach in the contract so that the film star gets damages which are not taxable, the costs of the action being considerably less in the case of a collusive action of that kind than the amount of the tax involved.

There is always the danger that when these two particular holes are stopped up people will devote their ingenuity to finding others. I am a little doubtful whether ultimately the problem will be capable of solution without a wide discretion of the Courts to void an arrangement clearly designed to evade payment of tax. In any case, however, I greatly welcome this very considerable advance. But it does necessarily make the Income Tax law even more complicated than it was before, and in this connection I would like to ask the Chancellor whether he is considering the Report of the Committee on the Codification and Simplification of Income Tax which began to sit, I believe, in 1927, and reported, after over nine years' work, in March, 1936. Certainly, if that law could be codified and simplified it would be a very great advantage to all His Majesty's lieges.

I now come to the third part of my subject, and here I am afraid I have to adopt an attitude somewhat different from that which I have had in dealing with these limited questions. When we turn to a perspective of the general financial position and take into consideration the prospects of the future I feel that our attitude towards the Government must be one of mingled condolence and condemnation—condolence because they, like all of us, suffer from the impact of events not wholly in their control; and condemnation for the extent, the very real extent, to which they have contributed by things they have done and, still more, by things they have not done, to the present international position. I am bound to say that I very much prefer the right hon. Gentleman in his present office to the same right hon. Gentleman as Secretary of State responsible for air-raid precautions, or as Secretary of State responsible for our foreign policy. Even putting aside all controversial issues, and starting with the basis of those views of policy which are common to every section of the House, it is impossible to look back upon those years from 1931 onwards without feeling that they were years of lost opportunities—lost opportunities before the present regime in Germany came into existence, lost opportunities in the early years of that regime when we had an opportunity of making a bargain, of making agreements, which are now beyond our wildest and most extravagant hopes; and, later, opportunities of developing civilian defence against air bombardment when the menace was three years further from us than it is to-day. That is all as regards the past. In candour I could not say less; in courtesy I will not say more.

Looking then at the present financial position as it reflects the general policy to which I have referred and the prospects of the future, what is the outlook? Well, we should ordinarily regard the deficit as a staggering one. We start, too, with the fact of an expenditure on armaments which is more than half as great again as the total Budget of 1913. When full allowance is made for the difference in prices and the difference in national income, this single category thus represents as great a charge and as great a burden as the whole burden of the State in that year—that year being, let us remember, the one when we were at the peak of an armaments race with Germany, followed almost immediately afterwards by war. I say that not in criticism or complaint of our rearmament; I recognise its necessity. In some respects indeed I think it will have to be increased, because I think the centre of our whole national problem to-day is the problem of our vulnerability to air attack, and I would ask leave this afternoon, instead of speaking of principles of financial or economic policy, to relate my estimate of the prospects of the future to what seems to me the fact which dominates every issue of policy and every calculation of our future financial position, namely, the international situation and the air menace.

I believe that the Budget deficit of this year will have to be largely increased because we have even yet not concentrated our resources sufficiently upon this vital and central problem of our vulnerability to air attack. I believe that, in view of the character of that menace, practically all of the additional expenditure for armaments ought to have been concentrated upon this purpose. I believe that it was much more important to remedy our vital deficiency in the air than to increase an existing superiority on the sea. I believe that, so far as our future depends upon our national armed strength—there are of course other factors also—it will depend upon our effort in this sphere and not in others. I believe that the fate of our Empire, and of the heritage of civilisation of which it is the trustee will be won or lost, not at the periphery but at the centre. I believe that we ought to devote the whole of any further expenditure which we may authorise upon our Air Force, air defence and civilian defence. I think we shall therefore have to contemplate a considerable increase in the Budget of this year, and probably in future years.

And in building up our strength it is of course of vital importance that we should do so in conjunction with a policy which retains and increases our friends, and in conjunction with a policy of appeasement. May I say that I doubt whether even yet the Government, while it accepts this policy, is really putting sufficient work into considering the form and method of the appeasement required, or whether the public as a whole has at all realised the magnitude of what is required in that direction? It is essential too that, as we regain in this way through increased armed strength the opportunities for negotiating we have had, and have lost, we shall utilise these opportunities in the only way in which they can ultimately be of any real value to us, namely, to secure an agreement to limit armaments, and if possible, as regards air bombardment, to remove and abolish the vital danger altogether.

Just two or three last remarks. I do not believe that this vast effort can be carried out on the basis of "business as usual," or business profits as usual, or trade union rules as usual, or even the retention of all our customary luxuries and liberties in the personal conduct of our lives. I think we have to contemplate in the period now approaching something much nearer to a war economy. We want an immense national effort on a basis which transcends divisions on party politics. There is absolutely nothing which could be such a magnet to our friends, or such a deterrent to our possible enemies, as the spectacle of one vital sphere of effort upon which all sections and all parties were united. It is in this sphere that this effort is most essential; it is in this sphere that it is most possible. For I would ask every Member in every section of this House to consider what are the objectives of policy which he has most at heart, and then to ask himself whether he sees any chance of realising them unless we can reduce our vulnerability to air attack. On this basis then we may reasonably hope to secure a great united national effort, in which everyone will join, from the right hon. Member for Sparkbrook (Mr. Amery) to the right hon. Member for Bow and Bromley (Mr. Lansbury). If we can do that, and show that we can unite to deal with this menace and accept the self-discipline and sacrifice required. we shall immensely reduce not only our dangers during war but the danger of war.

In 1913 this country offered to many foreign eyes the apparent spectacle of national decadence and of governmental incompetence to deal with even the domestic problems of adult woman suffrage, of Ireland and the House of Lords. A few months later we showed on the battlefields of three Continents, through all the Seven Seas, and not least in the industrial and civil organisation of this country, how deceptive was that appearance and how great was that illusion. The same illusion has now been revived, and is the greatest of our present dangers. It is essential that we should shatter it now by showing the same qualities we showed before, but this time by showing them, not in a period of war, but in this period of preparation and defence against war.

7.17 p.m.

Sir Irving Albery

The hon. Member for Oxford University (Sir A. Salter) has covered a very wide field. He is always interesting because he seems to approach these subjects without any particular bias. He referred to the proposal of the Liberal party and suggested a co-operative effort in the present armaments emergency. I have no doubt that there is a certain amount of waste which must occur in an emergency such as we are facing, and I do not believe there is any possible way of avoiding it. The whole basis of our present anxiety is haste. Whenever you get haste you always get a certain amount of waste. I am not interested in armaments in any way myself, and as far as I know I have no armament shares. The other day the chairman of Vickers complained at the proportion of armament work which his firm had to do which was less profitable than other work which the firm did. If we are to make this great effort in armaments it is most undesirable that there should be everlasting references in this House to the people who have to do this job as being dishonest. The bulk of them are not dishonest, and if we are to get the job done properly we must get them to put their whole heart into it. We shall not get the job done properly if they receive nothing but reproaches and curses, when they are trying hard to make this effort.

If the Government want this job done they will have to do one of two things. They must know pretty well now whether these people are treating them properly or not. If they are treating them properly, the Government should declare it in no indefinite terms. If there is any doubt that they are treating them properly, then they should adopt the proposition of the Liberal party. There is, obviously, one serious disadvantage in that proposition, and that is that we cannot set up such a committee without slowing work which we want done as quickly as possible.

Sir Percy Harris

During the War I was on a committee which worked in cooperation with the Government for the purpose of assisting the departments to make haste. It did not act as a brake.

Sir I. Albery

I really did not mean to say anything on this subject. I am not interested in armaments, but I do think it is true that if you are continually throwing stones at these people, you will not get the job done efficiently or quickly.

I rose in order to make one or two comments on the Budget, and I like on these occasions to say a word of congratulation to the Chancellor of the Exchequer. His Budget appears to have had great success in every foreign country. They are all wondering at the performance, and are impressed by the courage of the Chancellor of the Exchequer and by the financial strength of this country. At the same time, one must bear in mind that they do not have to pay the taxes. I admit that the Budget came as a disappointment to me. Like everyone else, I knew that we were spending a great deal of money, and that from the economic point of view we were in a position which was rather tender. We were in a position where there was the possibility of some recession in trade, but when a little encouragement might get us further along the forward path, and I had hoped that there would be some encouragement in the Budget. Instead of that, we have to find another £30,000,000 by taxation, and that is not the whole story.

The difference between the estimated expenditure this year and the expenditure for the previous year is a matter of £81,000,000—a very large amount. I am all in favour of orthodox budgeting, whenever it can be done, but there are occasions on which we cannot do it, and I must say that this is an occasion on which, I think, we could have afforded to be less orthodox if there was the slightest chance that it was going to cause unemployment and stop the progress we have been making. The actual difference in expenditure is a matter of £81,000,000 —not £30,000,000. It is a question of finding at least £50,000,000, and that is a fairly heavy amount. Any addition to taxation, especially if it is already at a high level, always enforces economies. I have often thought that in the boom periods, when it has been customary to reduce taxation, it would have been a good deal better to put it on to check the boom, but that is not possible to-day. I have figures from my own constituency which has not much to do with armaments, although I think gas masks are manufactured there. The unemployment figures are up. Whenever you have to force economy you are bound to add to unemployment. Lord Snowden, when he was Chancellor of the Exchequer, and when we were suffering from acute unemployment, had to come to this House and increase taxation, and he increased the Income Tax. He said that he was sorry he had to do it, and that he himself was going to be forced to economise. Later on in the Debate, knowing that he was a frugal man and did not drink champagne or smoke cigars, I asked him what economies he was going to make which would not increase the present unemployment. I got no answer—and there is no answer.

Mr. C. Brown

Does the hon. Member suggest that the answer is to drink champagne and smoke cigars?

Sir I. Albery

I said that the economies he would therefore have to make would be economies which would contribute towards unemployment. What were the alternatives of the Chancellor of the Exchequer on the present occasion? I should have thought he would have been quite entitled to take into account the £15,00,000,000 which could have been borrowed last year, and was not spent. Then there is £10,000,000supposed to be coming to us from Ireland, which is not taken into account, and then there is also the question of the amount of the National Defence Contribution. I think that if the Chancellor of the Exchequer had thought it desirable he could have managed to make his Budget this year without imposing this additional taxation. No doubt he carefully considered the matter and came to the conclusion that it was not desirable. On the question of credit I do not attach so much importance. Our credit is extremely good, and there is a good deal to be said for making use of it when we can borrow money at a cheap rate. The day may come when we shall not be able to borrow at a cheap rate and the alternative then is heavy taxation. But there is one thing which, I think, would have fully justified the Chancellor of the Exchequer in imposing this extra taxation. The Government are going to spend a lot of money this year on armaments, and when there is a large expenditure of public money it tends to a larger circulation of money, more trade activity and bigger profits; in fact, it can quite easily tend to create an artificial boom. That, of course, would be undesirable, and if the Chancellor of the Exchequer had that in mind and is confident that we are not in for a trade recession, and that we can get along fairly steadily, then he is justified in the action he has taken. I hope that is the real reason.

I think the Government could do a good deal to make the payment of taxes easier. Some reform with regard to the various difficulties connected with the Income Tax is long overdue, and I think that the Government should also do something to make the collection of Death Duties fairer and more equitable. That is desirable from the taxpayers' point of view, and I am convinced that it would be very helpful to the Exchequer, for the easier the payment of taxes is made, the better they will be collected and the more willingly they will be paid. As an example, let me refer to a period such as that which we had two years ago, when there was very good trade and when people were making good profits. Let it be remembered that Surtax is payable only later on, it may be in a comparatively bad year. At a time when trade is good and when traders do not perhaps see an end of the good time, they put their money into stock or into their trade, and sometimes they are encouraged to buy more stock than is wise. When the inevitable setback comes and the stock which they have is worth only about half as much as it was, they find difficulty in that comparatively bad time in paying the taxation which they owe on their income during the good time two years previously. I do not find that the present discount which is given for paying taxation in advance is any real inducement, and I think it is necessary to go much further both as regards Sur- tax and Income Tax. I do not suggest that because I want to lighten the burden of taxation in the way of reducing it, but because I want to encourage people to be thrifty in the matter of paying taxes and because I want the Exchequer to collect taxation without damage to the taxpayers and to the industry of the country.

Savings Certificates, which were a novelty when they were introduced, have been very successful, although, in passing, I would remind the Committee that last year—I think for the first time for a long period—£28,000,000 worth of Savings Certificates were repaid and only £24,000,000 worth of new Savings Certificates were taken out. However, Savings Certificates have been very successful, and I suggest to my right hon. Friend the Chancellor that he should consider issuing tax certificates. People would be able to buy such tax certificates in the same easy way as they buy Savings Certificates at the present time, and I suggest that there should be a yield at the rate of 5 per cent., because otherwise people would be tempted to put the money into their business. Such certificates would mean that the revenue, instead of coming in in a patchy way as at present and 'being crowded in at the end of the year, would be spread over the year. Moreover, the Exchequer would gain a substantial immediate advantage, since under such a scheme the taxes would come in as payments in advance. Such a scheme would give a certain benefit in time of difficulty; it would do no great harm and might, in fact, do a great deal of good. Something of the same kind was tried, I think with less justification, by the right hon. Gentleman the Member for Epping (Mr. Churchill) when he was Chancellor of the Exchequer.

With regard to tax evasion, I am sure that hon. Members in every party support the Chancellor in his efforts to prevent tax evasion, but in this matter also there is one thing to,which I would like to call the attention of my right hon. Friend, in connection with the curtailment of tax evasion and also some other matters. There appears to me to be a totally unwarranted abuse of the use of the private limited company. Originally, when we built up our reputation for honest trading, people used to trade as partners, and were liable up to the shirts on their backs for fulfilling the engagements incurred in their contracts. Unfortunately, that system is fast dying out, and nowadays nearly everybody trades as a private limited company. This system has come to stay and I do not suggest that it can be altered, but the privilege of trading with limited liability—for it is a privilege—is continually abused. Nearly every big swindle in this country is perpetrated under the guise of a private limited company; when a "bucket-shop" starts, it is generally as a private limited company.

I imagine that a great deal of tax evasion is done in the same way. Also when somebody has paid a few thousand pounds for the registration of a private limited company, and no longer needs it, he passes it on to somebody else for, say, £500, thus saving the second man Stamp Duty. I do not wish to prevent people from using private limited companies, but I suggest that they should make a proper application to trade as a private limited company and state the kind of trade that they want to do, and that thereafter they should be subject to a yearly renewal of licence, which would be automatically given to them unless there were some good reason for refusing it. I do not profess to be qualified to outline a scheme of that kind in legal details, but I think it would be worth while for the Chancellor to give some attention to the idea.

In conclusion, I do not know whether the financial policy of the Government has in any way changed during the last few years. In 1932, hon. Members were constantly clamouring to know what was the financial policy of the Government, and in a Debate in the House in June, 1933, I ventured to suggest that it was as follows: (1) a return to some form of gold standard, not barring the possibility of a gold-cum-silver standard; (2) the eventual return would be at a figure below the previous gold standard parity; (3) that such a return to a metallic standard was not expected to take place in the near future; (4) it was intended to control fluctuations in the sterling exchange with a view to bringing about a higher price level for commodities, and the 1929 price level was indicated; (5) every effort would be made to prevent wide fluctuations in sterling in the meantime; (6) when a higher commodity price level had been obtained, the sterling exchange would be controlled with a view to stability of commodity prices. At that time, the present Prime Minister, who was then Chancellor of the Exchequer, was good enough to describe the foregoing as an accurate account of the general considerations. I would like to ask my right hon. Friend the Chancellor of the Exchequer whether those general considerations still apply to-day, and if not, will he inform us to what extent they no longer apply?

7.39 p.m.

Mr. Sexton

Like the hon. Member for Gravesend (Sir I. Albery), I will confine my remarks to the Budget. On looking up the dictionary meaning of the word "budget," I found that it is "a pouch or wallet." Compared with the past, the pouch or wallet of the Chancellor of the Exchequer nowadays must be an extremely long one, when he is budgeting for about £1,000,000,000. I am glad that, with respect to £30,000,000 which the Chancellor wants, he has resisted the temptation to borrow. At the present time, we have in this country a large enough debt, since it amounts to £8,000,000,00o and calls for £224,000,000 a year for interest and administration. To add to that stupendous sum would be a decidedly wrong policy. Much of that huge debt is due to past wars. To borrow would savour too much of the hire-purchase system: buying our armaments on the instalment plan. There is a well-known song entitled "Sing as you go," and I believe it to be a sound maxim to "Pay as you go." It is unfair to succeeding generations to bequeath a burden of debt to posterity. If we do so, they will very likely call us all sorts of wicked names, although as we should not be here to hear them, perhaps it would not matter. But it is unwise to pile up for posterity alarming sums which they will have to meet. If we have failed to find a more excellent way of managing the affairs of State, we ought ourselves to face the financial obligations entailed, for posterity will have its own problems and will have to find its own finance.

I said that the Chancellor had resisted the temptation to borrow, but there is to be some borrowing. We hear that £90,000,000 is to be borrowed, and we know that before it is paid back, it will be more than twice that sum. I notice that in the Budget, £230,000,000 are allocated to National Debt interest and administration during the coming year, that £343,000,000 are allocated for the Services, £39,000,000 for War pensions and £6,000,000 for Air-Raid Precautions, making a total of £618,000,000 very largely for past wars and preparation for future wars. It seems a travesty of civilisation and an alarming tragedy that in the twentieth century we should be spending such an appalling sum of money on war, and that the cry should go up, "Increase, increase, increase." In 1914, the six major nations in Europe—Britain, France, Germany, Italy, Austria and Russia—were spending altogether on the services £385,000,000. In 1938, we alone are spending £343,000,000, with Supplementary Estimates before us in the future. This era of collective security has become an era of increasing individual national expenditure on arms. What is to be the end of it all? Is it to be national bankruptcy or international conflict? There must be some change in policy. The right hon. Gentleman referred, in his Budget speech, to an active policy for promoting reconciliation and good will with other nations, and said that that policy was beginning to have results. I submit that a reduction in the cost of arms would signify that the policy was succeeding. To increase armaments looks as though there were some suspicion and a lack of good faith in the international field.

In any case, the money has to be found and I think the Chancellor has adopted the wisest way in putting it on to the Income Tax, which is, after all, the fairest tax of all. Although it is the fairest tax, we have been told, not only on this occasion but two years ago, about tax avoidance. It goes by various names. It is variously described as tax-dodging, tax evasion and tax avoidance, and I suppose the last term is more euphemistic than the crude word "dodging." Two years ago these people were severely castigated by the present Prime Minister, then Chancellor of the Exchequer, but we find that they still pursue their nefarious ways. The word "budget" as I have said, means a pouch or wallet, but it has a second meaning. It is also used, as an exclamation, enjoining secrecy, along with the word "mum ": In his head at once, again, are word and wink, Mum here, and budget there." Has that secrecy something to do with the difficulty in finding these tax-dodgers? Is it not the case that no sooner do we place upon the Statute Book means for dealing with these people, than other ways are discovered of avoiding taxation? It has been said that the evaders are few in number. I hope so for the sake of the honour of the name Englishman. But what is the extent, in money terms, of this avoidance? A sum of £20,000,000 to £25,000,000 has been mentioned, but the worst of it is that these wealthy "welshers" impose upon others the task of making up their contributions, and some of those others are old age pensioners, widows, ex-service men and people with small fixed incomes. I hope, as I am sure hon. Members in all parts of the Committee hope, that the right hon. Gentleman's plan for catching the culprits will be so comprehensive that none will escape.

As regards the tax on oil, I have nothing to say except that it has not been received very well in some parts of the country. The complaint is made that it will be injurious to road haulage by adding to the cost. Another complaint is that not enough of the money contributed by motorists and haulage companies will be spent on the roads. I notice that the secretary of the Automobile Association condemns the tax on petrol, and that Lord Austin describes it as "the last straw."

Now I come to the third method of taxation proposed in this Budget, namely, the tax on tea. Much has already been said about it, but, in my opinion, not too much. It is the least justifiable of the taxes proposed, and it falls chiefly on those who are least able to bear it, whereas the object of the Chancellor ought to be to place the taxes on the shoulders which are best able to bear it. The report of the Commissioners of Inland Revenue for the year ended 31st March, 1937, shows that there are 88,951 people who have a total annual income between them of £446,000,000 which averages out at £5,000 a year each. I live in a district where we have miners and quarrymen and one of those men would spend nearly the whole 50 years of his working life in earning the £5,000 which some of these people get in one year. In that total I find there are 6,816 persons whose annual incomes are £10,000 a year or more and whose aggregate income is £143,000,000. That represents an income on the average of £404 per week.

Instead of putting a tax on the poorest people, this £3,000,000 could have been obtained by adding 6d. in the £ to the effective rate of tax levied on those 6,816 people. It would have been no hardship for them, because the £10,000 a year people would still have been left with £107 per week; the £40,000 a year people would still have been left with £307 per week and the £100,000 a year man would still have left £560 per week. Surely people with incomes ranging from £107 to £560 per week would be better able to bear this burden than these old age pensioners, widows and ex-service men. I have here a letter from a widow which, with the permission of the Committee, I would like to quote, because some people are minimising the effect of this tax upon poor people. This is the case of a widow with three children who are under five years of age. She was receiving 21s. a week all told in pension, but as there was a step-child older than her own three children—the step-child staying with the grandparents—her 21s. a week was reduced to 19s. a week. This is what she writes: The 19s. is too small to live on as my children need a lot of nourishment. My eldest little boy starts school in April. He will have a mile and a-half to go over fields, so you will see that I will need to get good boots and clothes for him. She does not ask for much. She says: I thought you might help me to get my pension back to the 21s. per week. I can hardly manage to live on that and pay rates and rent, but 19s. is too small. I will have to apply for assistance to the local council which I do not want to do. True, the additional tax on tea is only 2d. per lb., but one halfpenny of additional expenditure is a hardship to a person who has only 19s. a week and who has to keep four people and pay rent and rates and find all their clothing out of that sum. In to-day's "Northern Echo" I read a letter from a Durham pensioner in which he writes: "I am an old age pensioner. I am paying 4s. 6d. a week rent for one room. With fire and light to find out of my pension, how can I buy clothes? I sometimes get a loaf of bread given from my neighbours. The poor have to help the poor. I am just about at my wits' end. Things will have have to alter or I shall have to go to the Public Assistance institution. I wish they would raise the pension by a few shillings. Will this additional tax not play a vital part in the life of an old age pensioner like that? If this increased taxation was really needed, why has the National Defence Contribution escaped this year without any addition? We have been told and we know it to be true that large profits are being made and those large profits should be taxed before the poor are called upon to pay this tea tax. I suppose this is what is called sharing the sacrifice necessary to balance the Budget. But these people are always sacrificing to balance their own weekly budgets— those budgets which have only 10s. a week on the receipts side. They sacrifice the joy of life, the comforts of life and even the necessities of life, and their sacrifices should entitle them to exemption from this further taxation. The object of Budgets under our system ought to be to spread out the wealth. Wealth is like manure; it is no good in heaps. It is only useful when it is spread, and we believe that a fairer way of spreading out the wealth of the nation could have been devised than that of taxing the poor in the community.

7.56 p.m.

Mr. Higgs

I listened with interest to the forcible speech of the hon. Member for Bishop Auckland (Mr. Dalton), but I consider that he distorted what he had to say in order to make it suit his line of argument. He referred to the rate of taxation and said that taxation had increased at a greater rate on the lower than on the higher incomes, but omitted to point out that the maximum rate paid by the wealthiest people is of the order of 13s. 9d. in the pound. I believe that it is as a consequence of that high taxation that evasion is taking place. In other words, the law of diminishing returns is making itself felt and if the rate were reduced, I believe that the total income from Surtax would be greater than it is at present.

Then the hon. Member referred to firms "tucking away" profits. I think that is a very desirable proceeding. We remember what happened after the Great War when firms which had been manufacturing munitions and guns, and so forth, had to change over to industrial production. A lot of those Firms did not possess the capital necessary to buy new plant. I consider that a certain amount of reserve of that kind is necessary. The hon. Member also mentioned the returns given by the English Steel Corporation and Messrs. John Brown, and pointed out that in 1934 they had paid no dividends at all whereas to-day they were paying relatively high dividends, But does the hon. Member really desire that those firms should return to a state of things in which they were paying no dividends at all? Such a state of things is no good for the owners of the concerns, and it is of even less value to the employes. Profit is desirable and necessary, and it represents an honourable state of affairs. If the returns over a considerable part of the last 15 years are worked out for those particular concerns, I think it will be found that the average return has been somewhere in the region of 5 or 6 per cent.

The hon. Member spoke of the unequal distribution of wealth. I have yet to hear a definition of a wealthy man, and I consider that when hon. Members opposite are prepared to distribute their wealth they will set a better example to the community than they can do by merely talking about it. Hon. Members opposite receive £12 a week and I receive the same. I work in this House for 26 weeks in the year. Therefore, what I receive and what they receive is equivalent to an income of £24 a week, and that is a great income compared with the income of the average individual in this country which is about £3 or £4 a week. If hon. Members set an example by distributing their wealth, then, of course, we on this side will listen to them far more attentively.

In spite of the increased taxation, this Budget has undoubtedly had a good reception. In general, I think we all support the principle that we should pay, as we go. We are paying as we go to a very great extent, and I think we are covering that part of the expenditure the results of which are likely to depreciate rapidly. That part of the expenditure which is being applied to the Air Force is not likely to produce results of a lasting character. A battleship may be of service for 20 or 30 years, but aeroplanes may become out of date within five years. We have only to look back 20 years to see what use our air equipment of that day would be to-day, and it is that rapidly depreciating portion of our defences that we should not capitalise. I am pleased to see that there is so great a volume of opinion in this Committee in support of paying as we go. Businesses built up out of profits, which form the nearest comparison that I can make, are far more secure and sound than those which are built up on borrowed capital. We have either to face this increased taxation or risk extermination. I am not one of those who think that war is on our doorsteps; on the other hand, I support the attitude of the Prime Minister of being strong.

I have made a few notes of the speeches delivered in this House yesterday, and I find that one hon.. Member suggested that we should view taxation over a longer period. We do not know what the future holds in store, but we can at least look back and see what has happened over the last io years; and we have it in this memorandum that from 1928 to 1931 there was a rise in expenditure, that from 1931 to 1934 roughly there was a fall in expenditure, and that from 1934 to 1938 there was again a rise. No one in this House in 1928 could say whether there would be rises or falls during the next 10 years, and when you budget for long periods ahead, the budgeting must be done by the same community. We are a changing community, and the result is that ideas change. It is an ideal state of affairs to budget over a considerable period ahead, but I fail to see how it can he done in the circumstances with national safety.

I heard the suggestion made, Why limit borrowing to rearmament expenditure? We have had the experience of spending on public works, and for the life of me I cannot see the difference to labour whether the borrowing is spent on rearmament or on public works, but it is absolutely necessary for our existence to-day to spend on rearmament in order that we can protect ourselves in case of attack. It was pointed out that three-fifths of our expenditure goes on Defence and Debt, but what good are our homes if we cannot protect them? What would have been our position to-day if we had not been strong in 1914?

Mr. Messer

We should not have had any war.

Mr. Higgs

There would have been a war of a far more serious character for us, and we might as a result have been governed by another nation. The Government should stimulate production, it is said. The Government do an enormous amount towards stimulating production, and I think it is up to the individual to do what he can in that direction, and not always to expect the Government to do the job for him. Hon. Members to-day have advocated the Government stimulating our overseas trade, and it is a very desirable thing for them to do all they can in that direction, but, on the other hand, the individual is not getting all that he can get in countries overseas, not only in Europe but elsewhere. There is an enormous amount of trade that could be brought to this country if those in charge went after it and made it their special task to get hold of it.

Mr. Ellis Smith


Mr. Higgs

In the Dominions and in the Scandinavian countries. We are not the only people who are exporting manufactured commodities there. There are other nations in the world that are in advance of us in manufactures, and we have to realise it and to compete against them far more effectively than we are doing if we are to retain our position as a manufacturing nation as we did 50 years ago. I consider that the Budget is admirable. Inasmuch as it is granting something for increased wear and tear, it balances up that extra burden on industry. Extra taxation comes on the individual, and it is absolutely necessary that industry should have reserves in order to replace its depreciated machinery. The Chancellor made it very clear in his speech that the National Defence Contribution was not to be increased, in order to relieve industry from the increased burden. I have heard talk about our gold reserve, but to revalue is the same as inflation; it is another trick in order to get out of our present difficulties.

One hon. Member referred to the Irish Agreement and to our accepting £10,000,000 instead of £100,000,000. I wonder whether that hon. Member really thinks we should ever have got the £100,000,000, and whether it is not of far greater value to us to accept the £10,000,000 and get the good will of Southern Ireland, which has been antagonistic towards us for the last five or six years. We shall soon make up the loss of the hypothetical £90,000,000 that we should never have got. Another hon. Member referred to the National Debt. National Debts are never paid off. No nation has ever paid off its National Debt, and we shall never pay off ours. Speaking from memory, I believe that after the Napoleonic wars our National Debt was somewhere in the neighbourhood of £700,000,000. After a prosperous period of practically 100 years, such a period of prosperity as no other nation has known, we reduced that National Debt by £100,000,000, and that is all. If we could not do it then, what shall we be able to do under the present circumstances, with a National Debt over 10 times as large?

Mr. C. Brown

What are we going to do with it, then?

Mr. Higgs

A National Debt is not a bad state of affairs, providing it is internal. I am not advocating increasing it now, because a state of emergency might arise in which we should have to increase it; therefore, I say we should keep that in reserve in case of necessity. We have heard of £300 profit on aeroplanes. Do hon. Members opposite realise that that is a profit in the order of 2 or 3 per cent., and do they believe that industry could be effectively run at such a profit?

Mr. Silverman

2 or 3 per cent. over what period?

Mr. Higgs

On the turnover.

Mr. Silverman

And how often do you turn it over?

Mr. Higgs

An engineering concern cannot turn its capital over more than once in 12 months. I can tell the hon. Member that from experience. We have heard about the taxation of ground values, but our present expenditure is somewhat equal to or exceeding the total income of industry. The total expenditure is greater than the Schedule D income, and if we are going to tax land values, we shall have to reduce our taxation in some other direction. All hon. Members agree that our taxation is high. It is as high as that of any other nation in the world, and it is no use thinking that we have another nest-egg that we can get hold of without its being detrimental to employment.

I must say a word or two about the increase in the Tea Duty. I suppose the Chancellor selected it because it is easy to collect, and I suppose he selected also the tax on oil fuel for the same reason. I think it is a mistake. I am sorry to see these extra taxes on tea and on transport, and I should not be doing my duty to those who have elected me if I did not point out to the Committee that I have received a number of communications concerning this extra tax on oil. It is, I suppose, natural to go to those sources where the tax can be easily collected. On the other hand, there is another source, which I have not heard mentioned during this Debate—it may have been overlooked, or it may have been omitted purposely—and that is a tax on football pools. I am under the impression that the turnover of those pools is something in the neighbourhood of £40,000,000 or £50,000,000, and a 20 per cent. tax on football pools would have covered the extra tax on tea and the extra tax on oil. It might be difficult to collect, and it would be recognising a source of revenue that we do not at present recognise, but the fact is that it exists, and the sooner we realise that fact and admit it, the better. I think it would be a most desirable tax. I do not think anybody would object to it to half the extent that they object to this extra duty on tea.

Mr. E. Smith

Would the hon. Member also agree to apply that principle to Stock Exchange transactions?

Mr. Higgs

I do not know anything about Stock Exchange transactions. I have never taken part in any, and I hope I never shall. But I consider that it would be desirable for the Chancellor of the Exchequer to express an opinion on this football pool turnover. The rate has increased of late, and the matter certainly wants attention from this House. I should also like to see a greater difference made in the Income Tax as between married and single people; in other words, I should like to see the Chancellor tax the bachelor more. The difference is not great at present, and I think that here is an opportunity for increased revenue without any further complications in the method of taxation. I listened yesterday to the hon. Member for Brixton (Mr. Colman), who advocated relieving the tax on living artists. Obviously, in the present state of our finances, the Chancellor could not consider doing that now, but that might well be the first matter to be considered when the opportunity arises.

As far as I have heard, the suggestions from the Opposition to improve the Chancellor's position have been practically nil. We have had destructive criticism, but very little constructive criticism. The Opposition complain of great expenditure, but whenever any greater expenditure has been proposed, it has generally come from the Opposition side of the House. I know of no leading nation in the world whose finances are better managed than are ours in this country, and I hope we shall continue on these sound lines of paying for our wants out of income and not out of borrowing, whenever we can do so. It has been said in the House on several occasions that the solution of excessive expenditure is a better understanding between nations. We are indeed lucky to have the leader we have. Hon. Members and I on this side of the House are supporting him in his negotiations. He has pulled off two great agreements within the last few months, and I believe that they are the beginning of the end of the difficulties that have existed in Europe for a considerable time.

8.15 p.m.

Mr. Pearson

I listened on Tuesday for the first time to the introduction of a Budget, and I found it very interesting. The figures were alarming, but the general story that was evolved by the Chancellor of the Exchequer interested me because I felt that here was a means in the general Estimates for the coming year of placing something within the reach of the people of the country so as to ease their burdens. Old age pensioners and widows, scanning the newspapers to read what the Budget contained, were a very disappointed section of the people, for they really thought the time was coming when some small concession would be made to them. The increased cost of living, the burdens, especially in the depressed areas, of the increase in rates have to be borne by these people. They are, perhaps the most helpless section of the population, and 'I cannot believe that it is beyond the wit of the Chancellor of the Exchequer, with the advice of the fine brains of the Treasury officials at his side, to meet in some form their demands for an easing of their burdens. We find that, instead of easing their burdens, the Budget increases them. It has alarmed me to listen to the complacent manner in which Members of the opposite benches have faced the additional taxation on tea. It has been said that it is a small amount, but the fact which is disregarded is that it is one of many increases which the people have to bear. It is not only a question of 2d. a lb., but a question of 8d. per lb. now, and it will take additional millions out of the pockets of the people who, if they had increased purchasing power in their hands, would be able to make some contribution towards the absorption of goods manufactured in this country.

I can see no greater new source of revenue than that which could be tapped if our export trade were increased. In South Wales we have an area which has been terribly hit for the last decade. Very little has been done to help the coal trade there as it should be helped, for it is largely an export market. If the Government faced this question and endeavoured by some means to increase the export of coal, they would do something really helpful towards bringing in some revenue. This is a tragic problem. The Government have introduced a trading estate, but it is making only a small contribution to the general problem in that area. I would urge the Chancellor to do something specially for the coal trade. It would absorb a good deal of the unemployed in that area and would probably lessen the charge on unemployment assistance. A figure which alarms me is the estimated reduction of £6,481,000 on unemployment assistance. I want to make a sincere protest against the way in which large sums of money are being saved on the unemployed. South Wales is feeling the effect of the cuts. They are very unfair to the people, who are unemployed through no fault of their own. They are really in a very black valley and this is not a time to reduce the amount of the allowances.

On the general problem of industry in South Wales and the protests that we hear from the opposite benches about State interference, the Government have long been declaring that it would be the height of folly to interfere with industry. Yet by the Special Areas (Amendment) Act, 1937, the powers of the Commissioners to introduce factories in the depressed areas was very much strengthened. The Commissioners now have power to work and to let factories. This is in addition to the trading estates which are already set up on the Northeast coast and in South Wales.

The Temporary-Chairman (Sir Cyril Entwistle)

I do not think a detailed criticism of the Special Areas Act is in order on the Budget Resolution.

Mr. Pearson

I was coming to the point that concessions in regard to Income Tax are given with respect to part of the rent of these factories. The Treasury under the same Act provides financial assistance by way of loans to these concerns. While that is going on we hear protests from the opposite benches about State interference, but the Government are the first to interfere more and more in these days in order to save industries. If something could be done in this way so as to increase the export markets of the depressed areas, it would be a help to the revenue. I hope that the Chancellor's proposals to deal with tax evasion are not a sham, and that they are intended to be a real means of facing this problem. It is a shame that these people have been allowed to evade taxation in the way that they have done in past years. I have a misgiving that the measures which will be brought in to stop this tax dodging will not be so efficient and effective as they should be. It is the rich who are financing the Government supporters, and I am afraid that these people, who, after all, pay the piper, will call the tune.

8.25 p.m.

Sir Waldron Smithers

I do not propose to follow the hon. Member for Pontypridd (Mr. Pearson) except to say that I rather resent his remark about only the rich being the supporters of the Government. I have in my division many working men—and I claim to represent working men just as much as Members of the Party opposite—who subscribe their shillings and half-crowns yearly to support the National Government and the Constitutional Party. Having said that, I want to take quite a different line. The Prime Minister, speaking at a lunch at Birmingham which was reported in the "Times" of 5th February, said: If I were to try to put in a single word the greatest boon that any Government can bestow on the country I would say that it is the establishment and maintenance of confidence. It is confidence that stimulates enterprise, and confidence that gives peace of mind to the people. I would say that in this country especially the establishment of confidence breeds a like result elsewhere. The hon. Member for Bishop Auckland (Mr. Dalton), in his speech at the beginning of to-day's Debate, quoted the "Times" newspaper, and I cannot do better than follow his example. In the leading article in last Monday's "Times" the word "confidence" appeared four or five times. I mention that only to say that you cannot have material prosperity, cannot have the tangible things of this world, including social services and rearmament, unless you have as a foundation those intangible and immaterial things which are referred to broadly as confidence and stability. I claim most fervently that the National Government have filled the bill in this respect; that the National Government have restored confidence to the people of this country and that the people of the world have confidence in the National Government. The Budget has had a wonderful effect.

Mr. J. Griffiths

It looks like it.

Sir W. Smithers

The hon. Member could not have made a better remark to support me. The reason why there have been so few Members in the House since Tuesday is that all the real opposition to the Budget has completely died down. I can only speak from my experience in my own business. I know that hon. Members opposite do not think much of the Stock Exchange, but it is an essential part of the national life of this country, it provides a means of exchange of securities for the people, and whether we like it or not under the present system it is the pulse which reflects the state of the credit, the stability and the confidence of the Government of the day. On Wednesday morning markets were dull for a few moments, but since then, in spite of the increase in the Income Tax and in spite of the other increased duties, they have made a wonderful recovery, and I see in the evening papers to-night that prices are above pre-Budget prices.

The reception of the Budget has demonstrated, in my opinion, the united and cheerful determination of the British public to face the difficult situation. One British subject who is of foreign extraction said to me that he would pay with a smile to live in the best country in the world. I should like I o point out to the Financial Secretary to the Treasury, because I hope that he had something to do with it, that when the Chancellor decided to provide the £30,000,000 by taxation he did absolutely the right thing. By showing to the world that we mean to foot the bill by taxation, we preserve and maintain the credit of the country. As all agree, the situation is rather uncertain, and the Chancellor has said that he will borrow for Supplementary Estimates, and that he may have to borrow an unknown amount, but by putting on taxation to provide for the £30,000,000 deficit in the Budget this year he has maintained the credit of the country. He has done things in the right order, and when the time comes he will be able to borrow with the credit of the country unimpaired.

It is a remarkable thing that even with this extra taxation the price of sterling in the world markets is unchanged and that the credit of the country, instead of being depressed, as many thought it would be, has revived. After all, the worst thing for business is uncertainty, and now that the country knows the worst people are determined to make the best of it, and our credit stands higher to-day than it did a week ago. The Government have conducted the business of the country on sound lines. It is only because they maintain confidence and stability that the Government are able to meet with impressive ease the enormous demands on the national purse for social services, for rearmament and for interest on the debt. I have listened to a good deal of the Debate on the Budget and I do not think this point has been mentioned before.

I wonder whether the Committee realise that in spite of the expenditure upon armaments the Civil Estimates, according to a memorandum on the Estimates for the Revenue Departments issued by the Financial Secretary on 31st March, show an increase of £20,300,000. There are increases in 32 items, including: Roads, £6,500,000; Special Areas Funds, £4,000,000; Post Office, £3,500,000; Air Raid Precautions, £3,300,000; Old Age Pensions, £2,200,000; Board of Education, £1,500,000; Widows', Orphans and Old Age Contributory Pensions, £1,000,000. Those are the biggest items, but there are 32 in all which exceed £100,000 each. The National Government, by applying sound principles in Government and finance, snatched the country back from the precipice in 1931 and restored confidence, and for six or seven years they have patiently and slowly, but surely, consolidated the posi- tion of this country in a world where the financial and economic conditions of most countries are in a chaotic state.

When hon. Members criticise the Government for not doing this or that, I would ask them to remember that there are in other countries factors beyond the Government's control. We cannot control the activities of the dictators or of Mr. Roosevelt, who is nearly a dictator, but, limited as we are in our power to impose our will on the rest of the world, the Government's achievements during the last six or seven years have been, I claim with confidence, nothing short of a miracle. Not only have they done wonderful work for the people of this country, but they have done wonderful work for the civilised world, by providing, at Last within the British Empire, an area of confidence and stability under a free Democracy and, by giving a lead to Great Britain and the Empire, have supplied a bulwark against all forces of revolutionaries and theorists.

The hon. Member who last spoke referred to the agreements which the Prime Minister initiated and the Government have carried through with Italy and Ireland, and to the negotiations going on to-day with France. I presume that we hope they will lead to further negotiations between France and Italy, and I personally hope, further negotiations with Germany. Whatever may be their influence, those agreements are all constructive and they add to the stock of confidence in the world. I have mentioned the chaotic conditions in other countries and I want us all to learn a lesson from the experiments tried, in those countries, by well-meaning statesmen. They have put into operation theories which do not work out in practice. The first example I want to take is at home. I listened last night to the broadcast of the Leader of the Opposition. He referred again to the crisis of 1931. I hesitate to say anything to which the Chairman might take objection, or the Opposition—[HON. MEMBERS: "Oh !"] I mean what I say most sincerely—but it is pathetic how the Members of the Opposition will not or cannot see the real reason for the crisis of 1931.

For two years, 1929–31, we had a Socialist Government in this country. The application of Socialist principles was dis- astrous. We have heard talk to-day about comparisons between the Budget deficit to-day and the Budget deficit then. In the last year of Socialist administration there was a Budget deficit of £70,000,000 and a prospective deficit for the following year of £170,000,000, and the Unemployment Insurance Fund had run into a debt approaching £100,000,000. Confidence was destroyed. The City of London, as the greatest international centre of finance and commerce in the world, of necessity holds large balances for foreign clients. Those clients, knowing well what had happened during the collapse of the franc and of the mark after the War, suddenly said: "The same thing is going to happen to the £ sterling." Confidence was destroyed, not only by what the Socialist Government had done, but by what those people who had money deposited in London feared that they would do. The consequence was that all those foreign depositors tried to withdraw their balances at the same moment, and we were in real danger. It was not a bankers' ramp. We were in real danger of sterling being sold against other currencies, dollars, francs, marks and the like, and, so to speak, in a night of seeing our currency so depreciated in purchasing power of the £ sterling as to bring untold misery to the poorest people in this country. That is why the National Government at that time joined together Members of all parties and saved the country from a disaster, which, if it had been allowed to develop, would have consequences even more disastrous than those of the Great War itself.

We are notably a people of short memories. In 1931 we bought our experience. I beg the House and the country never to forget that occasion. The curious thing is that other countries are buying their experience to-day. I hope that we shall never try that experiment again. A balanced Budget, produced on sound and orthodox lines, is vital in this country. It has been said that the Chancellor of the Exchequer was unimaginative, but I am sure that the Budget which he has produced is a good, sound, Treasury Budget. The new taxes will be easy of collection and no new bureaucrats will have to be invented. A balanced Budget is vital in order that we may maintain our credit and the purchasing power of the £ sterling. I wonder how many Members who are listening to me ever studied the weekly returns of the Bank of England. Hon. Members may say that it is a capitalist bank and that it should be under State control, and so forth, but there is no doubt that the purchasing power of the £ sterling is vital. The hon. Lady the Member for West Fulham (Dr. Summer-skill), who made her maiden speech, talked about the Chancellor of the Exchequer of every household; the maintenance of the purchasing power of the £ is vital to every housewife in this country.

I want to direct the attention of hon. Members to the last weekly returns of the Bank of England. They will see that there are now in existence 526,000,000 Treasury notes, and that, as security for them, there is £200,000,000 of British Government securities. I am giving round figures. There are small items in regard to silver, but £200,000,000 of backing for our currency notes is in Government securities. As long as those securities form part of a balanced Budget and are secured upon the taxable capacity, recoverable by law, of the people of this country, that is the finest security in the world and is one reason, even though there were no other, why a balanced Budget is of vital importance to this country. As an example of what might have happened if the Government had not introduced a sound, orthodox Budget, and as a warning to this country, I want to refer to the Marxist experiment in France. [Laughter.] Hon. Members opposite ought to know about it.

Mr. C. Brown

Poor old Marx.

Sir W. Smithers

I am saying this humbly, as a back-bencher and one who has lived in France, can talk French and knows the French people well. I respectfully welcome the presence of the French Ministers in this country to-day, and I hope that as a result of their meeting with our Prime Minister and Foreign Secretary wiser counsels will prevail in France. I trust that we shall learn the lesson of recent events in France under the Popular Front Government. The other day I had sent to me a publication from France, issued at the end of last year, and I would ask the Committee to note the difference which it indicates between the conditions of living in this country and in France, where a Socialistic experiment has been tried. This is a translation of what it says: On the 1st October, 1913, an English workman coming to France met a French workman. The £ was worth 25 frs. 20. The Frenchman had in his pocket 25 frs. 20. With this sum each of them buys 72 kilogrammes of bread. On the 1st October, 1935, they meet again and go through a similar experience. The rates of exchange have changed. With his £ the Englishman buys 53.65 kilogrammes of bread; with his 25 frs. zo the Frenchman can buy only 18 kilogrammes of bread. On the 1st October, 1937, they meet again. With his £ at 150 frs., the Englishman can buy 60 kilogrammes of bread. With his 25 frs. 20, ' little francs ' depreciated twice by the Front Populaire, the Frenchman has no more than 9.87 kilogrammes of bread. I would ask the Committee to note the real effects of the application of a theoretical Marxist Socialist policy, even in a great strong country like France. Another example of the interference which theoretical policies produce in the economic and financial affairs of a country is given in an article written by a man who has studied very carefully the conditions in France. The following is an extract: The outstanding fact is that the rise in prices and the cost of living, coupled with a fall in production, was the direct result of the 40-hour week. At the end of 1937, taking -the production figure for 1929 as 100, Belgium, Italy and Holland stood at 100; Germany at 119; Great Britain at 125; Sweden at 145. France's figure was 71. Here is another extract: The task before the present and future Finance Ministers of France is a formidable one. When one considers that the gold reserve at the bank of France was "— I will give the round figures— 81 milliards in April, 1935, 55 milliards in June, 1936, just after the Popular Front came into power, and 55 milliards on 3rd February, 1938, one has some conception of the sum of money that has left the country, and these figures do not tell anything like the whole story of the flight of French capital. In February, 1935, francs stood at 73.87 to the £ sterling, in the same month of 1936 at 74.81, and on 15th February, 1938, at 152.61. To-day they stand at about 160. I appeal to the Committee to note the importance of these intangible attributes which we call confidence and stability. As further evidence, I would like to remind the Committee of the appeal of M. Chautemps, reported in the "Times" of 11th March, 1938. He made to the people of France five demands. I will only quote the first and the fourth. The first was unreserved confidence; and the fourth was power to apply the 40-hour week more flexibly so as to increase production. I would beg hon. Members opposite, before they make extravagant demands for a 40-hour week, and other demands which appeal—I say so with respect—to an uninstructed section of the people, to look at the example of France and see what disaster the Popular Front Government has brought to the very people whom it was meant to help. I have a great friend in France, who employs both British and French labour, and who has good opportunities of studying conditions in both countries. He tells us that, within a year of the policy of the Popular Front Government being put into operation, the condition of the workers was worse than it was before, because the cost of production went up to such an extent—

The Temporary Chairman

We cannot continue to discuss the position of France. The hon. Member can use it by way of illustration, but he is developing it much too far.

Sir W. Smithers

I bow to your Ruling, and will pass on to another example, and that is the action of Mr. Roosevelt in America. One of the main reasons for the world depression has been the action of Mr. Roosevelt, who, again, tried to put across theories which do not work out in practice, with the result that in America confidence has been destroyed. I was talking to a very fine business man to-day, whose opinion was that we in this country could never hope for a real recovery until things improved in America. In considering conditions at home and abroad, we must never forget that England is different from every other country in the world in that she is not self-supporting. The people of France, Russia, Italy or America can, speaking in broad terms, play ducks and drakes with economic and financial principles, but they can still live—they can still get something to eat. But if we in this country destroy our credit and depreciate the purchasing power of sterling, as happened in the crisis of 1931, we are faced with a shortage of food and raw materials within three months. That was proved by what was said by the hon. Member for West Fulham (Dr. Summerskill), and by the announcement made yesterday by the Chancellor of the Exchequer, as to the vital import- ance of getting sufficient food supplies into this country.

Hon. Members opposite often talk about the great wealth of this country. We are indeed a wealthy country. We have stood up to this extra taxation, and I am sure that the great majority of the people of the country are determined to back the Government up in any efforts they may make for the safety of the country. When we talk about wealth, it is no use looking at the figures of investments or the deposits in the banks. I wonder if hon. Members realise that the banks of this country only keep 10 per cent. in the till for the ordinary daily wants of the people. Where is the rest of that wealth? It is in buildings, railways, factories, ships—the whole business of the country; and it is only wealth so long as it is a going concern. A factory that is full of work, that is employing people, that can pay taxes, is an asset; but destroy confidence, take away the wish, if you like, of the men who own that factory to take orders, and that factory dismisses men, cannot pay taxes, and within a short time ceases to be an asset and becomes a liability. The people of this country should be very grateful to the National Government—

Mr. Tomlinson

Will the hon. Member apply that to the factory owners of Lancashire?

Sir W. Smithers

Look around the world, and you will see war in Spain— there has been war in Abyssinia—war in China, murders in Germany, murders and mock trials in Russia, distress in France. I will quote in conclusion from the "Evening Standard" of 23rd April: St. George's Day is also a day of festivity. And who should be feeling festive? First the 100,000 Yorkshire miners to whom colliery owners have just promised a week's holiday with pay. Next the 2,550,000 workers who have received in the first three months of this year wage increases averaging 2s. a week each — £215,000 a week. And then all of us because by God's grace we can walk as free men and are at peace. Yet still we have men in this country— Socialists and Communists—who behave like ostriches, burying their heads in the sand; who refuse to support the National Government and continue to try to persuade our peoples to follow a policy which, wherever it has been tried, has led to disaster.

8.58 p.m.

Mr. Richards

The hon. Member who has just sat down has regaled us in very considerable detail with arguments for the purpose of making out that this is a good Budget and pointing out the difficulties of other nations. That would be a good argument if it could be proved that the difficulties of other nations are entirely due to their financial proposals; but we know that their difficulties, like ours, are not entirely due to bad or indifferent financial proposals. It has been remarked several times to-day that very little criticism has really been offered on this Budget, and that it has been accepted both by the House and the country with a kind of unanimity. I think the explanation to that was given in the very thoughtful speech of the hon. Member for Oxford University (Sir A. Salter). The Budget was introduced under a very serious cloud that is overhanging this country and Europe generally, and I think the feeling of most people is that anything we say in this House about this Budget will make very little difference. If we are going in for rearmament, as most people are agreed that we must under present conditions, it must be paid for, and we must shoulder the burden, whatever its nature.

But I would like to draw attention to one or two very startling features of the Budget. It has been described as a war Budget introduced in peace time. I do not know how far hon. Members realise the truth of that very serious statement. I have taken some trouble to compare it with the Budgets of the War years. 1 was astounded to find, for example, that the Budget of 1916–17 amounted to £573,000,000. The first time that a Budget approached the figures we are dealing with now was in 1918–19, when it amounted to £889,000,000. But we must correct those figures, because of the tremendous change that there has been in the purchasing power of the people since then. In 1919–20 the Budget reached the remarkable figure of £1,339,000,000; but the price level then was 256, and on 1st April this year it was 154. If you correct that, the staggering conclusion is, that our present Budget of £944,000,000, at the price level of 1919–20, would amount to £1,569,000,000. It is no exaggeration to say that this is the biggest burden that has ever been introduced into this House. I think the comparison is perfectly fair, because the burden with a lower price level is all the heavier for the community. During the War years the fourth Budget of Sir Austen Chamberlain stood at the figure of £1,339,000,000, and the first Budget of Sir Robert Horne stood at the figure of £1,425,000,000. If you correct the figures of this Budget according to the price levels of those years, you will find that it amounts in the one case to £1,569,000,000, and in the other to £1,481,000,000. It has been remarked more than once that this Budget is even greater than any War budget of which we have any experience.

It will be said, of course, that during the War they borrowed extensively; but the Government are borrowing, or contemplating borrowing, pretty extensively still. The Chancellor admitted, in introducing the Budget, that the extent of future borrowing was very problematic, and probably very considerable. Another interesting fact is that we have been able to bear these increasing burdens because, on the whole, the national income has been growing. Recent Budgets have been introduced at a time when the national income is mounting, and consequently the real burden on the community has not been felt. That is one reason for the confidence that is felt over the introduction of this Budget; it is based on the assumption that this good trade will continue. But what evidence have we that the increase in the national income is going to continue at the pace at which it has been increasing, so that we really do not feel the extra burden imposed on us by the Budget? The Chancellor was perfectly frank in his reference to this problem. He said that he had a surplus as the result of the correlation of three accidents. He said, first, that the revenue had increased, and, in the second place, that very considerable saving had been made on unemployment, and he pointed out, thirdly, that the Supplementary Estimates which were budgeted for did not really mature. As he himself admitted, the surplus is entirely due to the presence of these purely accidental conditions, which are not likely to recur. He said that we could hardly expect that three circumstances so favourable to the Chancellor could be expected to recur in this year of grace.

Another indication which he gave that the position was not as good as it has been, was that the first six months of 1937 were considerably better than the second six months. There was evidence of some recession in trade during the latter half of the year 1937, and the serious question for the House to consider is whether that recession will continue? Are we facing a slump or is the recession going to disappear again? We have not received a very great deal of evidence from the Budget. The yield of the Income Tax, as the right hon. Gentleman admitted, was very remarkable, and he is budgeting for a very considerable increase this year. The return on Surtax he contemplates will increase again, but be pointed out one feature that was disappointing, The income from Stamp Duties showed a very considerable decline upon the estimate made 12 months ago, and instead of yielding £29,000,000, it yielded only £24,000,000. He remarked that in his Budget estimate this year he was only contemplating that he would receive the same amount as he received last year. The Stamp Duty is one of those pieces of evidence which show which way trade is going, and if the Stamp Duty proves disappointing it is generally a very good index of what is likely to happen in industry in the future.

I am very glad, as are most hon. Members on this side of the Committee, that the Chancellor of the Exchequer refused to bridge the gap of £30,000,000 by means of further borrowing. We heard a great deal yesterday from the hon. Gentleman the Member for South Kensington (Sir W. Davison) about the comparative advantages of borrowing as compared with taxation, and he suggested that part of the burden should be thrown upon future generations. It is very doubtful really whether you could throw any part of a burden of this kind upon future generations, and, as an hon. Friend pointed out to-night, the morality of the thing is also very doubtful. Money that is borrowed is taken presumably from savings and is put into armaments. If it were not taken for that purpose it would be used in productive industry generally. We would really lose the commodities which would be produced under ordinary conditions and consequently people would either have to go without such commodities or pay a higher price for them.

When money is put into armaments, as the hon. Member for Oxford University pointed out, it does not produce a saleable commodity. We are not producing shells and guns in order to sell them, but in industrial production we obtain a return for our products. When we put money into armaments we do not expect any economic return. We put it into armaments because we expect that we may make life in this country a little safer than it is, but that is a very doubtful proposition, as was pointed out by my hon. Friend the Member for Bishop Auckland (Mr. Dalton). If the Government borrow money and put it into armaments, that money is taken from productive effort and consequently causes an increase in the price of commodities to the people who require them. I do not suppose that we are patriotic enough yet to allow the Government to borrow money and pay no interest upon it. The people who are deprived of the opportunity of getting these goods which would normally be produced have, in addition, to pay taxation in order to provide the interest for the people who have lent them the money, and therefore they are doubly penalised. They are penalised, in the first place, because they do not get the goods they would otherwise have obtained, and secondly, they have to pay interest on the money that has been borrowed.

There is another very serious aspect of borrowing, and we saw a great deal of it during the late War. It always leads to a redistribution of wealth. I do not know that anything has ever been done to redistribute the wealth of this country as was done by the very extensive borrowing during the late War. It redistributed the wealth in the wrong way. It made the rich people richer. A lot of people during the late War made money out of munitions and in other ways, and then lent their money to the Government and consequently obtained a permanent lien upon the resources of this country although their wealth was made during the time that the country was struggling for its very existence. Consequently, there is nothing to be said at all in favour of borrowing generally.

I join with other hon. Members in congratulating the Chancellor of the Exchequer upon getting this money by direct taxation as far as possible. We on this side of the Committee would have liked to have seen the whole of the gap filled by some form of direct taxation. There is nothing to be said, speaking generally, in favour of indirect taxation. I do not want to say anything about the Tea Duty except that an indirect tax is always a bad tax. It taxes the poor more than it taxes the rich. Those who will suffer as a result of the addition to the Tea Duty will be those who buy their tea not by the lb. or 10 lbs., but by the ounce. They will either get an inferior article or have to pay much more than the 2d. per lb. which the Chancellor of the Exchequer is demanding. The Exchequer does not receive all that is paid, and, as has been indicated already, it has all the disadvantages of bad taxation inasmuch as it is not an equal burden upon the whole of the community. I have tried to point out that we have no clear evidence to lead us to believe that the future income of this country will grow, and consequently this Budget will be a greater burden than was the Budget of last year. Not only is more money required but income is likely to shrink.

Is there any evidence that unemployment will be less? Last year we saved £8,500,000 on unemployment, and, as has been pointed out this afternoon, there was considerable mystery about this saving. How we managed, with unemployment mounting up, to save as much as that remains, until the Chancellor of the Exchequer answers to-night, something of a problem. If the recession is going to continue we shall have more people unemployed, and on that account there will be less saving this year than there was last year. The last point which the Chancellor of the Exchequer made was that the Supplementary Estimates last year did not mature and consequently he obtained a surplus as a result of these three very favourable circumstances. He admitted the other day that Supplementary Estimates are bound to be introduced this year and that we are bound to spend much more than that for which he has really budgeted. If we take the Budget in true perspective, I do not think we can be as enthusiastic as the last hon. Member who spoke appeared to be. The burden is much heavier than it has ever been before. Before 12 months have elapsed I am sure that we shall realise that the Chancellor of the Exchequer has introduced a Budget that has placed a very considerable strain upon the economic resources of this country, and whether it will achieve the purpose that he has in mind, that of making us feel sure of our position, is, as several hon. Members have indicated, a very doubtful proposition.

9.15 p.m.

Mr. Godfrey Nicholson

As might be expected from an economist, the hon. Member for Wrexham (Mr. Richards) has made a most thoughtful speech. I agree with a great deal of what he has said but, again, as might be expected from an economist, he is looking at economics from a purely theoretical point of view. He asserted that high expenditure on armaments has led to a shortage of commodities and a rise in prices. In actual fact I would ask the Committee whether there is a shortage of commodities? There is not. With regard to the rise in prices, they can be directly traced to other causes. I am suspicious of economists, because it so frequently happens that they are wrong. They always involve a subject in a mass of figures. When I found an economist like the hon. Member speaking of receding recessions, it took me into the fourth dimension, and I could not follow him any further.

Reference has been made to the fact that there has not been much serious criticism of the Budget. I think we are all agreed that there is very little that can be said in the way of intelligent criticism of the financial side of the Budget. I do not, however, want to dwell so much on the financial side as on the psychological aspect. It seems to me that one of the main objects of this Budget was the psychological effect that it would have abroad. I think that effect has been magnificent. It has proved British determination at a moment when the dictator countries have been sneering and jeering at this country for our lack of character and our lack of determination. It has proved that the taxpayers of this country even the poorest, are willing to shoulder the burden. I hope, incidentally, that hon. Members opposite will not think us unsympathetic in regard to the Tea Tax. We must all feel the greatest sympathy with the very poorest who will be called upon to pay this tax. It was a most courageous act on the part of the Government that they should willingly court such unpopularity and I respect the Chancellor of the Exchequer for deliberately imposing this tax.

Apart from the psychological effect of the Budget and its reception abroad, I would ask the Committee what is its effect in this country. I can imagine every taxpayer saying: "This is a war Budget," and asking himself "Are we getting value for this immense taxation that we are called upon to pay "? If finance and taxation are on a war footing, surely the taxpayer has the right to demand that production should be on a war footing. The unfortunate elector who if war comes will be called upon to fight, has been promised again and again that value would be given him for this vast expenditure. The gravity of the situation seems to me to reside in this fact that the taxpayer does not know what value for money he is getting. The whole subject is wrapped in secrecy and mystery. The taxpayers do, however, know that air parity with the largest Continental Power has long ago gone by the board, and they are asking, "Have we any sort of parity in defence? "

I am trying to trace the reaction of the ordinary taxpayers to this Budget. I wish the taxpayer could be assured that the gap that exists between ourselves and Germany in this matter is being lessened and not widened. The questions which I have suggested will, I am sure, be asked in the country when the implications of this vast expenditure are properly understood. The one crucial thing that the taxpayer will want to know will be: "Is time on our side or is it not?" Every elector has grave doubts about air supplies, anti-aircraft material, Army rearmament, and other Defence matters. There are certain facts that are becoming known in this House and outside. There is very grave disquiet in this House and widening circles of disquiet outside. Anyone who has contact with industry, especially with industry that is contracting for the Defence Departments, is getting this terrible contagion of anxiety, and I cannot help feeling that we are on the eve of a very great agitation. It would be deplorable if we gave the impression of national disunity. We have our proper method of settling our political quarrels, and that is to turn out one Government and put another in its place at a General Election. Every Opposition is bound to do its utmost to bring that about, but it could only result in most grievous results abroad if there were grave agitation or grave disunity in this country upon such a fundamental question of national policy as rearmament, on which we are all more or less united.

I think that what I have been saying is germane to the Budget, because one of the best ways to avert a serious crisis is for the Treasury to concern itself with supply. The Chancellor of the Exchequer made a magnificent speech, which was convincing, calm and simple, outlining this enormous taxation and expenditure and telling us amid general assent that Supplementary Estimates will also be essential, but there was not one word about the inevitable duty of the Government to see that the taxpayers' money is well spent. I do not attach much importance to vague talk about economy. The vast business of supply that is being undertaken by the Defence Departments and the vast orders that are being given are beyond the scope of the Civil Service, and I would ask the Chancellor of the Exchequer to see to it that the Treasury uses its influence so that business men are co-opted to deal with this question.

I would sum up by saying that in my opinion we are on the eve of a crisis. It would be most undesirable that there should be a crisis at this time, and I doubt whether even the most embittered party politician would welcome it. There is only one way in which a crisis can be averted, and that is to give the country the sure knowledge that the best financial brains in the Government are turning their attention to this question of getting value for money spent, and I maintain that that can best be done by the Treasury concerning itself with the question of supply. I ask for that assurance from the Chancellor of the Exchequer.

9.24 p.m.

Mr. Graham White

The general anxiety to which the hon. Member has just referred is one of the reasons why a large portion of our time on the Budget has been devoted to matters which seem more like discussions of foreign policy than the normal Budget discussions that we have had in former years. Indeed a stranger to the House who had not seen the Order Paper might have imagined that he was listening to one of those Debates which have been so frequent a feature of the present Session. I do not propose to say any more on that subject than this, that if the object of our foreign policy has been to strengthen our present friendships, to make new friends, and to convert an anxious and ever-more-heavily armed truce into an abiding peace, then our policy for the last six years has been an unmitigated and, up to the present, unrelieved failure. Of that there is no question whatsoever. As to what degree our share of responsibility for the lamentable sequence of events in the last six years must be shared with others, is a matter of opinion. What, for example, is the responsibility of the United States of America because they did not enter the League of Nations which they did so much to form and because they failed to implement the joint guarantee with ourselves to France, which led France into a course of policy which made reconciliation with Germany impossible? These are matters on which we must form our own opinions, but which I do not propose to pursue further at the present time.

The consequence is that we are now discussing a Budget in which we are considering how we ca.n divert from the normal processes of industry and peace not merely the surplus of our wealth and our technique, but an ever-increasing proportion of those elements in our national economy towards the processes of Defence. It is indeed a grave and grim task to which we have to devote ourselves, and we are not encouraged by the practical certainty that over the next few years the task is likely to become harder and harsher as we proceed. It has been indicated by the Chancellor of the Exchequer that two or three years from now we shall be confronted, in spite of these proposals, with a situation in which we are left with a vastly increased debt and a possibly declining trade, coupled with falling receipts from the existing measures of taxation. That situation, if it is accompanied by declining employment, will inevitably be followed by a demand for fresh expenditure for constructive purposes, to replace the declining expenditure on armaments—a demand which no Government will find it possible to refuse. The demand will come in this form: Over all these years we have been borrowing and taxing ourselves to find money to strengthen our defences, and surely we cannot and must not refuse expenditure for the purpose of providing work for those who are unemployed. It is then that the real test of our financial system will have to be faced.

In these circumstances and in this crisis I do not think that any valid criticism will be heard—and I have heard none in the course of this discussion—against the proposal of the Chancellor of the Exchequer to fill the gap by means of taxation. There is nothing to be said, in my judgment, against the common sense and the logic, and indeed the justice, of that proposal, whatever differences of opinion there may be about some of the items of the taxation proposed in order to fill the gap of £30,000,000. The Chancellor, like many of his predecessors, has referred with satisfaction to the willingness of the taxpayers to pay the imposts laid upon them. It has been indeed an example to other countries, and a great source of strength to our finances in the past.

It is for that reason, among others, that I associate myself with the plea that has been made for some form of examination into our present expenditure. Whatever the amount of that expenditure, the taxpayer will continue to pay willingly, provided that he clearly sees the object and the necessity for it, and is convinced of its justice. It is essential, therefore, that nothing should be done that might lead to the suspicion in the minds of taxpayers that there is waste, or that exorbitant profits are being made, either out of armament contracts or anything else. The Financial Secretary to the Treasury said last night that he could hardly believe his ears when a request of that kind was made by my right hon. Friend the Member for Caithness and Sutherland (Sir A. Sinclair). Well, if I may say so, I think his ears are likely to be burdened with requests of that kind not only from these benches but from other parts of the House, and in the interest of preserving the taxpayers' confidence and willingness to pay, I hope he will accede to the request, because there is a grave and rapidly growing suspicion that undue profits are being made. Furthermore, we know that improvisations are taking place in many services, and experimental steps are being taken, and there is undoubtedly a feeling that much of the money which is being spent is not being spent to the best advantage.

There is also another aspect of the question. From these benches there has frequently been a request for an objective survey of the social services in order to find out whether there is any overlapping and any expenditure which is not being properly devoted to the purposes of which those services have been instituted. One's memory goes back over the last 18 years and sees how those services came into being—one Department after another, not always in complete co-operation one with another. They are out of step in many directions, and if there is no room for improvement and for greater efficiency in those services, in the language of the Prime Minister at Birmingham I would be inclined to say that I would eat my hat. The inquiry of which I have spoken might either be an inquiry on the lines of that presided over by the present Lord Samuel on expenditure during the War, or it might be some extension of the activities of the Economic Advisory Committee. The hon. Member for Bishop Auckland (Mr. Dalton) referred to the Unemployment Assistance Board. One of the first things to which any committee of inquiry might direct its attention is the growing expenditure, bordering on a scandal, on the administrative expenses of the Unemployment Assistance Board.

Mr. Dalton

I am anxious to know what it is the Liberal party propose. This afternoon I asked a colleague of the hon. Member whether the proposed Committee was to take cognisance of the social services, and the answer I got was in the negative, that it was to deal entirely with matters of Defence. If I understand the hon. Member, he wishes this committee to examine the social services of the country with a view of co-ordination, and in some directions a reduction in expenditure.

Mr. White

There is no difference between my hon. colleague and myself. I am not wedded to any particular form of inquiry, and we have in mind no other purpose but the protection of the social services, to see that they are made more efficient, and that every penny is devoted to those purposes. But the hon. Member for Bishop Auckland raised a point of great substance in regard to the item of a saving of £6,500,000 in Unemployment Assistance Board expenditure. I have made some attempt to check the matter, and I think I can see the possibility of a reduction there of some £2,000,000, due to transfer of unemployed persons to standard benefit. I should like to have a fuller explanation from the Government as to this saving. But let me return to my point about the administrative expenses of the Unemployment Assistance Board. In 1922 there were 988,000 persons who, having lost their benefit, were receiving weekly payments administered under the transitional arrangement. The cost of this administration per annum was £3,386,000. In 1933–34 there were 951,000 persons receiving weekly payments, and the cost of the administration was £3,740,000 per annum. The Unemployment Assistance Board took over in 1936–37 and the number of their clients was about 600,000. The cost of administration was £4,434,000. In response to a question it has been ascertained that the annual expenditure is now at the rate of £5,000,000 per annum, although the number of cases under the Unemployment Assistance Board has fallen below 600,000. There is, therefore, an expenditure of at least £2,000,000 more in this matter than would have been necessary if the transactions were carried out under the old regime. That is a matter which calls for examination and inquiry by such a committee as we suggest.

Other items of inquiry might include the enormous and rapid increase in the deposits in the Post Office Savings Bank, a very admirable and proper financial operation which illustrates the increased saving capacity on the part of the community as a whole. But not entirely; because many people who are over the £500 standard, attracted by the 2½ per cent., are multiplying their accounts and, therefore, defeating in some measure the purpose for which the bank was instituted. It might be the subject of an inquiry whether on all these extra accounts there should not be some modification of the interest. It does not require much imagination to see that the accumulation of vast sums in the Post Office Savings Bank, not by people who put them there as savings, but by people who put them there for convenience, might mean that if they were to be called for at short notice it would have a considerable effect on market securities and Government credit. These are things into which a committee might very well inquire with general advantage to the strength of our financial economy.

I have little to say about the minor items of the taxation proposed. I like the proposal to put the tax on power alcohol, the consumption of which has risen so rapidly in the last 10 years, on the same level as the Petrol Duty. If the Chancellor of the Exchequer had failed to do that, and if we failed to ratify his intention, we should have been guilty of one of those "partial affections" from which we daily ask to be preserved. I want to say something with regard to the Tea Duty. Tea, it is said, is a promoter and a supporter of small talk, but I want to say one or two serious words about this duty. Two years ago the Prime Minister, who was then Chancellor of the Exchequer, increased the Tea Duty and got £3,000,000. I think that this year the sum of £3,000,000 might well have been found in some other way. I have spoken of the urgency of preserving the willingness of the taxpayer cheerfully to carry these burdens. The Chancellor of the Exchequer is proposing to give remission of taxation, very properly as I hold, in respect of depreciation allowances, but while he is proposing to do that for companies he is proposing to take from the poorer members of the community a further sum by this additional tax upon tea.

I think we should steer clear in our financial transactions of anything which is going to lead to dissatisfaction on the part of the taxpayer on the ground that something which he conceives to be unjust is being carried out. Two years ago the Prime Minister said he was anxious that some small impost towards the cost of Defence should be placed upon every household in the country. On that occasion I pointed out that that was precisely what the Tea Duty would not do. Nor did it do that. This year, the Chancellor of the Exchequer has a somewhat similar object in mind. I have returned to this matter because some figures that were quoted by the Financial Secretary lead me to suppose that his advisers are imperfectly acquainted with the nature of the tax and its consequences. The Chancellor said that he thought that even in the humblest homes there was some pride in bearing part of the burden of Defence. The right hon. Gentleman may be right, but I confess that that is not what I have found in going about among the humblest homes in my division. I have found there a sense of mystification and bewilderment as to what has come over the world. People feel that they are threatened with another war. They have hardly forgotten the last War and they do not know what they got out of it, or what will be the consequences to them of another war.

The misunderstanding which arises on the Tea Duty is due to the fact that, it is not realised that the result of the imposition of this duty is that only the poorest people and those who buy the cheapest sorts of tea pay the additional tax. Not more than 50 per cent. of the people paid any advance in the price of tea last year which arose from the tax. What happens is that the poorer people pay more than 2d. per lb. advance, because the result of the imposition of the duty is to increase the demand for tea of the cheapest blends. The advisers of the right hon. Gentleman are apparently unacquainted with the fact that people do not buy tea according to its quality so much as by its price. Those who have been accustomed to buy tea at 2s. 4d., or 2S. 8d., or 3s. per lb. will continue to buy tea at that price, but the unfortunate person who buys tea at a price which leaves to the blender no margin for giving anything away has to pay the whole amount of the increase of the duty. What happened last year was that the diversion of demand from the more expensive qualities of tea to the cheaper qualities sent the prices of the cheaper qualities up, with the result that the prices of those cheaper qualities rose a great deal more than the amount of the duty. Last night the Fnancial Secretary said that the consumption of tea is, on the average, 9½lbs. per person per annum and that the increase in price as a result of the imposition of the additional duty would be 1s. 6d. a year per person. The experience of last year goes to show that the impost would not be 1s. 6d. a year but 4s. a year, owing to the concentration of the demand forcing up the price of the lower-quality teas. The figures which the Financial Secretary gave bore no relation to the facts of last year, nor I think do they bear any relation to what may happen this year.

There is another consequence which will flow from what I regard as an unnecessary and thoughtless transaction. I have spoken at length on this matter from the point of view of the consumers, but it will also affect the planters of tea in India and Ceylon. Tea is not a commodity the consumption of which is increasing, and it has to compete now with a large number of other beverages on many of which large sums are spent in advertising. The result is that the planters have been having a very poor time. It is true that it is an ill wind which blows nobody any good, and that some of the plantations which grow the cheaper types of tea have gained some advantages as a result of the taxation last year. However, the industry as a whole will suffer from the taxation which is now being imposed. At a time when it is difficult for them to maintain the demand for their product, an increased price will tend inevitably to lessen consumption. Moreover, there are considerable quantities of cheap and inferior qualities of tea produced in Japan and China, and one of the consequences of the increased taxation will be to bring those teas into this country, to the detriment of the plantations carried on by British capital and labour in Ceylon and India. From no point of view is there any advantage to be derived from this tax. I feel that the transaction is one which has not been understood by the Committee. Apparently, the additional tax has been imposed without any true conception of what are its true implications and what will be its consequences.

Apart from these smaller items of taxation, I agree that the Chancellor of the Exchequer has adopted the proper course by filling the gap as far as possible by taxation, and by continuing the process which was begun last year of diverting the main flow of taxation to direct taxation. I hope there will be no question of interference with the social services, for nothing would do more to destroy the willingness of the taxpayer to shoulder his burdens than any attack on the social services. It is sometimes not realised how monstrous such an interference would be. In the early days of the social services, a very considerable proportion of the annual capital expenditure upon them was derived from the direct taxpayers, but that position has been altered, and the old age pensioners, those who benefit under the contributory pensions scheme, the Unemployment Act and various contributory Acts, by means of indirect taxation and the contributions they pay, themselves pay for the benefits which they get. That is an additional reason for there being no talk, even in the "Times," of any attempt to attack the social services of the country. We are faced with grim and harsh possibilities in the coming years. The budgetary proposals can be lightened only by pursuing a policy of economic appeasement and a policy of friendship with other nations, which we earnestly hope may follow upon our efforts.

9.55 p.m.

Mr. Lees-Smith

One of the most striking features of this discussion has been how little interest has been created by the immediate position and how much interest has been created by the prospect which the present financial situation holds out for the future. There has been, in addition, an unparalleled feature in the Budget to which I would specially call the attention of the Prime Minister because it has not been possible for him to be here practically all the time as some of us have been. The unparalleled feature is that, as far as any immediate issue is concerned, the Committee has not shown any wish to discuss the Budget itself but Member after Member has desired to discuss the question of air defence. It has been remarkable to note not only the number of Members who have dealt with that question, but also the response to their remarks from both sides of the Committee. A good example was the short but powerful speech of the hon. Member for Farnham (Mr. G. Nicholson) and it must be clear to anyone who has listened to the Debate that the House of Commons is working up to a very serious Parliamentary situation in which both sides will take part. I shall not say more upon that subject now because it is bound to figure largely in our Debates during the next few weeks.

When we come to the financial side of the Budget, a large part of the discussion has been concerned with the effect which borrowing may have upon our future financial situation. I think that, on this subject, the Chancellor of the Exchequer has received a certain amount of undeserved commendation from purists in finance. To me, the right hon. Gentleman has not presented that picture of austerity which other Members have claimed to find in the lines of his countenance, as indicating the inner meaning of his character. As a matter of fact the right hon. Gentleman is maintaining the borrowing of his predecessor and is adding to it this year further borrowing, as to the amount of which he has given no clue but which is bound to be substantial. It is claimed for him that he has not, in addition to that, gone as far as to borrow for the current expenditure of the ordinary Budget. The fact that he has not done so has not surprised me, but on this subject of borrowing I am led to reflect how exceedingly short-sighted and self-contradictory and really anti-national, can be the advice given by the City of London when its own interests are immediately threatened.

On this question of borrowing there has been in this discussion a note which has caused me some anxiety not about the immediate future but about what may happen one or two years hence. There has been a great deal of discussion about a committee to investigate finance, and more than one hon. Member has suggested that one of the subjects which such a committee should investigate is the whole question of whether there is waste in the social services. Looking ahead a year or two there seems to be some danger that the Government are working up to a situation in which we shall be confronted with another committee of the nature of the May Committee. That being so, it is worth while pointing out now that, whatever happens, there will be no excuse for cutting down the social services. This is a point which was made briefly by my hon. Friend the Member for Wrexham (Mr. Richards), but it has not been developed. The method by which the Government are financing this rearmament expenditure means that the social services are paying in advance. That is what borrowing leads to, as I shall explain.

If we leave aside expenditure on armaments, the two main forms of expenditure by the Government are interest on the National Debt on one side, which goes mainly to what one may call the investing class, and on the other side expenditure on social services, which goes to the mass of the people. If you borrow and increase the National Debt you increase the amount which has to be paid year by year, in interest on that debt, to the investing class, and you curtail the amount which is left for the social services. The Financial Secretary last night, in discussing the effect of borrowing, said what was rather a truism, namely, that it threw the burden upon future generations. He argued that there was some justification for doing so. But it does more. It alters the balance of expenditure between what is, on the whole, the wealthier class, and the poorer class. This is illustrated by the present Budget.

More than one hon. Member has taken it for granted that the main if not the sole cause of the very high taxation which was in existence before the special rearmament programme began, was the greatly increased expenditure on education, housing and social services, and of course newspapers have published long series of statistics showing the percentage of that increase. But that is an incorrect picture. I have got out the last figures published on the subject of the social services —those for 1936—and I find that for the social services the actual amount spent was £230,000,000. I find from the financial White Paper just issued that the amount to be spent this year on the interest on the National Debt is £230,000,000. So the two cancel each other out—and this is the ultimate cause of the necessity of such procedure as the appointment of a May Committee.

What is the cause of the main difficulty of our present financial situation? It is this, and I bring it to the attention of the Committee because the Government are repeating it. It is that during the War we conscripted life but we borrowed capital at very high rates of interest, with the result that every Budget since has been burdened with the equivalent of an Income Tax of between 4s. and 5s. in the £ which had to be paid to the holders of the National Debt before a penny was available for any social services. It was a first charge. I feel pretty convinced that if we are ever faced with the calamity of another war, that method of financing it will not be followed again, because it does make the poor pay for the war, and it does not hurt the investing classes. They get a higher rate of interest for their money than in times of peace, but the poor pay for the war by the curtailment of the improvement of their standard of life, and if borrowing in time of war for war has this result, the results are equally unfair and equally calamatious to the mass of the people when you are borrowing, as you are at present, to deal with the contingency of war. That is why this process of financing which the Government are operating is already meaning that the social services will eventually be curtailed in order to meet the unbalanced Budgets of the present time.

It may be said that this is a comparatively small matter, but this is, as a matter of fact, the background from which the Chancellor of the Exchequer should have viewed the situation when he put on this extra Tea Duty. There is no reason to put on a Tea Duty in order that the poor may pay their share. The right hon. Gentleman is already ensuring that the poor shall pay for this rearmament expenditure by his method of financing it, in the curtailment of the social services of the future. When he goes on to say that the reason for this duty is that the old age pensioners and the unemployed want to have the feeling of pride in taking part in this rearmament expenditure, really he has sunk to absolute bathos, and bathos which is the result of a financial miscalculation, because, as a matter of fact, the unemployed and the old age pensioners with incomes of less than £2 a week are already, through indirect taxation, quite apart from the Tea Duty, paying a larger percentage of their income in taxation than are those small professional classes whom the Chancellor of the Exchequer has selected for special favours and concessions in this Budget.

Undoubtedly the most foreboding things have been said in the last few days in regard to the problem of a future Budget, but the problem is not insoluble. Many hon. Members have given the impression that it is insoluble, that we shall have £1,000,000,000 Budgets and so on. In the very striking maiden speech of the hon. Member for Hastings (Mr. Hely-Hutchinson), he gave the impression that the problem is insoluble, and he left it at that. But, as a matter of fact, it is not quite so bad as that, because it is not a problem of the national wealth. The national wealth is increasing year by year owing to the development of science and invention. It is simply a problem of the Budget, of how to secure for the Revenue the necessary amount of the national wealth, which is in fact increasing, and the reason for our difficulties in all these Budgets is that at present every Budget has an expenditure side which is lopsided on account of this method of paying for the war, lopsided in the sense of the enormous amount of that expenditure side which goes to the investing classes which hold the National Debt. That is at the background of every problem with which we are taxed, and if the war had been financed differently, we should not have had that problem at all. Therefore, I draw the conclusion that it will not only be inevitable, but that, taking class with class, it will be fair that the investing class shall, when the time comes, be called upon to redress the lack of balance of the Budget which their treatment in the past has created.

That leads me to this conclusion: When I first began to pay Income Tax, there was a great distinction drawn—in fact, there were two different scales—between tax on earned income, which was held, with a certain amount of justification, to be a tax on enterprise and industry, and tax on unearned income and Death Duties, which were held to be taxes on the more inactive factors in the production of wealth. There was a difference in the actual scales, because it was generally held and recognised that you could raise taxes on the inactive factors much higher than the taxes on the active factors without any adverse repercussions on the production of wealth. But that system was altered, and we now have one scale, with exemptions, with the consequence that at present unearned income pays a smaller proportion of the total Income Tax today than it did up to the year 1921. If you look at the Financial Statement, you will see that when you come to incomes above £3,000, there is very little appreciable difference between the amounts paid by the unearned and the earned incomes.

If there was a Government in power which was willing to face the effects upon the redistribution of wealth to which it would lead, it would be found quite possible for that Government not only to lower the standard rate of Income Tax and encourage enterprise in industry, but to obtain enormous sums of fresh taxation from the taxation of unearned incomes and from Death Duties, which I see even Lord Beaverbrook's organs are now demanding should go up to 80 per cent. The limits of taxation have not been reached, and the problem is soluble along those lines by what is, after all, the very sensible process of readjusting the balance of taxation as between the active and the passive factors in the production of wealth. It is feared that if this were done, if we attempted to balance the Budget along those lines, it would have the most far-reaching results upon the distribution of wealth in this country. That will certaintly not deter a Government representing my hon. Friends, who would welcome these results for their own sake.

I come to some of the estimates which have been made about future Budgets. If the Government do not carry out some such changes as I have been talking about, what are the prospects for the future? The Chancellor of the Exchequer told us that the peak of the armaments expenditure would be reached next year, or possibly the year after. When that has been done and when it is over, the general presumption is that we shall somehow or other be able to resume something in the nature of the normal expenditure which we knew before. I pointed out last year that if we take into account the increased maintenance charges on the increased level of general armaments, the possibility of a rise in the rate of interest increasing the amount necessary for Treasury bills, the automatic increase in the Civil Service, and the increased interest which will have to be paid upon the money we are borrowing now, there is not really any prospect of a reduction of taxation to much less than we are paying to-day. The hon. Member for Hastings gave estimates showing that the taxation would amount to a Budget of £1,000,000,000 a year. That is only £30,000,000 less than the taxation in this Budget and the amount raised by loan put together. So there will be no great deduction.

There is another change in the situation. The Chancellor of the Exchequer made some striking references to the downward trend of trade—a reference which was in striking contrast to the admonitions and reproofs which used to be addressed to speakers on these benches when they made exactly these predictions a year ago, and a reference, I may say, which certainly makes the Prime Minister's description of those who made these predictions as "dismal jimmies" and prophets of gloom "short-sighted and, indeed, rather silly considering the situation. If we are on the downward trend of trade, then the expenditure will go up and the revenue will go down, and if the Government cannot balance the Budget in a period of boom, still less will they be able to balance it in a period of slump.

If I were a supporter of the Government or, indeed, very much in love with the present distribution of wealth in the country, I should regard this Budget with very great disquietude. The Government came into office in order to correct the cumulative increase in the National Debt. They are now themselves increasing the National Debt at the rate of about £100,000,000 a year. They came into office to correct the balance of trade, but there is now an adverse balance of trade as high as it ever has been since we abandoned the Gold Standard. They came into office because there was a deficit on the Budget, but that was in a time of slump. They have created a record. They have a deficit in a time of boom. No Government has ever done that before. They came into office because there was a debt of £80,000,000 on the Unemployment Fund. They have a debt of £90,000,000 for rearmament this year.

The curious thing is that in the last two days of Debate, faced with the necessity of creating debt, speakers upon the Government Benches have developed a new philosophy of finance, in which they point out that you must arrange your finance for a whole trade cycle; so that this actual process of raising debt in times of slump, for which we on this side were condemned, has now become, according to many Government speakers, a very sensible method of financing the country. The fact is that every canon of finance to maintain which this Government was formed now lies shattered at its feet. My experience is that one of the reasons for the change which we have witnessed in the last by-election or two is that the Government are no longer able to use their financial record as an offset to the unparalleled series of humiliations into which they have led us in the field of foreign affairs. Indeed, I see by this morning's newspapers that the Prime Minister, like Napoleon at the Battle of Waterloo, is calling out the grizzled reserves of the old guard. He is throwing his Cabinet into the by-elections.

Mr. G. Nicholson

It was Wellington who said, "Up Guards and at 'em."

Mr. Lees-Smith

I should never compare the Prime Minister with Wellington. I know the answer which hon. Members have, in their own minds, to all that I am saying. They say, "We are living in difficult times; it is the foreigners who have let us in for this." "The foreign situation" is the answer. Every Government has its own difficulties to face. This Government has had the foreign situation. The late Labour Administration had the economic blizzard. I say that it was far easier for this Government, earlier on, to have influenced the European situation than it was for any Government to influence a world economic blizzard. I see a change in the speeches made on public platforms by speakers representing the party opposite. For years the old argument has been, "Judge the Government by its financial results." The Government are now being judged by their financial results, and those results are that there is not a single member of the Cabinet who can now foretell when we shall ever again see a balanced Budget.

10.25 p.m.

Sir J. Simon

I agree with the right hon. Gentleman who has just spoken that the Debate we have had as a preliminary canter on the Budget of the year has had some very unusual features. I agree with him, too, that the actual proposals of the Budget did not, on the whole, arouse as sharp a challenge and contest as Budget proposals sometimes have done, in view of the fact that the discussion at this early stage has been occupied with wider issues and more general considerations. I am afraid I cannot deal now with the large issues reviewed by the right hon. Gentleman. I hope to take an opportunity of saying something about them in one of our discussions later in the course of our financial Debates, but as I was responsible last Tuesday for putting forward some definite proposals and have been asked quite a number of questions, I must use the time primarily in order to answer some of those questions.

I would say, first, that I admit that the Budget proposals have not had a wildly enthusiastic reception. It would have been very odd indeed if they had had. It would be unusual, when you had put forward a proposal to take £30,000,000 by taxation notwithstanding that there is authority to borrow the money, to find the taxpayers get up and cheer. I never ex- petted that anything else could happen at this early stage except that a good many people would feel that they had been administered a shock. The shock was no doubt the more severe because a great many people, authorities and pundits of various kinds, appeared, to my astonishment, quite confident that no such shock was in store. I, therefore, accept with gratitude the complimentary reference made by the right hon. Gentleman the Member for Caithness and Sutherland (Sir A. Sinclair) in this particular matter. He was good enough to describe me as austere but honest. After a cold douche, if the individual is a fairly healthy man, there is a reaction. In fact, there has been—I will not claim more than this—a return of circulation and a very greatly improved sense of confidence, although, of course, I do not for a moment suggest that these chilling proposals can produce the warm flow of content which one would like to see.

It would not have been at all surprising if the response to these proposals had indicated a much more widespread and unfavourable reaction than they have had. I am grateful to hon. Gentlemen in all parts of the Committee because they have, with great fairness and great kindness to me, recognised that I have tried to take a perfectly straightforward course in this matter. I told the Committee to the best of my ability as plainly as I could what I believed the situation to be, and I think that the Committee and the country have accepted in great measure the necessity of the burdens which I must impose.

There is another point in this discussion to which I attach great importance. I have felt, especially since I have had the responsibility of my present office, that there is a certain disadvantage in treating our financial problems as though they turned up once every 12 months, were discussed in a series of great Debates, and were then put to bed again until April came round again. It is a very convenient and perhaps necessary thing to have an annual Budget, but it is certainly true that we have to look beyond the year, and in that respect I entirely agree with the broader treatment which was suggested by the right hon. Gentleman opposite, and which, if I may say so, nobody could have put better than it was put by a new Member who made a most brilliant speech, my hon. Friend the Member for Hastings (Mr. Hely- Hutchinson). His speech had all the greater charm because he managed it in such a way that he did not appear to be talking about a technical or difficult subject at all, and even succeeded in making the subject interesting.

With these preliminary remarks, I want to deal with some of the points that have been put in the course of the Debate. I do not think there is now, either inside or outside the House, a very strong difference of opinion on the subject, but I wish to make it plain from the beginning that, if we look at the thing properly, we ought to recognise that the revenue of this year, on the basis of existing taxation, falls short of what is going to be spent this year in one way or another, not by £30,000,000, but by £120,000,000. It is perfectly true, and it is necessary that the whole country should face the fact, that we should deceive ourselves if we supposed that we were dealing with the smaller figure. In the same way, although I appreciate that later on we shall have some sharp discussions on methods, I think there is general acceptance of the view that methods of raising revenue must be resorted to which are well known. I willingly accept the reproach that has been made this afternoon that there is nothing imaginative in this Budget, because all experience goes to show that, when you want to deal with a difficult situation like the present, it is better to do it by the use of instruments which everyone understands. At the same time, there is general agreement that the greater part of this money should be got by direct taxation, and I am glad that that has been done, and that the matter has been so arranged that, of the £30,000,000, the greater part, namely, £22,250,000, is being got by direct taxation.

The hon. Gentleman who opened the Debate to-day was extremely critical of the proposal which I have thought it right to make that, side by side with the increase of the standard rate of Income Tax, there should be an increase in the concession on the subject of wear and tear. On that point, perhaps the hon. Gentleman will allow me to refer him to a member of his own party, who speaks with great authority on matters of business while being, I suppose, quite orthodox from the point of view of Socialist policy. I refer to the hon. Member for Ipswich (Mr. Stokes). who cer- tainly knows this subject intimately. He said yesterday: I want to refer to the proposal in the Budget to increase the plant depreciation allowance, I think, and I hope most people will think, that that proposal is an excellent one.''—[OFFICIAL REPORT, 27th April, 1938; col. 178, Vol. 335.] It would be quite an illusion to suppose that the increase I propose in the wear-and-tear allowance will operate as some people suppose it will. It does not in the least mean that large shareholders in some enterprise which employs plant and machinery are not going to bear the full rate of tax. That is not the meaning of it at all. The point is that if you have a productive business, the law will allow, before you arrive at a sum on which taxes are paid, deductions to be made. As expenses are deducted from the gross takings before you arrive at the taxable figure, the taxable figure is equally taxable whether distributed to shareholders or put to reserve. The deduction in such cases will be not 5s. but 5s. 6d. That is to say, the shareholder will have to bear the additional Income Tax, although he may get relief, of course, on proving that his taxable income does not come in toto to more than a certain sum. The relief given by way of increased wear-and-tear allowance does not come on the part of the profits which is distributed to shareholders, but the part which is put to reserve. If you do not do that, as the hon. Member for Ipswich pointed out, with his great knowledge of the subject, you are crippling industry, preventing its development and striking directly at one of the most important sources of wealth in this country. It was not, therefore, with any idea of granting illegitimate relief to wealthy shareholders but purely for the purpose of ensuring that the reserve should be kept intact, that I made this proposal, corresponding with the proposal made by Lord Snowden in 1931.

As I have referred to the hon. Member for Ipswich, I might deal with another point which he made. He made some observations on what he thought would be a better method of controlling profits on armaments. I can assure him that when he speaks on a subject of that kind, of which he has practical experience, I, and others, attend to him very carefully. He thought his proposal would be an improvement on the existing method. He thought that a more effective method of controlling profits on armaments than the methods employed by the departmental accountants would be that the firm's auditors should give a certificate as to the profits made by the companies, and that the only stipulation upon which the Government should insist was that the firm of auditors was a firm of repute and duly authenticated by the Government. We are in the happy position in this country of having a body of accountants of the highest reputation, and I know, in connection with taxing, with what pleasing impartiality the Inland Revenue regard their work; but I still think the hon. Gentleman has not completely considered the system as it is worked at present.

The impression created by his statement was that the departmental accountants make little use of the auditors examination of the books of the firm and the records they make. The normal procedure, in connection with contracts subject to costing, is that information as to wages and other costs is, as far as possible, agreed by the firm's auditors with the departmental accountants, except in certain rare cases where the bookkeeping of the particular firm is insufficient for the purpose. It would be a mistake to suppose that there is not an effective collaboration now between the accountants and the firm's auditors. But there is a case which sometimes arises which is difficult. It is the case where the task is to determine what proportion of the expenditure incurred by a firm is attributable to a particular Government contract and what proportion is attributable to the firm's other commercial activities. That often gives rise to difficult questions, and it is necessary that the position should be worked out. It must be admitted that it would not be right in a case like that that it should be determined once and for all by the firm's own accountants. I do not doubt their impartiality, but it is very desirable that there should be an independent examination in respect of overhead charges and things of that sort, and it is in this particular that there is really great need for examination. I assure the hon. Gentleman that, in the light of what he said, I am going to have this matter examined afresh because I wish, along with everybody else in this House—perhaps I have more reason than anyone else in the House—that everything possible should be done to secure that there is no failure to get the correct result in a case like this.

Mr. Stokes

In my experience there is no direct collaboration between the auditors of the firms and the Government auditors. There is collaboration between Government accountants and the permanent officials of the firms. I speak only within the orbit of my own experience when I say that there is no collaboration between the auditors employed by firms to audit their accounts and Government auditors.

Sir J. Simon

I am obliged to the hon. Gentleman. I think that I have shown him, so far from throwing aside any points which he has made, what I understand to be our present practice. It may be that in some cases there are variations, not, of course, within my knowledge. At any rate I would like the Committee to know that no amount of trouble can be too great to get this matter put right, and I am grateful to the hon. Gentleman for the suggestion he has made.

I turn to the hon. Gentleman the Member for Bishop Auckland (Mr. Dalton), who also had some observations to make on the subject of the Surtax. Here, again, I do not think that the matter has been put in the Committee by everybody to-day exactly as I see it. May I state in my own way what I believe the system to be? One speaks of the standard rate of Income Tax of 5s. 6d., but, in fact, our Income Tax as arranged is a continually ascending scale according to different amounts of income. So that if you were to spread the Income Tax over the actual income, you would find that the effective rate per £ would vary from a halfpenny in the £ at the lower end, gradually climbing up until you came to a figure as much as the full standard rate. Surtax is not a separate and independent tax. It is an addition put on the top of Income Tax. Every person who is called a Surtax payer, before he starts paying Surtax, pays his Income Tax, broadly speaking, at the full 5s. 6d. rate.

Mr. Dalton

indicated dissent.

Sir J. Simon

The figures show it. If the hon. Gentleman will be good enough to look at the Statement he will see.

Mr. Dalton

Perhaps the Chancellor of the Exchequer will allow me to quote from his own White Paper. Surtax is levied upon incomes of £2,000 a year, and if he looks at page 15 he will find that the effective rate on that sum is 3s. 9½d. rising to 4s. 6½d.

Sir J. Simon

What I was saying is perfectly right. If I may be allowed to make my statement plain, it is not exactly at that point that you reach the 5s., because even in respect of the man who is at £2,000 there are certain subtractions at the beginning. The moment you reach the higher range of income you get to the point at which the Surtax payer has added to his Income Tax, the Surtax. Therefore, if you put up the standard rate of Income Tax from 5s. to 5s. 6d., you are by that very fact automatically pushing up every Surtax payer by that amount, and he starts his Surtax at that higher level. The criticism that might be made is this: Why do you not steepen the gradations of Surtax as well as increase the standard rate of Income Tax? My answer is—it is not an answer which would apply always, but it applies now— that of all the people who had increases of taxation put upon them in the crisis of 1931, no other class of taxpayer has been kept continuously at that level ever since. Therefore, it is reasonable to say that when you are increasing the standard rate of Income Tax, which will affect every Surtax payer, you should remember that the Surtax payer has had no relief from the Surtax increase of 1931. I would ask hon. Members opposite to consider the simple facts. We all appreciate the arguments about taxation being taken out of rich people, but we ought to look at the matter as fairly as we can.

Mr. MacLaren

It does not solve any problem.

Sir J. Simon

I hope the hon. Member will allow me to make my point. There are in this country, in round figures, 100,000 Surtax payers out of a total of 3,500,000 Income Tax payers. I am expecting to get by my additional tax on the Income Tax, in a full year, £26,500,000 out of those 3,500,000 Income Tax payers. How much of that £26,500,000 will come out of the Income Tax payers who are Surtax payers—the £100,000? The answer is, £12,000,000. If I get £26,500,000 extra from 3,500,000 people, I can hardly be reproached for having been very tender because 100,000 of them are going to provide £12,000,000 extra. That is the actual situation. I think, therefore, that when these figures are understood it will be appreciated that we cannot separate these things completely. The scale on page 15 of the White Paper is continuous, working up with the present level of standard tax, to I think, 13s. 9d. I do not know how it strikes other hon. Members, but it seems to me that, whatever be the system under which we are living, a system of graduated taxation which calls for 13s. 9d. out of every £ in the way of direct taxation, cannot be described as being unduly merciful.

The next question is that of tax avoidance. My right hon. Friend the Member for Caithness and Sutherland particularly referred to this question yesterday, and asked me whether recent efforts at stopping tax avoidance had been successful. As I explained in my Budget speech there were very serious efforts made and important Clauses passed in the Finance Bill of 1936 and the Finance Bill of 1937. The first thing to remember is that when you are dealing with the application of a clause dealing with tax avoidance the actual working out of your new remedy is necessarily slower than what you might call a straightforward application of tax. But as a matter of fact, if you take the legislation of 1936, under the tax avoidance provisions of that Finance Act, the Inland Revenue have brought under assessment already £4,000,000 of tax—not income to that amount, but tax on the income. Of that £4,000,000, £2,500,000 has actually been collected. There is perhaps another £500,000 which is due in the next 12 months, and there remains a substantial balance which is the subject of appeal, or of challenge, or liquidation in different forms.

Taking that example—though I agree it has taken rather longer to do it than had, I think, been anticipated—it is right that we should appreciate that what the House of Commons then did was in fact extremely effective. Take another example —children's trusts. It is correct to say to-day that that system of avoidance has stopped. I understand the argument that as soon as you stop one hole, somebody finds another one. But let us at least recognise that this trouble was stopped. If I may give one other example, I remember my right hon. Friend in the Budget of last year expounding to us the sacred mysteries of "bond washing." Who hears anything about "bond washing" now? Bonds have ceased to wash. Broadly speaking, the class of cases which have now to be dealt with are cases of a much more elaborate character—some of them undoubtedly extremely ingenious, recondite, and involved; and when I heard an hon. Gentleman earlier this afternoon picturing me lounging in the Treasury, while enthusiastic officials were endeavouring to press on me obvious cases of departure from rectitude, I could only wish he had lived in the Treasury in the last two or three months. I believe that the proposals we are putting forward now are going to be extremely effective in some directions. At any rate, this is one of the cases where I would venture, greatly daring, to apply the Asquithian proposition "Wait and see."

I cannot believe that my right hon. Friend the Member for East Edinburgh (Mr. Pethick-Lawrence), who opened the Debate on Wednesday, sat up a whole night with a wet towel round his head, with the assistance of numerous lawyers, accountants and experts, so that he really understood all these Financial Resolutions, and came down here thoroughly qualified to prove that they would not do the job at all. His remarks on this subject were an example of innocence—I will not say ignorance, but I have no doubt he will be better informed at a later stage of our discussion. If you are going to call witnesses, I would mention the letter of an anonymous contributor to the "Times" newspaper, whose letter was signed "Old Square," which in this connection means Lincoln's Inn. I do not say I know who wrote it, but I think I might almost identify the Roman hand. The writer, who was by no means unfamiliar with this class of conundrum, was good enough to say: The game of chess mentioned in your leading article has in this case ended in favour of the revenue who, by the way, can hardly be said to have conceded their opponents the surprising handicap of being several moves ahead. Those who know the game of chess will know that a handicap of two moves ahead might be offered, but that three moves ahead is more than the best chess player can give. It went on: There is no longer any simple and effective scheme which can be recommended to the man who wishes to spend his income without paying Surtax on it. Let us see if we can stop some of these recondite and far-fetched devices. What I aspire to do, with the assistance of the Committee, is to make these elaborate attempts to evade the financial obligations of our tax law regarded as not being respectable. There are many people who would never lend their hand and name to anything they felt was not right to do, but the real danger is that a man in all honesty may go to his legal adviser and say, "I hear that so-and-so has got a way by which he is providing for his children's education without incurring taxation. Do you know anything about it? Cannot I do the same?" I hope to be able by the legislation this year to secure that these various elaborate devices are not looked upon as attempts suitable to be engaged in. If we do that we shall do a great deal towards effectively stopping these devices. I will say no more about it now because I am sure I shall have to say a good deal before we finish with the Budget.

Mr. Benson

The right hon. Gentleman promised to deal with the loopholes which might be made.

Sir J. Simon

I did not mean that I had any other proposals except those in the Resolutions. Perhaps the hon. Member will be good enough to wait until we come to the Finance Bill.

A word about food storage, mentioned by the hon. Member for Oxford University (Sir A. Salter). The hon. Member is quite right that his questions could more properly be addressed to the Minister for the Co-ordination of Defence, and as a Bill will be introduced and also Supplementary Estimates, there will be occasions when all the details can be gone into. But there are one or two things I should like to say in answer to the hon. Member. It is clear that my announcement that action has been taken for food storage has created wide interest and given much satisfaction. I should like to point out how different the situation is from the situation before the Great War. The conditions in the Great War were such that no arrangements for organising or regulating food supplies or the distribution of food existed when August, 1914, came upon us, and food control did not begin until December, 1916, when by that time food prices had risen by no less than 78 per cent. above pre-war figures.

It appeared to the Government that we ought not to let such a position arise again, and we have a Food Defence Plans Department which is preparing detailed plans to ensure uninterrupted supplies of food in a future emergency. It is the work of that Department which has resulted in the purchase to which I referred on Tuesday. I cannot give details—it would be quite wrong of me to do so in anticipation of the Bill— about quantities, prices and the like, and indeed, the Committee will observe that it is in the form of a provisional sum for Supplementary Civil Estimates, that I have made some provision under this head—and a substantial provision—in the Budget. The Bill will be introduced as soon as possible. We intend, if possible, to carry that Bill through before the end of July, and not only the Bill and the Debates on it, but the Supplementary Estimate which there will have to be, will, of course, provide opportunities for discussion. There is, however, one thing which I want to do at once, and. I think in doing it I shall have the approval of everybody in the Committee and of good citizens outside. Everybody must have been struck by the success and the secrecy with which these large transactions were carried through. I should like to express the thanks of the Government and of the public to the three large concerns who most willingly and most efficiently assisted the Government in this wheat storage scheme. They did the thing entirely out of a sense of duty. None of them is receiving any remuneration or commission whatever. They are just given their out-of-pocket expenditure.

Mr. E. Smith

That is an example for others.

Sir J. Simon

Yes, a good one. [An HON. MEMBER: Who were they? "] I am going to mention them. They were Joseph Rank, Limited; Messrs. Spillers, Limited; and the Co-operative Wholesale Society. I should particularly like, if I may, to express the appreciation of the Government to the right hon. Gentleman the Member for Hillsborough (Mr. A. V. Alexander) for having been good enough to arrange that the organisation and the personnel of the Co-operative Wholesale Society should be utilised by the Government on the same footing as the organisation and personnel of the other two large firms.

May I just point out this further, without starting a debate on it now? The Food Defence Department has done an immense amount of invaluable preparatory work. Take wheat. Figures are published, and are available from time to time, which show how much wheat is stored in public warehouses; but the public have no knowledge, and there are no published figures, of the much greater amount of wheat which is kept by millers in various places, and it would be obviously undesirable, I think, in the interests of National Defence, to mark down where these places are. But the figures are very substantial indeed. The millers now, under arrangement with the Department, supply the Department with periodical confidential returns, and the same process is being followed in connection with other commodities, such as oils and fats. It is these stocks, together with the food stored on farms and things of that sort, which provide the foundation on which the special provision we are making rests as a superstructure. As regards these other commodities we should not get a false sense of proportion. It does not necessarily follow that the public money which has to be expended must be devoted solely to capital purchases, because there are other and less expensive ways of securing that traders will keep increased stocks. In some cases an annual payment in respect of interest and extra storage can be made to ensure stocks being maintained at an increased level. I make those observations without giving figures or quantities, because I know the great interest which the Committee take in the subject, and I am grateful to my hon. Friend for having referred to it.

Sir A. Salter

The right hon. Gentleman is correct in saying that it was only after the War had proceeded for some time that there was Governmental control of wheat, but by that, of course, he meant control of the internal distribution of wheat in this country. There was immediate action for securing extra supplies of sugar and wheat immediately, and the control of the internal distribution was nothing like as important or as urgent as securing the supply.

Sir J. Simon

I did not want to introduce any unfavourable comparison, but only to say that I think the Food Defence Department has undertaken a most necessary task and is discharging it with the greatest energy and ability, and I think that when we come to deal with the Bill the House of Commons will feel that this is a branch of effort which ought to be supported by a completely united country. I wish now to devote a few minutes to some of the suggestions made by my hon. Friend below the Gangway and by the right hon. Gentleman the Member for Caithness and Sutherland and others about the constitution of a committee on National Expenditure. Of the appointment of committees there is no end, and my right hon. Friend and his companions in putting forward a suggestion of this kind are following precedent, but they have had rather a rough passage because other Members have wanted to know, with some precision, exactly what they want examined. I would just point out briefly that the analogy which they have in mind is not a very good one.

I am not, for a moment, disputing the usefulness of the committee which was set up during the War and to which the right hon. Gentleman referred, but consider what the circumstances were. We were then in the middle of a great War and instead of having, as we have to-day, detailed Estimates of Supply printed, and discussions on Supply Days and all the normal working of Parliamentary examination and test, Supply was being granted by Votes of Credit which gave no details of the objects of the expenditure and the real origin of that committee was to a large extent the complaint that the House of Commons was voting money and did not know what it was being voted for. Here we have a very different situation and I doubt very much, with great respect to the right hon. Gentleman, whether even a committee of Members of Parliament including Members of such experience as himself, would really prove of value for the particular purpose which he has in mind. Of course that depends a lot on what he actually has in mind. If he is talking about the Defence Estimates, we have seen from previous discussions that the control of expenditure in regard to contracts is an extremely technical matter. It is not so long ago since the methods actually being followed were explained to the Select Committee on Estimates. I am not in the least resting complacently on the verdict which they pronounced when I say that they did go through the methods which are being followed very closely, and with the help of expert witnesses. They did express the opinion that the methods followed were soundly conceived, fair both to the taxpayer and the contractor, and that they had been effective in preventing profiteering at the taxpayers' expense. If the view is offered that there is still something that can be done, I am all for seeing that it should be done, but I gravely doubt whether such a Committee could do it.

But perhaps that is not what my right lion. Friend meant. Perhaps he meant —indeed he said—that he was going to search for opportunities of economy and reduction of expenditure in the bureaucratic and departmental Departments. What does that mean? We have a total ordinary expenditure this year of £944,000,000, of which £230,000,000 is for interest and management of the National Debt. I understand that the right hon. Gentleman opposite has his own method of dealing with that, but this Committee at least would take the view that as long as the figures are correctly calculated and the interest honestly paid, there is nothing to be saved there. Then, £256,000,000 is in respect of National Defence, and I have dealt with that. Then you have to add Air-Raid Precautions, which would make it, I think, £264,000,000, and there is £90,000,000 of borrowed money. I do not see how anyone can suggest that by the method of a committee we could get a reduction in the National Defence Expenditure.

Then we come to the Social Services, and I noticed that the right hon. Gentleman shied off very quickly when it was suggested that there was going to be anything pared clown from them. These come to £222,000,000, and I take it that there is nothing wrong with them.

Major Owen

Surely inquiry could be made into the cost of administration, with profit to the country at large.

Sir J. Simon

I am coming to administration. I think I have accounted for £716,000,000, and I have now £228,000,000 left to operate on. Of this £228,000,000, £55,000,000 represents Exchequer contributions to local revenues— I hardly think we can deprive the local authorities of that—and £40,000,000 is in respect of war pensions. Payments for civil superannuation and teachers' pensions make another £5,000,000. There is not very much room for economy there. The result is that we have got it down to £128,000,000. This figure covers a lot of things—roads £22,000,000; agriculture and forestry £14,500,000; police £14,000,000; works, buildings and stationery £8,000,000; Imperial and foreign services £6,000,000; unemployment grants etc. £4,000,000; prisons and asylums £1,000,000; scientific investigation and research £1,500,000. We are now left with about £40,000,000. This covers Government activities and the general cost of Government administration, with a margin of £10,000,000 for possible Supplementary Estimates.

I really think that if my hon. Friends consider that catalogue, they will see that they cannot substitute their method for what, I am afraid, must endure as long as the policy of Parliament is what it is. It is the policy of Parliament that decides this expenditure, and not the Treasury or the Departments, and if Parliament decides to go in for expenditure on these topics I think that the care that is taken by the Treasury provides a check of a sort that is not likely to be supplemented by this particular method.

We had a maiden speech by a new Member—the hon. Member for West Ful-ham (Dr. Summerskill), and I hope I may be allowed to say how much we all appreciated the pleasant way in which she contributed her first effort to the House. I must say I was a little surprised at one thing which she said. She said, and made a great point of it, that the social services had suffered under the National Government. No doubt that is not the first time she has said it.

Mr. G. Griffiths

It will not be the last, and it will be said again next week.

Sir J. Simon

In order to prevent that, may I make a few short observations? It is well to remember that in 1930 and 1931, meals in schools were being pro- vided by 153 local authorities. The latest available figure is 247.

Miss Wilkinson

Is the National Government responsible for that?

Sir J. Simon

It is a great improvement on the figure under the Labour Government. Under that Government 185,000 children were being fed. The latest figures I have go to show that 535,000 are being fed. Under the Labour Government about 1,000,000 children were receiving milk. Under the present Government 2,750,000 children are being given milk for the most part at reduced prices. Before the National Government came into office there were a large number of social services which were not being provided for at all and which are being provided for now. Then there has been the provision for the maternity services, for the blind, the great slum clearance scheme and other matters. Whatever else may have suffered, when we have been spending £50,000,000 a year more from revenue on the social services than in 1931 it does need an ardent imagination to say that the social services have suffered. I must, before I end, refer to one point which was specially mentioned by the hon. Member for Bishop Auckland, a figure in the White Paper on page—

Mr. G. Griffiths

On page 13.

Sir J. Simon

I dare say it was only natural that the hon. Member should suppose that it was on page 13, but, as a matter of fact, it is on page 8. It is the figure dealing with Unemployment Insurance and Unemployment Assistance. The first point to appreciate is that as printed there two figures are added together, namely, the provision for Unemployment Insurance—the State contribution—and Unemployment Assistance, and the one which is really relevant for this purpose is the figure for Unemployment Assistance. The estimate in 1937–38 for Unemployment Assistance was £51,370,000, and it is that estimate which I said in my Budget speech on Tuesday was found, in fact, to be £8,500,000 too big. If the £8,500,000 is subtracted the amount spent last year was £42,870,000. Now comes the 'question, What is the estimate for 1938–39 for Unemployment Assistance? The answer is, £44,235,000. The estimate this year is an increase of £1,365,000 above what was found to have been spent last year.

Mr. Dalton

Will the Chancellor say how it comes about that there was a saving of £8,500,000? Why was there that over-estimate?

Sir J. Simon

I do not think that I could at this moment, not without inquiry. I mentioned it on Tuesday, and I do not think the point has been raised. I have the general explanation in my head, but I do not want to make a mistake. I will take an opportunity of mentioning it on another occasion.

Mr. A. Bevan

As the right hon. Gentleman has been speaking of an extension of the social services under the National Government how does he account for the fact that there has been a reduction of £8,500,000? Is it not due to the fact that under the administration of the Unemployment Assistance Board all the young men have now been reduced from 17s. to 10s. 6d. a week?

Sir J. Simon

I am not going to be dragged into a question of that sort at half-past eleven. I think that on the whole I have answered the points put in the Debate; I have tried my best to do so.

One word in conclusion. I have no peroration or anything of that kind. I am entitled to say, I think, now that we have come to the end of the first stage of the discussion, and I do claim, that the proposals in the Budget have, broadly, been received with a very large measure of approval. It is, indeed, rather remarkable that proposals which were at first obviously regarded as being of a drastic character should have been, after reflection, accepted, I do not say with welcome but as reasonable, and approved as right. I was greatly obliged to my hon. Friend the Member for Chislehurst (Sir W. Smithers), who reported the reaction that had taken place in the City and elsewhere. He said, and it is true, that undoubtedly the Budget proposals have been received in a way which has enhanced British credit abroad.

When it is asked, What about the future? I claim that what we have to contribute now will go to increase public confidence. Hon. Gentlemen have made play with the way in which they complain they were treated in 1931. We had it in the broadcast by the Leader of the Opposition last night. It is true that in 1931 the Labour Government were not borrowing neces- sarily in actual figures all that is being borrowed now, and it is true that they met with a much worse fate than the National Government are likely to meet. Why? There is one thing that hon. Members always leave out in their account of their woes. [An HON. MEMBER "We had MacDonald."] The borrowings which were criticised in 1931 were borrowings of this character—

Mr. MacLaren

For the unemployed.

Sir J. Simon

Whatever was the virtue or the object of those borrowings, they were of this character: they were borrowings without method or limit, that is to say, without any defined limit. There was no sum which they were authorised to borrow, and there was no arrangement for repaying. [An HON. MEMBER: There is none now."] If hon. Members do not know that, then I can begin to understand why they are so puzzled about what happened in 1931. I wish to make a contrast. I am not in the least disposed to minimise the seriousness of borrowing. I appreciate the gravity of the situation as it has been described by hon. Members, but I call them to witness that I have not made any futile or misleading claims about balancing things which cannot be balanced. I say that the borrowing which you are comparing with what happened in 1931 is borrowing for an amount that has been defined and authorised by Parliament, with provision in an Act of Parliament for repaying it at a definite rate of interest. The result is that what we are doing in that matter is acclaimed and known and measured.

There is a further point. After all, the proof of the pudding is in the eating, and we may argue about this to the crack of doom, but the plain fact is that what was done in 1931 destroyed confidence. Not only would the foreigner not leave his money here; he would not even lend it to us in our extremity. What is happening on the other hand now, borrowing or no borrowing, increase in taxation or no increase in taxation, is that the credit of the country stands higher than it has stood almost in our whole history. We are able to borrow at a cheaper rate than ever before. [An HON. MEMBER: "Thanks to Hitler! "] The effect of these Budget proposals has not been to shock or frighten as they might have shocked or frightened, and my hon. Friend the Member for Chislehurst was right when he said that this Budget has enhanced British credit abroad.

Mr. A. V. Alexander

Perhaps I might put the real point about 1931. The account or balance sheet which was presented to the Labour Cabinet included two main items. One was a special provision for the Sinking Fund, and the other was for the American Debt. The proposals made for balancing the Budget were not accepted by the present Prime Minister and the Leader of the Liberal party, who said there must be a diminution in the payment to the unemployed. But directly they got in they repudiated over £90,000,000 of debt and it has never been paid.

Sir J. Simon

There is really no hope of bringing to the minds of hon. Gentlemen opposite the real situation. I thought that all the world knew the facts about the American Debt. It is quite true that in 1931 the Labour party provided £27,000,000 for the repayment of the American Debt, but they were receiving from other Governments substantial sums in War debts and reparations amounting to something like £54,000,000.

Mr. Alexander

Those figures are not the same.

Sir J. Simon

Actually, in the two years 1930 and 1931, the Labour Government received in War debts and reparations £54,000,000 and paid to the United States £46,500,000, whereas the National Government paid £32,250,000 to the United States and received only £800,000. Really, if there is going to be a competition in virtue, we shall have to be provided with the resources with which to pays or receive larger resources. I do not think we can carry this matter further to-night—

Mr. Alexander

I hope the right hon. Gentleman will watch his first statement, and his second statement, in the OFFICIAL REPORT to-morrow morning. He will find that they are different.

Sir J. Simon

The figures I gave were exactly right. I hope the Committee will forgive me for having taken so much time in answering these interruptions. I desire to thank hon. Gentlemen for the references which they have made to me, and I would invite the Committee now to adopt the Resolution. We shall have many opportunities of dealing with this matter later. I have not sought to discuss to-night the very grave questions raised by the hon. Member for Stockton (Mr. H. Macmillan) and the right hon. Gentleman opposite, not because they are not important and relevant, but because at this stage what I desire is to make entirely plain the nature of the proposals which I have put forward. I have tried to do so, and I claim that they are receiving a measure of support which is a very great encouragement to me and which is, in fact, a proof of the stalwart determination of the country to meet these obligations.

Question, That it is expedient to amend the law relating to the National Debt, Customs and Inland Revenue (including Excise) and to make further provision in connection with finance. put, and agreed to.

Resolution to be reported upon Monday next; Committee to sit again To-morrow.