FINANCE BILL.

HC Deb 15 July 1938 vol 338 cc1693-772

Order for Third Reading read.

11.6 a.m.

The Financial Secretary to the Treasury (Captain Euan Wallace)

I beg to move, "That the Bill be now read the Third time."

I hope we shall not allow the harmony of our Debates on this Measure during recent weeks, or the sparsity of the attendance this morning, to blind us to the fact that we have now reached the closing stage of the major Government Bill of the year. While it is true that finance, which is the particular concern of this House, is always present to our minds and frequently in our speeches during all our deliberations, it is the fact that during the series of Debates which began with the opening of the Chancellor's Budget and concludes with the particular piece of business upon which we have embarked this morning, the House modifies, if necessary, and finally approves, the detailed financial arrangements of the year, and thus to some extent determines broadly both the scope and the direction of Government policy. As usually happens, the Debates on the Finance Bill for 1938–39 revealed a wealth of expert knowledge in all quarters of the House. I do not think my right hon. Friend the Chancellor of the Exchequer would dissent from the view that we have received this year a very high proportion of criticism which is both constructive and informed. I know, also, that he will not object if I acknowledge, in advance of his more important contribution to be made later on, the great measure of co-operation which we have had from all parties and all sections of opinion.

This Budget is chiefly remarkable for its size and its severity. It is the largest since 1921 and the methods which my right hon. Friend proposes for raising in revenue no less a sum than £944,000,000 for the current year place it among the most austere. The Chancellor certainly made no attempt to angle for the title of the architect of a popular Budget, but in fact it has been widely recognised that this Budget is the best that could be done in the circumstances, and in my view and, I think, in the view of the House, that will be found in the long run to be a very much more valuable testimonial. Admittedly it took us in this House about 24 hours to recover from the shock of that extra and wholly unexpected 6d. on the Income Tax; but after that it is no exaggeration to say that there was general appreciation both in this Chamber and outside of its necessity and its wisdom. Nor do I think there is any doubt that our determination to shoulder so large a proportion of the exceptional extra expenditure required by the defence programme has made a very deep impression, comforting or salutary as the case may be, throughout the whole world.

For the third year in succession Defence has dominated the Budget. Having decided to propose that £264,000,000 should be found out of revenue for the fighting services and air-raid precautions, the Chancellor found himself obliged to look for an additional £72,000,000 of revenue over the amount which he received last year. Fortunately, owing to an increase in the general prosperity of the country—and that is, of course, a factor upon which all Chancellors must rely—£42,000,000 was available from the expanded yield of existing taxes, nearly all direct taxes; and of the £30,000,00 required to close the gap, my right hon. Friend decided to propose that the direct taxpayer should shoulder £22,250,000, or practically 75 per cent.

It seems to me that in such a situation there are two remarkable features in the Budget to which I may venture to call the attention of the House. The first is, that although the standard rate of Income Tax is now 6d. more than it was in the second 1931 Budget, the smallest direct taxpayers are to-day actually better off; because, on the one hand, they have been protected against the rise over 5s. by the retention of the 1s. 8d. rate for the first £135 of taxable income; and, on the other hand, personal allowances have been increased since 1931, particularly in favour of a very deserving class of persons, that is, husbands and fathers—a class to which I have the honour to belong. The allowance which was in 1931 £50 for the first child and £40 each if there are any more, now stands at £60 for the whole lot—by which I mean each one of the whole lot—and the married person's allowance has risen from £150 to £180. The second remarkable feature in a time of much stress and stringency is the fact that expenditure upon social services has increased. An increase under this head of £12,000,000 may be regarded by ardent social reformers, who sit in every quarter of the House, as nothing very spectacular. The fact remains that the Special Areas, education, housing, physical training, midwives, pensions for black coated workers, provision of milk in schools—to give just a few examples—have all, this year, increased the contribution which the Exchequer is making to national wellbeing.

During the passage of the Finance Bill through this House, we have made four principal changes, and these, not unnaturally, have met with very general approval, or they would not have occurred. Clause 6, which is a new Clause, gives greater elasticity in the arrangements for imposing duties on important classes of imports, especially motor cars. Clause 45 adjusts what was felt to be a hardship in the liability of certain insurance companies to the National Defence Contribution. Clause 20 extends to technical education a form of practical recognition which was previously confined to the more strictly academic branches of learning, and I am certain that the hon. Member for Leigh (Mr. Tinker) will be very pleased with his work, and the co-operation which he received from everybody. Finally, at the instance of the hon. Member for Hemsworth (Mr. G. Griffiths), who on this occasion was certainly not off-side, the whole House accepted with gratitude and appreciation the decision of the Chancellor to grant relief from Income Tax in respect of dependent relatives who are denied unemployment allowance. In that way the Chancellor has met a genuine grievance which is more deeply felt because of its nature and its circumstances than on account of the actual magnitude of the tax in question.

A considerable part of this Bill is occupied by Income Tax provisions relating to settlements and administration of estates, and these Clauses are, of necessity, couched in highly technical phraseology. I think we can all of us be, and for my part I certainly am, extremely grateful for the limpid lucidity of the two Law Officers of the Crown, who frequently and in a few sentences enabled the House to understand a provision which, when one first read it, appeared to make no sense. Reduced to the vernacular, this part of the Bill represents a series of reforms designed to repair breaches in our legal system by which the subject has, with perfect legality, been able to a certain extent to escape the attentions of the Inland Revenue. These provisions have enjoyed support in all quarters, both for moral and material reasons, because we must not forget that no tax avoider or tax evader in effect defrauds the Government. When the Government decide to get a certain amount of money, they are going to get it, and what A and B escape, C, D and the rest of the alphabet have to pay out; it is therefore really his fellow taxpayers that the tax avoider is hitting.

I have already referred briefly to the reception of this Budget in the country. The readiness of our people to accept heavy burdens when necessary is a characteristic which has been demonstrated on many occasions, but it is, I think, a characteristic which no Government can afford either to abuse or to ignore; and I venture respectfully to suggest to the House—I do not wish to be in any way provocative on the Third Reading of the Finance Bill—that this attitude of the public is very largely due to confidence under four heads. I think it is generally accepted that this expenditure is necessary; I think it is generally agreed that the financial and economic policy of His Majesty's Government is sound; there may not be quite the same unanimity in concurring that the burden has been fairly distributed, but nobody will pretend that it is possible to get absolute fairness in this world, and I do not recollect during the passage of the Bill any very sustained or bitter criticism of the measures which the Chancellor has taken; and, fourthly, I believe this Budget has been well received because of the general feeling of relief that His Majesty's Government have not been intimidated into cuts in our standard of living by the curtailment of social services, and by the knowledge that at any rate up to date we are getting both guns and butter.

A Budget of this character, austere though it may have appeared at first sight, inspires more confidence throughout the country than one which relies upon ingenious financial or economic devices to ease present burdens at the expense of the future. I am not, of course, ignoring the fact, or trying to skate over it, that in some people's opinion the Budget is not, strictly speaking, balanced and that under the legislation which was passed by this House last year it is proposed to borrow £90,000,000, plus whatever sum is required for the Supplementary Estimates for the Defence Services; but it must be remembered that this is controlled and limited borrowing, with definite provision for repayment, and thus differs both in substance and in degree from certain other kinds of borrowing which have taken place, shall we say, in the last one or two decades. It is very definitely and vitally to the interest of posterity that our trade and industry should not at this time suffer permanent damage, either by the inadequacy of our national defence or by the weight of the expenditure required to provide it. I do not think anybody will deny that our children must have at least that amount of interest.

In conclusion, I have never succeeded in discovering what are actually the Seven Deadly Sins, and I do not know whether complacency is included among them; but so far as any Government is concerned it is a very deadly sin indeed. As long as the state of the world obliges us to defend ourselves upon the present scale, or anything like it, it would be foolish, and indeed criminal, to deny the existence of financial problems ahead, or to minimise their gravity; but this Budget and its reception, both in this House and outside it, provide a demonstration of the immense financial strength of this country which is no less impressive than the knowledge of our steadily growing defensive power.

11.24 a.m.

Mr. Benson

I should like to congratulate the Financial Secretary to the Treasury upon a very clear and extremely concise review of the Bill which we are now proposing to read the Third time. I suppose the Chancellor of the Exchequer by this time has become accustomed to having quotations from his murky past flung up against him. I wonder whether he will permit me one more. Speaking some years ago he said: The unintelligibility of Statutes is due not to the number of lawyers who go into politics, but to lay Ministers who often think that it is politic to be unintelligible rather than plain. The Chancellor of the Exchequer cannot claim that he is a lay Minister in these circumstances, and I do not think he can deny that in this Bill we have packed a very high percentage of unintelligibility. I agree with the remarks of the Financial Secretary that both the Chancellor and the Law Officers have given us extraordinarily limpid and lucid explanations of the difficult Clauses we have had to discuss and I add my congratulations to them. I cannot forget, however, that they were in a favourable position in explaining those Clauses, for no matter what they said, nobody was in a position to contradict them.

Although the methods we have adopted in this Bill are somewhat obscure, there is one matter which stands out very plainly. That is, as the Financial Secretary said in a euphemistic phrase, the Budget is not strictly balanced. The Budget has a gap of some £90,000,000 between expenditure and revenue, and the Financial Secretary said that this was the best that could be done in the circumstances.

I am afraid that that is a very melancholy point of view because, if one thing is plain, it is that the circumstances are not going to change. We are not in a merely temporary financial difficulty at the moment. It is not as if we were suddenly faced with some problem that will affect this year and no other, or a problem that will pass. Next year will be even more difficult financially than this. Even now the revenue returns show a decrease on last year. I pay no great attention to that, but, still, it is a fact. It was generally agreed on Second Reading that even when the spate of expenditure upon armaments had passed, if it ever does pass, the growth of our social services and other expenditure would more than make up what was saved, and from now on the country would be faced with annual Budgets of not less than £1,000,000,000. We raise only £944,000,000 in taxation this year, and if that is the best we can do in the circumstances—the circumstances being a permanent vision of £1,000,000,000 Budgets—the outlook financially is unquestionably rather dark. The Chancellor of the Exchequer, in taking this very temporary method of balancing his Budget, reminds me of the gentleman who, bowed down by troubles, tried to drown his troubles in alcohol only to find that they floated.

I am prepared to admit that a £1,000,000,000 Budget is a serious and difficult matter to face. It is 25 per cent. of the national income. To visualise the permanent abstraction of 25 per cent. of the national income from the taxpayer for Government purposes makes one realise that our financial problems are not going to be easy, but are going to be more difficult. It is, indeed, a grave figure, but what is more important is not the percentage that our taxation represents of our national income, but the higher percentage which it represents of our taxable income. By taxable income I mean that part of the national income which the Government can take without provoking adverse social and economic repercussions. Of that part of our income we are taking a really high percentage. It is certainly an added difficulty that while we have an unquestionably stable level of national expenditure we have, owing to the inevitable trade cycles, a steadily fluctuating national income and a still more greatly fluctuating taxable income. Another problem which the Chancellor will have to meet is that, owing to the system of graduated taxes, fluctuations in the taxable income greatly magnify fluctuations in the yield of any specific tax.

We have now got to the position, owing to the enormous percentage of taxable income that we already take, and to the fact that trade cycles in future are likely to be frequent and severe, when we shall have to reconsider some of the fundamental tenets of our financial system. We shall, sooner or later, be compelled to consider the whole question of cyclical Budgets. The Finance Bill which we are now discussing is, in fact, cyclical because it aims at an intentional deficit. The basis of cyclical Budgets is that there should be not an annual balancing, but a balancing over a period during which some Finance Bills would show a high surplus, and others possibly an equally high deficit. The unfortunate thing is that the present cyclical system which the Chancellor has commenced is not a carefully thought out plan. It is merely trusting to future luck. As a matter of fact, it is a violation of sound cyclical finance in practically every respect, and, more importantly, in this respect, that it is completely de-synchronised with the trade cycle.

The essence of cyclical finance is that when the income is available in the country you should tax heavily, and when the taxpayer is hard up you should lighten his burden. That makes the financial burden which at the present moment is heavy easier to bear, but I think that it has secondary and even more important results, entirely secondary so far as fiscal matters are concerned. Such a method of taxation tends to iron out the trade cycle. Taxation—direct taxation particularly—is deflation; borrowing, particularly as one would have to borrow for cyclical Budgets, on short terms, is inflation, and a cyclical system means that when you are tending to run into a boom you impose deflationary taxation, and when you are sinking into the trough of a depression you give a fillip by inflationary borrowing.

Mr. Boothby

Would the hon. Member add Government expenditure to taxation in considering this matter? That is to say, would he relate expenditure by the Government to the trade cycles, increasing it at one point and rather diminishing it at another point?

Mr. Benson

I was about to raise that point. I might be out of order if I were to go too far, but I think I can call attention to the example of Sweden, where the Budgets have been excessively unbalanced by high expenditure on public works in periods of depression and where, conversely, in a period of improvement, the annual surplus has been enormously greater than one needs in a normal annual balancing of the Budget. Unfortunately, in this country the Chancellor of the Exchequer has entirely reversed this process. Instead of borrowing when things were bad, he and his predecessor have borrowed to balance their Budget when we are on the crest of a wave. It entirely desynchronises his cyclical finance with the trade cycle, and tends thereby to produce and emphasise trade cycles.

I am prepared to admit that while the case for cyclical finance is theoretically unanswerable and desirable, there are some very big snags in the way. The first is that if we are to have cyclical Budgets we must adopt at the same time a standard of financial integrity which is extremely high—far higher than is shown in the last two Finance Bills.

If, as I think is likely, we may be compelled to consider cyclical Budgets in the future, the Chancellor's lapse from financial integrity is of considerable importance. We tax ourselves in this country. This House taxes by consent of the people and of the taxpayers, and we can only do that because the basic principles of our taxation are accepted and understood. Our standard of fiscal integrity has always been very high, and it has been high because the standard has been accepted by the man in the street. The principle of a balanced Budget annually has been a cardinal principle not merely in this House but among the electors as well, and any Chancellor of the Exchequer in the past who ran up deficits unquestionably lost caste, not merely among the financial experts in this House but among the public as a whole. We have been a nation which has shown financial integrity because the taxpayer has accepted the idea of financial integrity. It has been accepted by all classes.

We have been concerned a good deal in this Finance Bill with the Surtax-payer who was evading his just taxation, but the Surtax-payer with whom we have been dealing is in a small minority among Surtax-payers. The average Surtax-payer accepts his high taxation. I do not say that he accepts it with pleasure, but he pays it, and he pays it with a certain degree of willingness. At any rate he pays it knowing that he is merely acting in accordance with the accepted canon that in this country we pay our taxes, and all the trouble to which we have been put has not been necessary because of what one might call widespread evasion among the ranks of Surtax-payers, but because a small minority only have not accepted their responsibility.

If we are to adopt cyclical Budgets in future, just as the taxpayers in the past have accepted the canon of integrity so will they have to do in the future. We cannot indulge in cyclical finance in this House unless the country understands and accepts what we are doing, and our part is no unimportant part. We have to inform public opinion on the matter. We have an educational part to play as a House of Commons, and because of that I regard this lapse of the Chancellor's as so unfortunate. Our part in finance has always been an important one. We have not been a mere reflection of public opinion outside. In financial matters the House of Commons has formed public opinion, and if in the future we are to require an even higher standard of financial integrity than we have had in the past, this House must play its part in bringing about that public opinion and understanding. We have made finance our special prerogative. Long centuries of struggle have made it our own. I am not sure, in reviewing this Finance Bill, that we have altogether shouldered the responsibility that inevitably goes with the prerogative that we have demanded and achieved.

11.43 a.m.

Mr. Hely-Hutchinson

It is always a pleasure to listen to the speeches of the hon. Member for Chesterfield (Mr. Benson), because of the sincerity with which he approaches all these problems, and also the practical method in which he attempts to deal with them. I feel that such a speech as the one we have just listened to holds out great promise of that co-operation between both the great parties in the State which is going to be necessary if we are to deal with the very grave problems which the present Finance Bill foreshadows. Before we finally commit the Bill to the Statute Book I think it is very necessary that we should emphasise certain features which it contains. From start to finish, both in its general outline and in detail, the Bill underlines the major problem with which we are faced, which is that while on the expenditure side the horses are running away, on the revenue side taxation is reaching its effective limit. In the general outline of the Finance Bill my right hon. Friend the Chancellor of the Exchequer has nicely gauged the proportion of the deficit, for deficit it is, which the country is prepared to bear in the form of taxation. That very circumstance alone shows that if the effective limit of taxation has not already been reached, at least we are approaching it.

In detail, in three respects, the Bill emphasises that circumstance. The first is that the Government have found it necessary to take retrospective action to upset the accepted effect of test cases in Income Tax law; secondly, they have found it necessary to introduce a large number of Clauses to deal with evasion; and, thirdly, the method which they have had to adopt in dealing with evasion is in many cases to deem as revenue what we have hitherto regarded as capital. I do not wish to go at very great length into the problems with which we are faced, because the matter is so wide in its application that it would not be possible to deal with it within the compass of a short speech, but I would like to emphasise the three directions in which it is possible to deal with the condition in which expenditure is running away and the sources of income are apparently stationary, if not diminishing. Those three directions are, first, a reduction of expenditure. I think we are all agreed that that course is politically impossible in the present state of affairs. The second direction is to attempt to increase the proportion of the national income taken in taxation.

That is the direction, I think, in which we must inevitably move, but in moving in that direction let us consider what it means. The higher the proportion of the national income taken in taxation, the greater is the proportion of our time and money spent under the orders of some Government official, and the smaller is the proportion left to our own decision as to how it shall be spent. In other words, the progressive increase in the proportion of the national income taken in taxation is a move in the direction of the authoritarian State. In discussing the merits of the proposition, it does not matter whether we call that condition Communism or Fascism. The necessary thing is to consider its nature, which is that an increasingly smaller proportion of our time and money is left to ourselves for decision as to how it shall be spent. The third direction in which it is possible that we may hope to deal with this situation lies in the course recommended by my right hon. Friend the Member for Sparkbrook (Mr. Amery), namely, that we should bend all our efforts towards increasing the national income. I think all of us agree that that is an ideal direction in which to move, but I am afraid that we must emphasise that it is ideal and that we can comment upon it only by saying that we should all be pleased if it were possible, by taking thought, to add a cubit unto our stature.

When we consider the major problem foreshadowed by the present Budget—as the hon. Member for Chesterfield pointed out, it will become an increasingly pressing problem in the years ahead—I do not see how we can expect that it will be solved by the ordinary methods of party politics. I am inclined to think that inevitably we shall be forced into greater co-operation among the great parties of the State in solving this financial problem. The House will recall the way in which the battle between Tweedledum and Tweedledee was interrupted: Just then flew down a monstrous crow, As big as a tar barrel, And frightened both the heroes so, They quite forgot their quarrel. Under the shadow of the monstrous crow of national bankruptcy. I look forward in the years ahead to a greater measure of co-operation between the two great parties in the State in solving this problem.

11.50 a.m.

Mr. Graham White

The right hon. and gallant Gentleman introduced the Bill this morning with a most charming and disarming speech. It was also a comfortable but not a comforting speech. I say that it was disarming, but as I listened to it, without specially desiring to find points of criticism, there was one point upon which I found myself in disagreement with him. That was when he said that our policies were determined by the amount of money which could be provided under the Finance Bill of the year. The situation is rather the other way round. The policies of this country and of other countries exercise a grip upon the financial situation, from which we find it very difficult to escape. I shoud have thought that the situation at present would appear to be this: Having regard to the money which we are compelled to spend upon the social services and upon the means of Defence, the limit of the amount which we shall be called upon to expend and which we shall, in fact, spend, is the amount which we can raise without inflicting injury upon the economic fabric of the country.

For that reason, the lot of the Chancellor this year and for as many years ahead as we can possibly see, like Gilbert's policeman, cannot be anything but a very unhappy one. As the hon. Member for Hastings (Mr. Hely-Hutchinson) has just pointed out, we shall undoubtedly face a disagreeable dilemma when we try to raise increased expenditure from a revenue and from a national income which is static. The Chancellor of the Exchequer has no reason to complain of the way in which the Budget has been received. In order that such reception shall continue to be given, and the nation shall brace itself to undertake the heavier burdens which it will undoubtedly be called upon to face in future years, we should not be complacent, but should look facts in the face all the time. The Chancellor of the Exchequer should take the country into his confidence as much as he can with regard to the course of events, and he will find that the people of this country will not refuse any burden if they are convinced that it is necessary to carry out a policy which they can approve.

Without trying to be what the Prime Minister calls a dismal Jimmy, but to arrive at a proper mean in these matters, I do not think we can disregard or disguise from ourselves the fact that whatever hopes we had on 26th April when the Budget was introduced have been steadily diminished since then. We must be doubtful even to-day whether the financial provision of the year is adequate, and whether the foundations laid in the Finance Bill are sufficiently sound to build upon for future years. Since the 26th April the foundations on which the Bill were founded have been steadily crumbling. All the indices to which we look to see how the health of our country is going show undoubted signs of decline. Revenue is stationary, and so is the volume of our overseas trade. Last year, in his valedictory address on the Third Reading of the Finance Bill, the Chancellor of the Exchequer was able to say that nothing in the Bill had had any injurious effect upon the national credit. He may still say that to-day. He then went on to say that there was a decrease in unemployment and an increase in employment, and, moreover, that production was increasing.

Since 26th April, just the reverse has been happening with regard to all these things. Railway traffic—the most infallible index of our industrial activity—shows week by week a progressive decrease, and, what is even more surprising, having regard to the rearmament programme, even pig iron shows a substantial decline. Wherever one looks one finds food for reflection. I hope the Chancellor will, as time goes on, take the country completely into his confidence in regard to our financial necessities. We know that great harm was wrought by the former Prime Minister not consulting the country at a certain time with regard to what he felt it was really necessary that the country should know. I hope we shall not pursue that policy with regard to the financial progress of the country. I hope that the Chancellor will make it clear to the country, as he can, and as the Government can, that the defence of democracy and liberty, and the right to choose for ourselves in what form of society we shall live and to help to bring it about, cannot be defended by guns or armaments alone. It must rest, in the end, upon a sound basis of finance. We are apt to overlook the important part which finance plays in it.

There is no doubt that, as the hon. Member for Hastings has pointed out, the urge towards the establishment of a totalitarian State has been to some extent brought about by the necessity for establishing a rigid financial control over wages, income, and, indeed, the whole industrial production of the countries concerned. I think it would help the people of this country to face the burden which they must inevitably face if they were to realise that that burden is an active part of the defence of democracy and of liberty. Inevitably we shall have to face it, because, as has been pointed out by the hon. Member for Chesterfield (Mr. Benson), the situation is not going to mend itself easily or rapidly. There is no reason to suppose that in financial matters time is on our side. Even supposing that we should reach a stage when, owing to amelioration of international conditions, we can afford to spend less upon defence, we shall then have to turn our hands to the very difficult task of demobilising the people engaged in munition work. When that time comes, there will inevitably arise a demand for expenditure on productive works of one kind or another to take the place of work on munitions, and such a demand no Government will be able to refuse. We have to take a long-term view of these matters, and make our plans as best we can accordingly. I suggest that the best preparation for such a time is to keep the people accurately informed as to the course of events.

The right hon. Gentleman, in his opening speech, referred to the informed criticism that has been made during our discussions. Many alternatives to the present taxation have been suggested from time to time from all quarters of the House, and, as I have heard them, I have felt the melancholy reflection that next year, when the Budget comes round, the Chancellor will find that he has to act upon all these alternatives, which have been merely suggested this year, but which then may be necessary. The Chancellor did accept, after some years of arguments addressed to his predecessor, a new Clause embodying a principle which, if it had been accepted earlier, would have saved, as it will now, at a small cost to the revenue, a great deal of heart burning and unhappiness in a very considerable number of homes in connection with the means test. The Chancellor of the Exchequer, in putting forward the proposal, as he said, at short notice, made the reservation that he hoped Members would not complain if he found, in the light of experience, that some modification of the wording of the Clause was necessary next year. I am sure that no objection will be raised to that, because admittedly the device has had to be carried through quickly, and nobody can be quite certain how it will work out.

I want to express the hope that, in connection with another change which the Chancellor was good enough to accept, the same principle may apply. During the Second Reading Debate I took occasion, with others, to point out that there seemed to be a discrimination against insurance companies in regard to the taxation of the income arising from their reserve funds. Reflection on that matter—disinterested reflection, I may say, because I have no interest in any insurance company—confirms me in the belief that there was in fact such a discrimination, and that the complaint which was made was a just one. This is not a case of people trying to escape their proper share in any duty which Parliament has thought fit to place upon them, but rather a feeling of resentment at an injustice, because, if the income arising from the reserve funds of other trading companies had been taxed in the same way, not only would there have been no grievance, but no complaint would have been made.

Happily the Chancellor has recognised the principle, but there is a great divergence between the estimates in regard to the Clause which he has proposed. I think he said it would relieve the companies to the extent that it would exempt from the operation of this taxation one-half of the income of their invested funds. On the other hand, the companies themselves think that, whereas some of them may pay a little less, in the aggregate there will be very little difference between the Clause as drafted by the Chancellor and the original proposal. There is obviously a great gulf between the two views, and it is impossible to say which of them may be right. If, next year, it should be found that the intention of the Chancellor has not been carried out, I trust that he will be willing to reconsider the matter and bring it into closer accord with the estimate he has laid down on this occasion. It is extraordinarily difficult to express principles in terms of percentages, and one can easily understand that in this case the first attempt may not be the most successful.

I have no doubt as to the conditions under which the people of this country will face up to the terms of this Budget and every subsequent Budget. It must be evident that taxation is just as between one taxpayer and another, and that there is no waste. On that I would differ from the hon. Member for Hastings who appears to think any saving impossible. I think it is well within the range of possibility that an examination into the structure of the social services, leading to a definition of the field of operation and of responsibility, might well lead to greater efficiency and reduction in expenditure. I am constantly urging that, but I do not find much sympathy for it. We find in the social services competition, ill-defined responsibility, overlapping, and things of that kind.

The right hon. Gentleman said that he was determining by this Bill the policy of the country. I wish that that were the case, and that the policy of the country could be determined in such a simple way. The fact we have to face is that, as long as Governments the world over refuse steadfastly to avail themselves of the far greater opportunities for expansion and prosperity now presented to them by the advancement of science and the development of communications, but continue to devote not merely the surplus of their technique and resources, but an ever-increasing proportion of the total of their resources, to the means of destruction, the position will grow worse. It is said that America is spending fabulous sums in "pump-priming" which can only have one end—financial disaster; but in Europe we are doing even worse. We are priming the guns all the time. Something beneficial may come out of a pump, but it is certain that nothing beneficial, from an economic point of view, can come out of a gun. While we are doing all we can to preserve our liberties and doing everything necessary in the way of Defence, we cannot disregard the fact that, as long as these tendencies remain, Chancellors will labour under severe disadvantages, people will continue to suffer, and the margin between safety and security and chaos will become ever smaller.

12.9 p.m.

Sir Stanley Reed

May I ask the indulgence of the House if, for a few moments, I venture to express the thoughts uppermost, not only in my mind but in other minds, on the Finance Bill? The Financial Secretary to the Treasury has referred to the reception of this Budget in the country. That reception indicates two features. One is the resolute determination of our people to accept any burden which may be necessary for our Defence, and the other—I think perhaps still more significant—how wonderfully easily this people is governed. I would ask the Chancellor not to press that easiness too far, and not to assume that it will, in all circumstances, respond to such demands as are made upon it in the Budget now before us. This Budget has stood the test of a most rigorous examination in this House, and has emerged practically unscathed. In every part of the House we warmly appreciate the concessions which the Chancellor has made.

I have nothing to say in criticism of the manner in which he has distributed the burdens thrown upon us; but I listened with intense anxiety to the Chancellor, who was so clear in his exposition and so courageous in putting grim facts before us, for any special assurance that this vast increased expenditure would be accompanied by a specially rigorous examination of every item of that expenditure, in order to see that not one shilling was disbursed which could possibly have been saved. I listened with profound respect to the parallel which the right hon. Gentleman the Member for East Edinburgh (Mr. Pethick-Lawrence) drew between the finances of this Budget and of the Gladstonian Budgets, but the breach with the austerity of Gladstonian finance has not been made in the Budget before us, but was made somewhere about 1909. Then it was that the Chancellor of the Exchequer, if I may say so with all respect, began to think in terms of money spent and not of services rendered. That attitude has spread from this House to the country, because scarcely a day passes when we do not see some enterprise lauded, not for the services it renders, but for the money spent thereon.

It is a tremendously significant fact that throughout the whole of the Debates on this great Budget, economy has been scarcely mentioned, or, if it has been mentioned, it has been lightly brushed aside, either as a matter of no importance in itself or as a thing that is unattainable. I can accept neither of those hypotheses. I think economy is for this country at the present time a matter of profound importance, and I think it is a thing attainable within the structure of the Budget itself. Far from this House trying to extend any real control over expenditure, or over economy, I have listened almost with dismay to pressure being brought to bear on the Chancellor to extend expenditure in all directions. I have sometimes wondered whether I was here in London or back in the atmosphere of Versailles, with unlimited burdens rolled on a State and never any consideration given to the question of capacity to pay. May I remind the Chancellor of one of his predecessors, who rejoiced in the name of "Black Michael." I would not ask him to imitate that Chancellor in any respect save one; that is, that he was distinguished above all other holders of that office by the capacity to say "no." I would ask the Chancellor to imitate Sir Michael Hicks-Beach in that respect, and learn to say "no," an uncompromising "no," to demands not only from the spending Departments, but also from private Members on both sides of the House.

Then I come to the point whether any economy is practical in our national expenditure. May I draw for a moment or two on my own experience? We have all seen in our own times, comparatively recent times, a vast growth of the bureaucracy and of the bureaucratic method of Government in this country. I do not say that by way of criticism or regret; I say so merely to state a fact. For nearly 3o years I lived in close and daily contact with a great bureaucracy in another country, a bureaucracy drawn from the same class, the same schools and the same universities as our own bureaucracy, a bureaucracy animated by the same ideals and the same lofty standard of public service. Having worked with that bureaucracy and inside that bureaucratic system of Government, one thought has been borne in on me, and it is that with all its virtues there is one which a bureaucracy lacks and always has lacked, and that is the power to think in terms of constructive economics. There is this fundamental difference between bureaucratic expenditure and private expenditure, that in bureaucratic expenditure the end to be served is not value for money but the avoidance of criticism. I urge that with this huge expenditure, dictated to a large extent and controlled to a large extent by the bureaucracy, it is within the power of the Chancellor, if he would take it to himself, to effect very wide economy. An economy of a halfpenny in the shilling on a Budget such as this would produce a sum very nearly equal to the extra taxation that the country is called upon to bear.

The Financial Secretary has told us of the additional expenditure on the social services. Up to a point we welcome it and approve of it; but he has not told us, and perhaps the Chancellor will tell us, how far that increased expenditure on the social services is to throw further expenditure upon the rates. It does seem to many of us who have studied this Budget that at a time of tremendous activity like the present, when we are concentrating, or should be concentrating entirely upon meeting the inevitable expenditure on Defence, we should by every possible means in our power cease from any bureaucratic or legislative action which throws further burdens upon the rates. In addition to the taxation imposed on the community in this Budget there is a rise in the rates, not only in the incidence of the rates but, even more than that, a rise in the assessments—and rates have to be paid whether there is income or no income, and that is the difference between them and Imperial taxation. There should be a clear and definite halt in any action either by the Government or by the bureaucracy to throw on the community or the ratepayers any additional burdens at the present time.

So I would make a final and very urgent appeal to the Chancellor of the Exchequer, and that is to carry the great courage that he has thrown into the preparation of this Budget just one step further, and encourage the watchdogs of the Treasury, or even enlist the co-operation of private individuals with business experience, to secure that for every shilling of national expenditure we obtain one shilling and not 11½d. That, I believe, is an economy which is within reach of the Government if it will lend itself seriously to the task. I ask the right hon. Gentleman to banish now and for all time from the heads of the spending Departments that most dangerous of doctrines—thinking in terms of money spent and not in terms of value received. That, I believe, has been a contributory factor in the prodigal growth of our expenditure.

One or two words I would commend to the Chancellor, because they come from an economist of the highest repute. They are these: Wasteful expenditure, high taxation, unbalanced Budgets and enormous debts are social evils which depress business, promote unemployment and threaten public insolvency. Those, I suggest, are words which we would do well to take to heart to-day. Although we can and will bear the burden essential for our security and defence, it seems to me that we dare not throw upon the community burdens which, bearable now, may be unbearable in the days of depression or recession which may be before us. If we go on throwing on the community burdens which cannot be borne in bad times as well as good, we are on a slippery slope leading to bankruptcy, and possibly through bankruptcy to revolution.

12.22 p.m.

Mr. Tinker

I understand that the speech of the hon. Member for Aylesbury (Sir S. Reed), to which we have just listened, is a maiden speech, and if I had not been informed of that fact I would not have thought it possible, for the hon. Member showed a confidence such as is seldom displayed by an hon. Member when addressing the House for the first time. He has taken not only the Chancellor but the whole House of Commons to task and told us what we ought to do to put the State in a position of solvency. But in my opinion it was a very good speech, and I trust that the hon. Member will take further opportunities of giving us a lecture on what he thinks we ought to do.

We have now arrived at the point of putting final touches to a Measure which before long will receive the statutory mark. The work we have to do reminds me of what one does in trying to write a difficult letter. We cross out words and put in other words, but eventually we reach the stage when we put the letter into the envelope. To-day we are sealing down the envelope. We have arrived at a point also that this is a Measure which will not be subject to that irritating experience we have with many of our proposals, of another place trying to put us right. This is one of the things that the other place cannot touch, and I am satisfied that when we have ended with this Bill it will go as the House of Commons verdict one way or the other.

Let me say a word of thanks to the Chancellor of the Exchequer. It is not often he gets that from this side or from me in particular, but I would thank him for giving way on two Clauses. There was the Clause dealing with extended education facilities, Clause 20. We have been hammering at that subject for a long time and I had one of the biggest surprises of my life when the Chancellor rose to deal with it. After he had been playing about a while, I said to my hon. Friends "There is nothing in it; he will lead us up the garden and we shall not get anything. He will tell us that in 12 months' time he will consider it." Therefore all thanks to him for agreeing to accept our proposal, though it is to be embodied in another form of words. Another word of thanks is due to him for his acceptance of a proposal made by my hon. Friend the Member for Hemsworth (Mr. G. Griffiths). One newspaper said that my hon. Friend was so overcome by the acceptance that he almost burst into tears.

When the Financial Secretary to the Treasury was speaking just now and was referring to social reform, I think he might have gone a little further and said that there were certain sections of the community that still wanted some help. I refer to that section of the community known as old age pensioners. I thought that there might have been some reference made to them. I know very well that this time the Chancellor cannot do anything, but I thought that when he talked about the general prosperity of the country, he would have had some regard to this deserving class of people, who are not getting any share of that prosperity. The fact that 10 per cent. of the old age pensioners have to seek Poor Law relief shows that we are a long way off giving satisfaction to these deserving people.

Previous speakers in this debate have carried on rather an academic form of discussion. I do not know whether it is necessary on the Third Reading of a Bill to follow that line, but some of us have not that power of dealing with high finance, and we try to get down to the bed-rock position of things. One of the things that this House ought to tackle is the question of direct and indirect taxation. When we talk about finding the money, the only real way to find it if it has to be found—and in this case I agree that it has to be found—is to make the burden such that everybody realises what he has to pay. That is not known under the present system of indirect and direct taxation. Many people pay vast sums of money to the Exchequer by way of indirect taxation. That fact is not fully realised. The Import Duties, as a result of the Ottawa Agreements, which we tried to rescind in the Budget, put a big burden upon the people by way of indirect taxation. That is never mentioned by leaders of finance on the opposite benches. They always leave out that particular point or forget about it. I trust that the House of Commons will realise that kind of position if we are to get a fair distribution of the taxation of the country.

The Financial Secretary to the Treasury truly says that this money has to be found, and that if A and B evade paying it, then C and D have to find it. Everybody should be made to realise the full responsibility that has to be met. The time must come when we shall have to get democracy with us in deciding what must be paid. We shall have to establish a position by which every member of the household is given a certain standard before he pays any taxation. We try to meet the position to a certain extent by giving to the married couple so much per child, but we shall have to put the thing on a sound basis by fixing the amount at so much per head of the family. If we arrive at that point and establish a system of direct taxation, everybody will know what they have to pay. I am satisfied that if this were done the country would agree to it more readily than has been the case in regard to anything that has ever been done. When we were dealing with the Budget we would realise what would have to be paid by each individual family.

When an extra 6d. was put on the Income Tax there were a lot of complaints about the hardship that would be created, but is there any real hardship in paying an extra 6d. of Income Tax when there is money with which to pay? I do not see any hardship at all. If it were proved that money was required for defence or social services, and if, after a thorough examination of the position, the House of Commons decided that the money must be found, I do not think there would be one complaint in the country in regard to putting it on by way of direct taxation. I have often been told when we have been adding to the burden of direct taxation that we were bringing down the people who have the wealth, and that we should finally arrive at a state when there would be no wealth to tax. I have been looking at the figures this week to see if there is any justification for that point of view. The number of persons in receipt of £2,000 or more assessed for surtax on 3oth September, 1936, was 85,499, and on 3oth September, 1937, the number who had gone into the realms of very big incomes was 88,951—an increase of 3,502. In these times of national stringency when we are talking about the burden being too heavy, one finds that there are an increased number of wealthy people in this country. The taxable income of these people in 1936 was £424,000,000, and last year £446,000,000—an increase of £22,000,000. There is ample evidence that wealth is being created in better inclined circles, yet whenever there is an increase of Income Tax we are always told that there must be a breaking point when there will be no wealth to tax. I never accept that point of view, in view of the great increase of wealth that is taking place. Why cannot we get down to the question of trying to equalise the wealth of the country? The hon. Gentleman the Member for East Aberdeen (Mr. Boothby) spoke in the agricultural Debate, and said that we wanted increased consuming power among the people. What I took him to mean was that we must have greater purchasing power

Mr. Boothby

Hear, hear.

Mr. Tinker

I want to take the lion. Member along that line. Greater purchasing power for whom? It must be increased purchasing power for what I term the submerged masses, because the well-placed people have all the money that they want to spend, so that we should not be likely to get any increase of consuming power among them. If we want to increase the consuming power we must give better facilities to the great mass of people who are now below the border line. I am speaking now of the lower wage classes, of the old age pensioners, the unemployed and all those who have not the means to take from the farmers the goods they want to produce. When the House of Commons attempts to put the taxes on the backs of those who can afford to pay them without going to the poorer classes, we shall be doing something in the direction advocated in regard to the agricultural policy. We should be giving to the great mass of the people a greater consuming power by not taking from them the money we now take by way of indirect taxation. I want hon. Members opposite to face up to this question. They represent the rich classes. I want them to go a little further. Unless they are prepared to do something for the poorer classes they will create such a feeling among the poorer people that it will make them determined not to put up with the disparity between wealth and poverty that we have at the present time. I trust that in the ensuing months before the next Budget, the Chancellor of the Exchequer, if he is in office next time, will have regard to some of the things which have been put forward from these benches, and particularly to the position of old age pensioners.

12.35 p.m.

Mr. Boothby

The hon. Member for Leigh (Mr. Tinker) has taken us down to what he called bed-rock. I shall try to take the House to somewhat more lofty altitudes. It is a good thing on the Third Reading of the Finance Bill that we should have as wide a survey of finance as possible and deal from our respective points of view with all phases of a Bill of this magnitude which, as my right hon. and gallant Friend the Financial Secretary said, is the main legislative achievement of the Government in the year.

There is one point which was dealt with by the hon. Member on which I am in agreement with him. I think the most urgent measure of social reform that is needed in this country to-day is some increase in the old age pension. There are great arguments against any extension of the social services at the present time, in view of the enormous and crushing expenditure on defence, but if we examine the whole question of our social services from the humane point of view, I think it will be agreed that an increase of old age pensions is perhaps the most urgent outstanding piece of reform that could be done by the Government. I am not at all sure that it might not be possible by scraping together some money from economies in other directions, to make a small increase in old age pensions. It would do more good to a very deserving class of the community than any other single piece of legislation. To that extent I support the observations of the hon. Member.

I was very much interested, as the House must have been, in what was said by the hon. Member for Chesterfield (Mr. Benson) about cyclical Budgets. Is it absolutely necessary that on 31st March of each year, an arbitrary date in relation to the trade cycle and to events that take place in the business world, that we should suddenly sit up and make out a profit and loss account on that date and judge the Chancellor of the Exchequer accordingly? I am certain that we shall eventually come to the position when we shall have to take a far wider and larger point of view, and when the Chancellor of the Exchequer will have to take a review of the finances of the country spread over three or four years. Therefore, we shall have to get out of our minds the balancing to the last shilling on 31st March the profit and loss account of the nation.

With regard to the present Finance Bill, I think hon. Members will agree that the tax evasion Clauses are the principal feature of the Bill, and it is that feature by which it will be remembered. Those Clauses have been welcomed by hon. Members in all parts of the House. Most of the Clauses are quite unintelligible and, therefore, we have to take it from the Chancellor of the Exchequer and the Law officers of the Crown that they are O.K. I think hon. Members have shown great willingness to do that, and I trust that the Clauses will be completely justified in their results. Another part of the Bill which many of us welcome is the concession made to insurance companies. A further feature is the 5s. 6d. Income Tax. I still think that there is a question mark about the extra 6d. I expressed that view on Second Reading, and I have not seen my way to revise my opinion. I still think that it is doubtful. You do not necessarily increase revenue by increasing taxation. I am wholeheartedly in favour of the compensating relief given to the small Income Tax payer.

I would say to my right hon. Friend that if he finds himself under the necessity of making still further additions to the taxation of the country in the years that lie ahead, I hope he will do his best to levy that taxation upon inactive funds rather than upon active funds and enterprise. What some of us dislike when we see Income Tax going up is that it should be levied upon business as such. It is a direct tax on enterprise. I should like to see more taxation laid even upon the already bowed shoulders of the unfortunate rentier rather than it should be levied in increasing amounts upon the active man, the business man, upon whom the balancing of our Budget lies, in the long run, because he is the man who can raise the national income and, therefore, the national revenue. I would rather see increases of taxation on unearned income and even on Death Duties and on Surtax than a further increase in Income Tax upon trade. We must let the business man get along somehow. If we further increase the burden upon active business, we are going to clog the wheels very badly.

There is one further tax to which I should like to refer, and that is the Whisky Duty. I take a very mournful view of this Duty, because it is not only a heavy tax, but it is a penal tax. I believe that a moderate reduction in the Whisky Duty, if my hon. Friend had seen his way to do that, would have brought increased revenue to the Treasury as well as greater prosperity to the farmers of the North of Scotland. Moreover, I do not think that it would have meant an increase in the price of drunkenness. I beg my right hon. Friend to consider this aspect of the question. We have had assurances from Chancellor of the Exchequer after Chancellor of the Exchequer for 14 years that they all regarded this tax as unfairly high, and so it is, in relation to any other tax on the Statute Book.

Our expenditure was £770,000,000 in 1928–29 and it is £1,000,000,000 to-day. As the hon. Member for Hastings (Mr. Hely-Hutchinson) has pointed out, there does not seem any likelihood that it will dip below the £1,000,000,000 mark for many years to come. The burden of rates is also very serious, as was pointed out by the hon. Member for Aylesbury (Sir S. Reed), in an interesting maiden speech. In 1928–29 £188,000,000 was raised by local authorities in rates, and it is on the £200,000,000 mark to-day. If we take into account the cessation of War Debt payments, the reduction of provision for the repayment of internal debt, together with borrowings for Defence, we are spending between £250,000,000 and £300,000,000 a year more than we were spending 10 years ago, and this in spite of a saving of £140,000,000 on the Debt services, through conversion. The capital Debt burden is now double the national income, as against one-third before the War. These figures are pretty tough, and I do not think that we are going to see them much better for many years to come, certainly not if the present armaments race goes on.

An Income Tax of 5s. 6d. plus National Defence Contribution in its present form can only be supported by industry in times of active business and trade. That is a point that I should like to make as strongly as I can. What worries me about the putting of the extra 6d. on the Income Tax is that there is such a small cushion between the tax levied and the taxable capacity of business. I do not know where we shall go for money if a real emergency comes. At the moment the situation gives cause for some apprehension. I do not want to strike a gloomy note, but the trade figures are not very satisfactory at the present time. The population shows a tendency to fall. Our adverse balance of trade is definitely rising. Railway traffic, which is an indication of the prosperity of the country, has been very discouraging. It has fallen steadily. The figures for retail trade are also unsatisfactory. Courtaulds is a typical example. Their reduced dividend came as a very big shock to the market the day before yesterday. These things are an indication that all is not well with the retail trade. Last, but not least, as a barometer, is the volume of the activity of business on the Stock Exchange. During the last nine months it has been deplorably low. Sometimes the stock markets were completely stagnant. This stagnancy means a decrease in the revenue which the Chancellor of the Exchequer will receive from Stamp Duties. Unless we get a revival of activity my right hon. Friend will not get the revenue from Stamp Duties for which he has estimated in this Finance Bill.

Nevertheless, if the Budget is to balance, in spite of all these facts, this year and next year, we have not only to maintain but to increase the national income. Before I sit down I should like to make one or two comments on the question of the national income, prompted by our experience during the last few weeks. The present Prime Minister when he was Chancellor of the Exchequer proved, in one of his most valuable contributions to the economy of this country, that it was possible, provided you are not tied to an automatic Gold Standard, to combine cheap money with high taxation, and he also proved that the only method of doing so was by creating conditions which give confidence to the business and trading community. Nothing has been brought home to us more forcibly during the last nine months than the enormous psychological importance of confidence to the business and trading community of any country; it is absolutely vital. Nobody is going to blame the Chancellor of the Exchequer for the events in Central Europe and Spain which have done so much to undermine the confidence of the business community during recent months, but I cannot help putting some blame upon him for not taking sufficient energetic steps to put a stop to the silly scare about gold which did a great deal to undermine confidence at a critical time last year. We can do no more than note in this House that with every day, and every week and every month which passes—it is a point which many hon. Members opposite are beginning to understand—there is nothing more important to trade and business than confidence, and that without it it is impossible to have satisfactory conditions for trade and industry.

Another interesting reflection, prompted by our experience during the last six months, is that the economic limitations of spending by the State are considerably greater than many of us have thought. At one time we were greatly influenced by those who suggested that if we are to counteract depression the State should embark on great public works. During the last two years we have had a bigger expenditure by the Government on public works than ever before in the history of this country, and that expenditure has not yet reached its peak. We are in the middle of it at the moment, and in these circumstances it has been a great surprise to me and to other hon. Members to realise the extraordinary little effect it has had upon the economic life of the community and, particularly, on the figures of unemployment. It suggests, I think, that State expenditure on capital works is not very rewarding at least so far as employment is concerned, and that if we want results quickly, without undermining confidence, it is much better to subsidise consumption rather than to subsidise production. That is the point I tried to make in the agricultural debate, because by doing so you stimulate demand by the public rather than make the demand yourselves, and the Government is not a very good demander. Certainly I am convinced that you bring much greater immediate comfort to the poorer classes by subsidising consumption and more direct benefits to the community as a whole. Therefore, I suggest that if the experience of the last year or two teaches us anything—and we should be learning all the time—it is that State expenditure on consumption is likely to be more fruitful than on great schemes of capital expenditure.

Mr. Tinker

Does not that bring us to the point that if the State launches schemes of public works the expenditure thus created goes to the people in the shape of wages?

Mr. Boothby

While some of the money must go in wages, I am suggesting that it goes much slower, that it is a more cumbrous method, and that the results are less satisfactory. They are very unsatisfactory if you look at the effect which expenditure by the State has had on the unemployment figures. We had an instance in the United States of America where in the depression which took place in that country the payment of the Veterans Bonus by the Government had an immediate result on the trade of the country, whereas expenditure on public works had much less effect on unemployment. This brings me to the final point which I want to raise. It is this, that as more and more countries in the world become more and more isolated so the United States of America and this country are thrown closer together. We are, in fact, very largely dependent on each other from the economic point of view, and cannot pursue in isolation and independently any economic policy. We have suffered equally from the deflation of the last nine months, and if that trend can be reversed it will be much easier to reverse it in co-operation, and we shall both benefit equally from the results.

There are one or two constructive suggestions I want to put to the Chancellor of the Exchequer. An hon. Member has thrown out the suggestion that in these financial matters a greater measure of co-operation is desirable between the two great parties in the State, and perhaps the smaller third party might also be brought into the general pool as well. Certainly the contributions of the hon. Member for East Birkenhead (Mr. White) are most valuable, and his co-operation would be useful. But while we want as much co-operation as we can get between political parties in this matter, I feel that there should be greater co-operation between the central Government and local authorities, who are a very important factor in the national economy. I am glad to see the Minister of Health present, because this is a matter which must be considered in view of the vast amount of money that is raised and spent by local authorities. There should be a greater measure of co-operation between the central Government and local authorities both in the matter of borrowing and expenditure. The debt of local authorities has increased from £550,000,000 in 1920 to £1,400,000,000 in 1935, and it is greater still now. If you are to go in for a policy of greater expenditure or of less expenditure, of greater borrowing or of less borrowing in trade cycles, then it is absolutely essential that you should carry local authorities with you. With the object of increasing revenue, which is the most important thing, I suggest that a complete survey should be made by the Government of the position with regard to local government expenditure and that a greater measure of co-operation between the Government and local authorities based on better statistics and more information should be achieved.

The other suggestion I should like to make is that the Chancellor of the Exchequer should do everything in his power to stimulate overseas trade without increasing our adverse balance, which is giving many economists and industrialists a certain amount of anxiety at the present moment. I hope that the forthcoming visit of Mr. Morgenthau will be used by His Majesty's Government to explain to the Federal Government of the United States that a mere trade tariff agreement is of little value when the trend is downwards, when world trade is shrinking and when an increasing adverse balance of trade is being piled up against this country. We want a much greater measure of co-operation with the United States, and I suggest that if the Chancellor of the Exchequer wants to eliminate some part of our growing adverse balance of trade, he can do it to a much larger degree by facilitating the supply of credits to many countries in Central and South-Eastern Europe who are anxious to purchase British goods if we can provide them with the wherewithal. The difficulty in other countries than those in Central and South-Eastern Europe is to persuade them to take any of our goods at all. The countries of Central and Eastern Europe do not require to be persuaded to take our goods. They will take our goods all right if they can be provided with the wherewithal to pay for them. That is, another example, in the larger field, of subsidising consumption. I suggest that by the judicious loan expenditure of a few million pounds in that direction, we could do more to stimulate British industry, increase the revenue and correct the growing adverse balance of trade, than in almost any other direction.

In conclusion, I believe that at last there is a real ray of light, and that the upward trend, given a little good fortune and an adequate amount of co-operation between this country and America, is about to be resumed. If that be the case, and if we can keep on at least a steady keel, with growing national income and therefore growing revenue, I believe we shall be able to avoid that financial crisis which from time to time all of us, including the Chancellor of the Exchequer, must bear in mind; but if, on the other hand, the volume of world trade continues to dry up, if the commodity price level continues to drop and conditions of deflation continue, there is no doubt that we shall be faced sooner or later with a financial crisis which will far surpass in magnitude and severity the crisis of 1931.

12.57 p.m.

Mr. George Griffiths

I listened with great interest to the speech of the hon. Member for East Aberdeen (Mr. Boothby). I do not think I have ever heard the hon. Member preach a better funeral sermon, and nobody would have thought, in listening to him, that he had been backing a prosperity Government all the time he has been in the House. As I listened to him, I got the impression that he was suffering from diabetes and had not had his insulin injection. Leaving for the time being the speech of the hon. Member, I have also been thinking that the Debate this morning has been like a pleasant Sunday afternoon chat. Bouquets have been going from one side of the House to the other. I want for a few minutes to touch upon something which has not been dealt with so far. I want to finish a sentence which the Financial Secretary began, but did not finish properly. He said that we have the guns and the butter, but he ought to have finished the sentence by saying that we have weak tea as well. The Financial Secretary also said that this is the most important Bill of the year. I agree with him, because none of the other Bills would be any good without the Finance Bill. We have to find the finance if we are going to have social services, armaments or anything else, and this Bill is the key to everything else that is done in the House.

In the Debates on the Bill the Chancellor of the Exchequer has, without doubt, surpassed himself in expressing sympathies. My hon. Friend the Member for Leigh (Mr. Tinker) spoke about what I would call the apprentices Clause. I have been in the House for four years, and heard four Budgets introduced; and the hon. Member for Leigh and I have tried to get that Clause accepted each year. Every time it has been refused, my hon. Friend the Member for Leigh has said to me, "Well, George, we will have another try next year, and we may get it." This year, when I sat down after putting that Clause across, the Chancellor got up to speak, and as he played about with the matter for some time, my hon. Friend the Member for Leigh said to me, "It is not quite sure"; but ultimately, the Chancellor said he was prepared to accept the Clause in an altered form. We are grateful for that. I want to say a few words on that new Clause which was on the Paper in my name and which the Chancellor accepted after amendment. It is not the amount of money involved that counts, but the effect which that Clause will have in the entire industrial areas. Since Monday night, I have had letters galore expressing appreciation that the Chancellor has taken into account the position of young men and young women who, since 1934 and 1935, have been assisting their parents who have been on unemployment assistance scales. The sons and daughters have been contributing to the household, and they appreciate it very much that the Chancellor has framed that new Clause. I do not ask the right hon. Gentleman what the amount involved will be, because I do not think it would be practicable for him to give it. It is not a great deal, but I am satisfied that it will have a great effect in the country.

The hon. Member for East Aberdeen and the hon. Member for Hastings (Mr. Hely-Hutchinson) spoke about a Budget of £1,000,000,000. With a Budget of £1,000,000,000, I think the Chancellor would have come out far better if he had not put the extra 2d. a lb. on tea. That extra tax accounts for only £3,000,000 of the £1,000,000,000. The increase of the tax on non-Empire tea to 8d. and on Empire tea to 6d. means that the people who buy the lower-priced teas will have to pay the heaviest taxation. If they buy tea at 1s. 4d. a lb., they will have to pay a 50 per cent. tax; but somebody who goes to Regent Street or to Oxford Street and pays 4s. 6d. or 5s. a lb. for tea will pay a very low percentage of tax. The people who buy the higher-priced tea, and who could bear the tax, are the people who will get off far better in regard to the percentage of tax. After the Chancellor had made his Budget speech, I told him that that extra tax of 2d. a lb. on tea would help us to get a majority at Barnsley. That proved to be true. I helped at the Barnsley fight, and I did not forget to shove that weak tea down. It brought up our majority by almost 3,000. There are some hon. Members on the other side who think that in a sense this tax is practically nothing, but it means something to the old-age pensioners when they have to pay an additional 2d. I am sorry that the Chancellor of the Exchequer saw fit still to retain it after we on these Benches had made a special appeal that he should take it off.

I am sorry the hon. Member for Hastings has left the Chamber, because I want to say a word or two about his speech. He said that the Government could not solve the question of finance alone, but that there would have to be—I thought he wanted—a united front. I thought that the hon. Member was going to the political parties this week-end to prepare that united front. Surely, this great Government, the National Government, ought to be able to solve the question of finance without asking us to help them. Let me say this to them. If they cannot manage this job and if they feel that it is too big for them, let them clear out as quickly as possible, and we will do it for them.

1.4 p.m.

Sir Alan Anderson

This morning we have been a harmonious party, and I hope that nothing I say will break the harmony. I wish to offer very sincere compliments and a tribute of admiration to the Chancellor for having brought forward a Budget which seems to be as simple as it is brave. He has convinced the world that there is in this great democratic country the power to face the facts and the sacrifices involved in bearing this great burden of taxation. In this Budget, as has so often been the case before, the Chancellor found that the Income Tax was the widow's cruse to which he must turn. I also offer him my compliments on the fact that he is seeking to rub away one by one the rough places in the system of collection of Income Tax. It is most important that he should press forward with that work, because, as the tax gets higher, the bad effect of any injustice in its incidence becomes more obvious. The Chancellor of the Exchequer has recognised the claim of the insurance companies to some recognition of the fact that the whole of their reserves are not in the active business of the companies. Whether the exact percentage of the remission will satisfy them I have not the technical knowledge to say, but it does appear to me that the Chancellor was right in recognising the justice of the claim that part of the reserves of these companies was outside the active list on which National Defence Contribution should fairly be paid.

The right hon. Gentleman recognised another claim which had only to be stated, as it was very clearly and fairly stated from the opposite side of the House, to be recognised as just. I refer to the case of the person with a small income, who has to use part of that income in support of a member of his family who is out of work. Naturally, it was a grievance that such a person should have to pay tax on the whole of his income, indicating that part of it which was diverted to these family needs. If I may offer what is, I hope, a constructive criticism, I regret that the Chancellor did not find himself able to meet another claim, not very large but of importance to many people. That is in connection with the construction of air-raid shelters. The claim was made that this should be regarded as a business expense spread over five years to reduce the liability to Income Tax. I think the right hon. Gentleman had no option. He was bound, as a lawyer, to point out that the provision of these shelters was an addition to the capital of the business and that the business could not in certain circumstances be carried on without them. When he was asked whether it would be right to add that expenditure to capital, he gave no very exact reply but confirmed his previous ruling that it was a capital expense.

If the Chancellor had been invited by the manager of a business to give his advice as a counsellor on this matter, what would he have said? He would, I expect, have said "This expense is forced upon you. It does not add to the earning power of the business and it is an expense which you ought to write off at the earliest possible moment out of your profits." But the right hon. Gentleman could not say that here in his official capacity. It is rather like the old conundrum about the irresistible force meeting the immovable obstacle. When certain premises lead, by logical methods, to two conclusions only, both of which are wrong, what is the wise man to do? I submit that he has to examine those premises and find out where the mistake is, and I beg the Chancellor of the Exchequer, knowing how important it is that Income Tax should be fair, to look into these premises. I suggest that he will find the mistake to be that a house is regarded by law as immortal. No obsolescence of the house can be deducted from the profits of the business, whereas we have been rebuilding houses in this country at a rate which will replace the whole in, I think, 60 years.

Take the case of business premises. Take a factory, or, better still, a hotel. It is becoming more obvious every year that if we are to keep abreast of the times we must scrap the old and build new, not quite as rapidly as we scrap ships and machinery but rapidly. To allow nothing at all to be deducted from income liable to tax in respect of such a charge is unfair, and unfairness in this particular respect, should, I suggest, be avoided at all costs. We appeal to our people to recognise the justice of our direct taxes and it is on their answer to that appeal and their recognition of that justice, that this country's reputation as the greatest taxpaying country in the world depends. My admiration for the taxpayer, and particularly for the Income Tax payer, is as great as my admiration for the wisdom of the Chancellor in facing the facts and forcing us to bear this burden.

I wish to say just a word or two on some of the more general topics that have been raised. The hon. Member for East Birkenhead (Mr. White) said he did not want to be regarded as a "Dismal Jimmy," but he and other hon. Members have pointed out the difficulties in which we find ourselves, and have said that those difficulties will not grow less, and may easily grow more, and that trade will not necessarily always increase. I imagine that is obvious to the Chancellor of the Exchequer, and that there is no difference between us on that point. I think we all recognise, too, that we cannot see the whole of the road which lies before us. No one can dogmatise or say exactly when or how we shall achieve success in meeting the great economic problems which lie before this country and other countries to-day. But I think we can see the direction in which we must move and that this Budget is taking us along the right road. We have to keep up the confidence of our own people and of others. We have to restore the trade of the world. We have to restore and maintain peace; we have to be friendly with other nations and united and strong here at home. Those are policies which, I believe, are the fundamental bases of confidence, here and abroad, and I believe that it is in the confidence of traders everywhere and, in no other way, that we shall find a solution of our budgetary problems.

1.12 p.m.

Mr. Bellenger

The Third Reading of the Finance Bill is, to some extent, a formal occasion, but I propose to offer a few remarks in an informal manner. I start by saying that it would be unchivalrous on our part, if we did not pay a tribute to the Chancellor of the Exchequer for the even-tempered way in which he has steered this Bill through the House of Commons. We should also pay him a tribute, as has indeed already been done by some of my hon. Friends, for acceding to some of the requests which were made to him and which had been made to his predecessors in office on previous occasions. I imagine that the right hon. Gentleman is a shrewd judge of psychology and knows when to give a concession which costs little in revenue but which prevents some of my hon. Friends from demanding bigger concessions.

In one respect, however, if we are to judge from the remarks of my hon. Friend the Member for Hemsworth (Mr. G. Griffiths), the right hon. Gentleman has not been a careful judge of electoral psychology. We hear that as a result of the increased Tea Duty the majority against the Government in the Barnsley by-election was increased by about 3,000. I wonder how far that argument may be carried? I hope that the increased Tea Duty will have similar repercussions in two by-elections which are now pending. If it would help us to secure a victory in East Willesden, for instance there would be all the more reason for us to thank the Chancellor of the Exchequer for having so misjudged electoral psychology. That point, however, is scarcely worth arguing further and in any case it would probably be found to be out of order on this occasion. I would also like to pay a tribute to the Financial Secretary to the Treasury. We have heard the right hon. and gallant Gentleman in several capacities and it seems that with his genial bonhomie he is able to deal with finance, the cinema industry and the coal trade with equal facility. His speech this morning indicates to us that at any rate he has a masterful grasp of the provisions of this Bill.

I do not think, however, the right hon. and gallant Gentleman will mind my saying that we cannot quite follow him in all that he said. He said, for instance, that this Budget was the best that could be done in the circumstances. It may be, from the orthodox financial point of view—that is open for discussion—but I would ask him to consider whether, like ordinary individuals, it might not be better to endeavour to change the circumstances, and then possibly he or future Financial Secretaries to the Treasury might find less difficulty in getting the money with which to run the country. There is no doubt that a large portion of the huge expenditure that the nation is carrying is due to circumstances over which the Government ought to have a certain control. That has been part of our criticism in the past, that it is due to those circumstances which they have been unwilling to endeavour to control that we are faced to-day with this huge expenditure for defence. Listening to the speakers in the Debate this morning, I have come to the conclusion that no financial methods, whether they be orthodox or unorthodox, will get us out of our difficulties. We have to change the causes in order to arrive at better effects, and I believe that our only hope lies in endeavouring to change, in so far as we can control these circumstances, the policy, not only of this Government but of other Governments as well, which has led to this state of affairs.

The Financial Secretary rather plumed himself or his Government on the fact that they had been able to make better allowances to husbands and fathers, for which he told us he was eligible. I also am a husband and a father, and I know that both on this side of the House and on the other side there are some of us who are fathers of big families, which, of course, is a very unorthodox thing nowadays. I would suggest to the Financial Secretary that he might do a little bit more for us fathers and husbands, because I think it would conduce to one of the best possible effects in our national life, and that is to an improvement in family life itself. I am willing to admit that the Government have seen their way to increase the marriage allowance, but they have not gone as far as the point that it reached before the years which I suppose we must now call the years of economic depression. I think I am correct in saying that the marriage allowance, which is now £180 a year, was, previous to 1931, something like £225, and I would say that that £225 in modern circumstances, particularly for parents who have to bring up families, could not be considered as more than adequate if they are going to give the best that they can to the country. I hope the time is not far distant—though judging by some of the speeches to-day it would seem that we have to economise in the future—when we can revert to that position at least whereby husbands and wives were able to deduct the sum of £225 from their tax returns.

Captain Wallace

I know the hon. Member likes to he meticulously accurate. If we reverted to the £225 marriage allowance, and if we reverted at the same time to the other allowances which were in existence at that time, I think we might find that fathers would not he as well off as they are now. It is impossible to consider all the allowances together.

Mr. Bellenger

I am not asking that we should revert to the exact position. What I am asking is that at any rate we should go back to the £225 marriage allowance, leaving, say, the children's allowances as they are at present and perhaps increasing them as time goes on, because there is no doubt that if a parent in that position in life is to bring up his children with the advantages that he wants to give them, if he is a good parent, those sums of £60 allowance for children and £225 marriage allowance are not too adequate for the purpose. The Financial Secretary went on to say that the financial and economic policy of the Government is sound. When we apply that statement to this Bill, how does it work out? By what test is this Bill economically and financially sound? Certainly not by the orthodox test of high finance. Hon. Member after hon. Member has told the Chancellor and the Financial Secretary that we have to-day a deficit in our national finances, and I should have thought—and I hope the hon. Member for the city of London (Sir A. Anderson) will agree with me here—that if any business with which he is connected dealt with its finances in the manner in which the Government are dealing with the national finances, it could not go to its shareholders and say that its financial and economic policy was sound.

Sir A. Anderson

I think it is very difficult to draw an exact analogy between the public and the private positions. For one thing, the national account is more a cash account, than an account of profit and loss. But it is common and unavoidable in business to incur large capital expenditure which is not met out of the revenue of one year. As we have no capital account in the national accounts, it is rather novel to do it in this way, but I do not think there is anything abhorrent to business men in spreading expenditure over five years.

Mr. Bellenger

In dealing with national finances, we are dealing with almost astronomical figures. Nevertheless I would say that the same principles which apply to the humble individual, the principles that were enunciated by that character in Dickens—Micawber—that with a 20s. income and 19s. 6d. expenditure you had happiness, should apply to national finances; and if it is suggested that the method of national accounting is wrong, why should it not be altered? I think that hon. Members on the Government side who have spoken in support of that doctrine ought to agree to a revision of our accountancy system in national affairs. My hon. Friend the Member for Leigh (Mr. Tinker) voiced a plea with which I am sure we are all in agreement. He thought that these matters should be explained in language which the slowest thinking among us could follow; in other words, he said that we do not want to deal too much with high finance, but that we want to deal with bedrock facts. That is a very homely and humble plea, and many of us, most of us, I suppose, in our own budgets, have to deal with much smaller figures; nevertheless, the principle remains the same right throughout, and that is that we have not to spend more than we receive and that we should endeavour to receive more than we do in a certain year.

There is no reason why we should not attempt to expand the national income, and it follows from this fact that there is no reason why we should not extend the expenditure side so long as we do it on sure grounds. I think we all agree that expenditure in relation to the fighting Services is not expenditure which we can call a national asset; in other words, it is a highly depreciating asset, and I suggest to Government supporters that expenditure on social services is a national benefit and becomes a national asset in the balance-sheet. If hon. Members opposite disagree with that, I would ask them why they include in the national expenditure so much for what is known as physical training. All the social services are for one purpose only, to increase the welfare of our people, and it does not matter to me to which class they belong, they should get as much as the system will permit so that they can enjoy the highest possible chances of living in the best possible manner. Therefore, I for one do not regret the high figures of social services. I would increase them. I would decrease, so far as was consistent with national safety, the defence services because there is no comparison between the two. It follows therefore that if we have to increase the social services, we must increase the revenue side of our Budget.

I am not one who believes that we have reached the crest of the wave in revenue or national income. I believe that if radically different methods were adopted, both in government and in industry, it would be possible to increase still further the revenue and the business activity on which it is based. A point was made by the hon. Member for Hastings (Mr. HelyHutchinson). Generally, when the hon. Member for Hastings speaks he has something interesting and profound to say which is well worth listening to. He used the phrase, "If we are going to face national bankruptcy or possible national bankruptcy in future." It seems strange to me that hon. Members of such financial standing and business activity as the hon. Member for Hastings should give expression to the possibility of national bankruptcy. I do not believe there can be national bankruptcy if we take control of our own affairs. Hitherto, we have allowed extraneous circumstances to run away with our affairs, and the Government have not kept that grip and sound guidance on those affairs that they ought to have done. Otherwise, I believe that many of the dismal prophecies such as that to which the hon. Member for Hastings gave voice this morning about the possibility of national bankruptcy would not be made.

The hon. Member said that if we are to face that possibility in future we must have co-operation between the great parties in the State, by which I presume he meant the political parties. I would like to ask him this question. Perhaps as he is not here he may read it in the OFFICIAL REPORT and give me an answer. I would like to ask him on what basis we could have that co-operation? We have been told that there has been great harmony in our discussion this morning. This is not the occasion, on the Third Reading of the Finance Bill, to create disharmony, but it must be evident to hon. Members opposite that there is a big division of opinion between their benches and our benches as to what is the best economic system for this or any other country. I remember when I was at school we used to have such problems set to us as dividing, subtracting and adding vulgar fractions. Before we could do that we had to reduce the figures to what I believe is called the lowest common denominator. Having got the fractions on to a level plane, we were able to do our sums. I suggest to the hon. Member for Hastings that before it is possible for hon. Members on this side to co-operate with hon. Members on the other side in this sphere, we must be reduced to a lowest common denominator, or, if that term does not fit the occasion, we must be put on to a level plane in our ideas. Our ideas at the present moment do not coincide.

We heard from hon. Members this morning, particularly the hon. Member for Aylesbury (Sir S. Reed) that we must call a halt to or go carefully with the social services. I think I am expressing the opinion of my hon. Friends on this side when I say that we do not contemplate such circumstances. We realise the possibility of social services being attacked for various motives and various reasons, but as long as we see events as we see them at the present time, with expansion in industry, increasing profits, and increasing incomes among a large section of the public, we shall not agree to any reduction in the social services. On the contrary, we shall insist that they shall be carried on. In viewing the national finances I am fully conscious of the dangers of unequal taxation, too high taxation, waste in expenditure, and so on. We have to conduct our national finances in the same manner in which a provident member of the public conducts his personal finances. We have to be careful in national expenditure as we are or should be in our individual expenditure. There are certain principles which we on this side hold, and we suggest that if the Government were to adopt them they would result in greater prosperity, and not in the continued talk of recession and trade depression which we now hear, strangely enough, from Members of the Government and their supporters.

1.32 p.m.

Sir John Wardlaw-Milne

The hon. Member for Bassetlaw (Mr. Bellenger) dealt with two special and important branches of the questions which have come under discussion this morning. He dealt with the necessity of continuing, and, in his view, increasing the social services, and also with the difficulty which the Government had in presenting by means of the Budget a true picture of the national finances. I do not think anybody has raised any objection either in this Debate or in any part of the Budget debates to the provision of money for our social services and tribute has often been paid to the value of them. It has, however, been said to-day in the interesting maiden speech of the hon. Member for Aylesbury (Sir S. Reed) that there is room for criticism of the expenditure upon some of the social services in various directions. The hon. Member for Bassetlaw will, I think, agree that it is essential in the expenditure of money in this or any other way that we should get full value. I do not think there can be any dispute about that. I sometimes wonder whether we do get it. It is a little difficult for anyone to know whether we are really getting full value. Take education, for example; I wonder when we are paying more than three times our expenditure in 1914 upon education whether we are in fact getting the best value for the money. I do not think except in that respect that there has been any real criticism of the social services. We are all anxious that we should be able to pay for them and, to the extent that they are valuable to the country, that they should go on and, if really necessary and advisable, might even be extended. Then the hon. Member came to the crucial point of how we were to pay for them. Though he did not put it in that way, in effect that was what the point raised. He put forward the very natural suggestion that we should increase our trade, and in that way increase our revenue; and that brings me to the point to which I wish to address myself to-day.

It seems to me that in this interesting discussion most Members, if not all, have been concerned with what is facing us in the future, which is perhaps only natural when we are almost finished with the present year's Finance Bill. Many Members have said that we are likely to be faced with Budgets of £1,000,000,000 in the future and ask how we are to meet them, which is the same point as was put by the hon. Member for Bassetlaw, though he presented it in a different way. How are we to increase our trade? We can do so only in three possible ways—either by increasing our internal trade, increasing our trade with our own Dominions and Colonies, or increasing our trade with foreign countries. Some hon. Members may have arrived here so early in order to hear the opening of this Debate, which was so ably done by my right hon. and gallant Friend the Financial Secretary, that they may not have had time to read their newspapers very closely. If they did, however, they may have seen a statement which appeared this morning from the Federation of British Industries quoting the figures of our imports as against exports and of our net adverse trade balance. They are very significant figures. Last year we had an excess of imports over exports amounting to £432,000,000 and a net adverse balance of £52,000,000, that is, after setting our invisible exports against the £432,000,000. Is there anybody who is at all certain that that net adverse balance will not be £100,000,000 this year? Therefore, the situation is really a very serious one.

My hon. Friend the Member for Hastings (Mr Hely-Hutchinson)—incidently I did not hear him discuss the possibility of bankruptcy, though he certainly asked for co-operation—dealt with the question of what we are to do when faced with the fact of this immense adverse balance, which is probably increasing. There is not much doubt that it must be greater this year, and if I were not detaining the House I could give details showing that such an increase is almost inevitable. Then the question is, How are we to increase our trade with other countries? In the statement to which I have referred it was asserted that in the case of 10 or 11 countries quoted we purchase far more than we sell to them—I think the figure was something like an adverse balance of £300,000,000 for those 10 or 11 countries, mostly foreign countries. Naturally one turns to see how we can alter that position. For example, how can we largely increase our exports to Germany? According to the last account I read, Germany is spending £900,000,000 a year on rearmament alone. That has had remarkable results, apparently, upon unemployment there. Her unemployment is decreasing while ours is increasing, and that seems on the face of it to be a very Satisfactory position for Germany, but if, as the hon. Member for Bassetlaw says, we must put our finances upon an orthodox or, shall I say, a practical basis, such a basis as would be adopted by any prudent business man, we cannot help thinking that the results of this expenditure in Germany, in the end must be disastrous for her.

If that is so, how can Germany increase her purchases from us? On what basis can we make a trade agreement which could be carried out with a country likely to be in that financial position? As an hon. Member behind me says, How can she pay? My hon. Friend the Member for East Aberdeen (Mr. Boothby) suggested to the Treasury the desirability of giving credits to a large number of countries in Eastern Europe, but what is the use of sending our goods there if they will not be paid for in the end? One difficulty for this country is that there are no credit-worthy foreign borrowers. That is the real trouble in that branch of our export trade. A great deal of our income in the past came from loans which we had given for developments in other countries. We cannot follow that course to-day, because there are no creditworthy borrowers. It is so easy to say "We must increase our trade," but if we cannot do that because of the conditions in other countries we must turn to the two alternatives, we must increase trade internally, and increase it within the orbit of our own Dominions.

Mr. Ellis Smith

Germany is not the world.

Sir J. Wardlaw-Milne

A great deal however, can be done with certain foreign countries. I am entirely in favour of a trade agreement with America, because I believe it would do a great deal to help, but there is one thing which is almost more important than completing a trade agreement with her and that is to come to some settlement of the war debts question. Anybody who has visited America in recent years will agree that nothing is doing us more harm than our refusal, as the Americans put it, to pay our share of this war debt. It is very easy to discuss with economists or bankers in Wall Street, or even enlightened politicians in America, the disadvantages of any system of repayment, because they know quite well that the transfer of tremendous sums of money is impossible, but what the people of America still say is, "While we appreciate that you must spend a great deal upon rearmament all the same you are spending that money, and it is our money, and you have not paid us." That attitude of mind is doing us a lot of harm. If only our Government would come to some settlement, on a long-term basis—and I am certain the Americans would give us very reasonable terms of settlement—it would do a great deal of good. But even if that were done America would still be in the position of purchasing from us very much less than she sells to us.

Again I ask, How are we to increase our trade? It is not going to be easy even with America. We are back to this position in the end, that it is not at all easy to see how we can increase our trade with foreign countries to any material extent. I think we could do a great deal more with our own Dominions, and build up a much greater trade with them. We talk far too much about emigration and far too little about the reconstruction and development of the Empire. It is not a question of distributing population in order to help the unemployment position, it is a question of distributing the wealth of the Empire as a whole so as to increase the trade of the whole Empire. We could also do a great deal by improving wherever possible the power of consumption among people here, and there is no doubt that a great deal has already been done in that direction. I come back to the fact that beyond increasing the output from our own agriculture and beyond the development of our Empire I see very little chance of bringing about any very large increase in trade until financial security returns abroad and political conditions alter.

Mr. Bellenger

Surely that is a large enough project to start with.

Sir J. Wardlaw-Milne

Yes, but I was answering points which have already been made. Though I agree, for example, with almost everything else said by my hon. Friend the Member for East Aberdeen, I cannot see the advantage of giving credits at the present time to countries in Eastern Europe, and I was trying to deal with that point. The things which the hon. Member says are big enough in themselves and with that I entirely agree are certainly those which we should tackle, but we shall not restore a satisfactory financial position as long as the only solution for the present fears of the world is to pile up armaments, and as long as the world continues to work on the system that the only way to keep peace is to spend practically all its wealth preparing for war. That is the trouble with the present situation. I have not the smallest doubt that long after we are dead and gone the world will turn towards a new sort of philosophy and will take cognisance of the fact that space has been practically annihilated by the development of the air, that there are no real boundaries between nations, and that nations will have to work together as one world unit. Then all this tremendous and ridiculous waste of real wealth will go for ever.

But we are not there now. We are facing the position as it is. I feel that the situation is not a very pleasant one, or that there is a very happy prospect before us. The difficulties of the Chancellor of the Exchequer will be greater next year than they have been this. I do not think it is any use our pretending anything to the contrary or that it would be doing a service to the nation to pretend that things are going to be easy. They cannot be easy in the presence of this vast and useless expenditure. I congratulate the Chancellor of the Exchequer on his Budget, which met the situation to the end of April courageously and fairly with respect to all sections of the population but I was glad to hear the Minister who spoke this morning disclaim any idea of complacency. I think that he described complacency as one of the seven deadly sins. Like him, I am not at all sure which were the Seven Deadly Sins, but whether complacency be one of them or not it is certainly a deadly sin in a Government. It would be particularly deadly in the present circumstances. No Government in this country facing this colossal waste of money could be complacent, but every party now agrees that the Government has to face it and to justify it to the country. As I have said, I congratulate my right hon. Friend on his Budget. I do not envy him the task which possibly lies before him nine or ten months hence.

1.48 p.m.

Mr. Ridley

After the very interesting speech which has just been delivered in an atmosphere of almost cloistered calm, I fear that a normal Parliamentary speech would be regarded as a piece of unseemly brawling. Therefore, I resist that temptation on this occasion, and contribute to the atmosphere of cloistered calm by offering my congratulations to the Financial Secretary to the Treasury upon the speech which he made in opening the Debate to-day. Those congratulations come more from an envious opponent than from a warm-hearted friend. I congratulate him upon being able to make a speech avoiding those parts of the Budget to which critical attention has been directed and enabling him to deal a little inordinately, and with a considerable degree of self-satisfaction, with those smaller and isolated parts of the Budget provisions which afford a slightly happier prospect. I say with all courtesy to the hon. and gallant Gentleman that if he manages to improve that technique there is a tremendous future before him in the party to which he belongs.

I was not quite sure whether he was attempting to deceive himself or the rest of the House, or whether he was a little too conscious of the Seven Deadly Sins to make it possible for him to realise that he was aware of the effect of what he said. I think he betrayed at least one weakness when he claimed that the financial and economic policy of the Government was sound. I am sorry that the hon. Member for the City of London (Sir A. Anderson) has left the Chamber. I know that all of us are tempted to use phrases that rather exaggerate our real meaning and intention. The hon. Member is the last person in the House I should have thought guilty of a verbal error of that kind, but when he described taxation as a terrible burden, not merely as a burden, and applied that description to the increase of 6d. on the Income Tax, I can only say that he must live a life which makes it impossible for him to realise what a tremendous burden actually is.

I have never been able to bring myself to believe that the Income Tax, except perhaps in the lowest ranges, is a burden, as long as it leaves the great majority of people, as it leaves me after the tax has been extracted, with an income ensuring a tolerable and even a pleasurable existence. Burden it may be, but certanly not a terrible burden. The hon. Member for East Aberdeen (Mr. Boothby) seemed in some sense to share that view when he said that Income Tax was a burden on industry. If that description had been applied to the National Defence Contribution I should have had some sympathy with the hon. Gentleman. Although the National Defence Contribution was accepted almost universally last year, I never felt confident of its incidence or the method of collection. I have never understood why a struggling business man in a world of uncertainty should have to make a contribution of this kind out of his uncertainty, while professional people who do not risk those uncertainties in anything like the same degree should he completely free from that imposition and that contribution. I will not proceed further with that point except to suggest to the Financial Secretary to the Treasury that it might be of considerable benefit to the House if the basis of the taxation were broadened to include not only the range of companies to which the taxation at present applies, but what are generically called "professional people," to whom the taxation is not at present applied. It would be of considerable benefit if the incidence and application of the taxation were more clarified than at present.

The hon. Member for East Aberdeen seemed to think there was a conflict between the desirability of swelling purchasing power and financing public works. There can be no conflict between those two equally desirable things as long as they are related to the circumstances of the time and are properly applied. As to the first, I hope that the House will believe that I do not seek to make a cheap point when I draw attention to the desirability of lifting purchasing power in order to stimulate purchasing capacity and thereby to encourage a wider production-employment and employment-production. I have never been able to understand how the Government fail to realise that the application of the means test to the allowances made by the Unemployment Assistance Board is anything more than a very undesirable restriction on purchasing power among a section of the community whose members spend every penny they get almost on the morning on which they receive it. Further, it is a highly undesirable restriction of purchasing power in those very localities, in the main, where a stimulus to purchasing power is most urgently called for.

The hon. Member for Hastings (Mr. Hely-Hutchinson) made, as he always does, an extremely interesting and informative speech, though I am bound to say I disagree with practically all that he said and the conclusions that he reached. He did indicate, however, that the solution of one at least of our major financial problems calls for a new and, indeed, perhaps, an unorthodox approach. He has in mind a point which gravely concerns many of my hon. Friends on this side, namely, the present burden of debt charges. I hope I shall not be regarded as discourteous if I say that wisdom is welcome even if it comes a little slowly and rather belatedly, but some of my Friends on this side of the House, and especially my right hon. Friend the Member for East Edinburgh (Mr. Pethick-Lawrence), would be entitled to say that nearly 20 years ago they pre- dicted that this grave financial difficulty would arise. The Budget contributes to an aggravation of the National Debt position in the sense that it almost completely suspends the Sinking Fund provision. Is anything going to be done to meet that situation, and, if so, what? The National Debt charge this year approaches £250,000,000, and it is likely to reach that figure before we know where we are. Not only does this Finance Bill not reduce the total burden of the National Debt, and, therefore, the burden of annual interest charges, but, on the contrary, it adds to both, and, therefore, further aggravates an already sufficiently aggravated situation.

The National Debt charge will be still further added to, not only by the continued process of borrowing, but by a rise in the rate at which Treasury bills can be raised. If a Labour Government had been responsible for unbalancing the Budget in this way, by adding permanently to the debt charges on the top of desirable expansions in the social services, there would have been a whirlwind political campaign. I suggest that no amount of argument can avoid the accusation that, whereas the borrowing of £400,000,000, no matter what the conditions may be, is regarded by the Government as an act of financial probity, of financial sanity, when it is for the purposes of armaments, the borrowing of less than a quarter of that sum seven or eight years ago by a Labour Government for the purpose of maintaining unemployment benefit and assistance was regarded as a process of financial bankruptcy. Have the Government a policy in the face of this tremendous annual debt charge; and, if so, what is it? Are the annual Sinking Fund payments to be resumed; and, if so, at what rate? I calculate that, if they were resumed at the normal rate of £50,000,000 a year or thereabouts, and no further additions were made to the total debt burden, it would take 160 years to pay off the total, and the total interest in those 160 years would be somewhere about £4,000,000,000.

There is another very material point. If we are really entering, as many people appear to believe, according to the speeches to-day, a period of trade recession, which presumably will require some kind of national financial economy, we shall be told that no economy can be exercised at the expense of the debt charges, and, therefore, the Government will manage to persuade themselves that they must bring about some economy in the social services, however reluctant they may profess to be to do so. The continuance of this National Debt charge at its present level not only stands in the way of all social service expansion, but it will, I predict, in a period of trade recession, be used as an excuse, which will be called a justification, for restricting and economising on the social services. It is the fact that 17 or 18 years ago the party on these benches was responsible for putting before the House a proposal which would have ended this situation, and would have saved us from a dilemma from which we can only escape now by adopting some entirely now process.

I still cannot but regard the imposition in this Budget of further taxation on tea as something that almost reaches the lowest possible point of contemptibility. It is impossible for me to believe that, in a Budget of nearly £1,000,000,000, no other way could have been found of raising this miserable £3,000,000 than by dipping the hand of the Treasury into the almost empty pockets of unemployed men and extracting pennies therefrom. The amount could have been so easily raised in other ways—say by another ¼d. on the Income Tax, by some slight addition to the Surtax, by some addition, which would never be noticed at all, to the Death Duties, or by some slight increase in any of the more healthy forms of direct taxation. A great deal of pleasure seems to be derived by the Chancellor and the Financial Secretary from the fact that the proportion of direct to indirect taxation is increasing year by year, if only in a very small degree. That may be true; figures can be so employed as to reach any conclusion that is desired by those who employ them; but it remains the fact that, although the proportion has changed slightly and in the right direction, the total value of indirect taxation continues year by year to increase, either as a result of new import duties or, what is more important, of additions such as that which has just been made to the Tea Duty.

Because the Budget is unbalanced in a way that would have brought down a load of denunciation on the head of any Labour Chancellor, because it does not face the tremendous and urgent problem of total debt charges and total National Debt weight, and because it stoops to what I have already described as the lowest point of contemptibility in extracting £3,000,000 out of the lives of working-class people, I hope the day is not far distant when a Labour Chancellor of the Exchequer will be in a position to devise a better and a wiser financial provision.

2.5 p.m.

Sir John Mellor

Many hon. Members have referred to-day to the harmony with which the proceedings, not only on the Third Reading but throughout all the various stages of the Finance Bill, have progressed. I think that harmony has been assisted by a very comfortable balance of power which the Chancellor has held, at least in this respect. Whenever his proposals have been assailed by back benchers on his own side he has usually had rallying to his support Members of the Opposition urging him not to be persuaded by us. He sometimes has been persuaded, but more often not. However, I do not wish to complain on that score; because I recognise that whenever criticisms have been made from any quarter of the House he has endeavoured to meet them, and he has given our representations every possible consideration. I hope, therefore, that he will take no exception when I repeat a criticism which has been already made of this Bill on a previous stage, with regard to the retrospective legislation embodied in Clauses 23 and 25.

I am sure none of us objects to that amount of retrospective legislation which is being aimed at defeating evasion, but Clauses 23 and 25 are not concerned with evasion in any way. They are aimed at reversing the decisions of the Court of Appeal in what are known as the Paget case and the London Provincial Trust case. Those cases were discussed freely on the Report stage, and I will not proceed to discuss them again. In those cases the Courts declared that there were certain existing rights, and now this Bill is going to reverse those declarations. Those cases were test cases, and the intention, therefore, was that they should determine the existing rights of not only the litigants themselves, but of all other people similarly situated. It is rather unfortunate that, when the Courts have given a certain interpretation to a law, the Government should say, "We do not like that interpretation, and we propose to reverse it." The Government are saying that, whatever the interpretation the Court gave, the intention of the Parliament which made the law was something different, and therefore they now propose to give, by virtue of this Bill, a different interpretation.

The rather casual way in which this piece of retrospective legislation has been introduced will cause a good deal of concern and a certain shock to confidence. De Quincey once observed that many a man dates his downfall from a murder of which he thought but little at the time. I am not suggesting that this is going to have the slightest political consequence, because there are not many people interested in this question, serious as it is. But I suggest that it may have its future repercussions upon the respect in which our Parliamentary institutions and our judicial system are held. The taxpayer, as a result of treatment of this kind, will begin to feel more and more that in dealings with the Crown the customer, so to speak, is always wrong. There is an appearance of discrimination against the taxpayer always, in favour of the Crown. The Chancellor has maintained that Clauses 23 and 25, in providing retrospective legislation, are in this case quite fair. That may be so, but I want to draw attention to the discrimination which exists in this Bill itself.

Clauses 23 and 25 provide retrospective legislation in favour of the Crown. Now let me turn to Clause 45, in which the Chancellor has made a much-welcomed concession to certain insurance companies with regard to the incidence of National Defence Contribution. He has given that concession because he recognises that it is only just and fair, and yet I have not heard him suggest that it might be made retrospective. If the Crown consider that we should have retrospective legislation in their favour with regard to the questions which were raised in the Paget case and the London Provincial Trust case, it would be just as reasonable for the insurance companies to suggest that, in view of the Chancellor's admission that their claim is just and fair, this concession should be ante-dated to the inception of the National Defence Contribution. I have no hope that that will be done, but I think I am making a fair point.

A great deal of revenue has been lost in the last year or so as a result of default by foreign Governments upon debts due to this country—default in payment of interest and in repayment of principal. This, in many cases, has been wholly unjustified, because some of those countries which have been in default have had quite a favourable balance of trade with us. It should be made clear to the world that to enjoy the advantages of the British market is not a right but a privilege, and that if they wish to trade here they must be prepared to do two things for us—to allow our trade to flow freely into their countries, and also to discharge their obligations to this country to the utmost of their ability. As the Treasury is really deeply interested in this from the point of view of revenue, the Government should do all they can to stiffen the backs of our negotiators when they are in negotiation with regard to any contemplated change in the terms of a loan. Our negotiators have been much too ready to compromise. We always take the view that we never expect anyone to pay us what they cannot afford to pay, but we expect them to pay what they reasonably can. I do not see why, when some foreign Government is in temporary difficulties and temporarily unable to discharge the obligations of its loans, that should be made a reason for permanently altering the conditions of the contract. Temporary relief should be allowed, but our rights under the contract should be preserved, so that in the event of that country returning to prosperity it should once again discharge its obligations to this country in full.

I wish to refer only for a moment to the question of the standard rate of Income Tax, and for this reason: The Financial Secretary to the Treasury pointed out that, apart from a slight disturbance when it was first announced, the increase of 6d. on the Income Tax had not had very devastating effects throughout the country. I think he can claim that with a certain degree of truth; but none the less I believe it has had some retarding influence upon enterprise, and that is bound to be so, because the more a business man sees the Chancellor of the Exchequer taking a larger and larger share of his profits without accepting any of the risk of the enterprise, the more reluctant does that make him to take any further risk himself. The hon. Member for Chesterfield (Mr. Benson) made some remarks with which I felt in a very large measure of agreement, with regard to cyclical finance. He pointed out that it is most desirable that we should be inclined if anything to reduce taxation in times of depression, and perhaps be able to borrow a little more freely then, and on the other hand in times of prosperity to increase taxation and then repay the loan. I think that that is certainly what we should aim at. The hon. Member went on to say, and I agree with him also in this, that that is possible only if credit stands high. But where I find myself in abrupt disagreement with the hon. Member is when he says that that was the reason why the Chancellor of the Exchequer was unable to carry out this process at the moment.

Mr. Benson

The hon. Member has misunderstood me. I said that if we were to adopt a cyclical finance, it was essential that the integrity of this House in financial matters, and the integrity of public opinion, should stand high, and not credit.

Sir J. Mellor

I am obliged to the hon. Member. Whether one calls it integrity or credit, I do not see that it makes much difference. Whether you call it a test of credit or of integrity, at the present time the Government can borrow at a rate varying between 2½ and 2¾ per cent. according to the date of maturity of a loan, and that is fairly good evidence both of credit and integrity. I hope very much that the Chancellor in future will be prepared in times of depression to borrow much more liberally, with a view of repaying in times of greater prosperity the debt so created.

2.18 p.m.

Mr. S. O. Davies

It is the statement of the Financial Secretary that is more responsible than anything else for my brief contribution to this Debate. I was intrigued from the moment he stated—I am paraphrasing his words—that the Finance Bill is financially economic and sound. I have been asking myself what criterion the Financial Secretary had in his mind when he made that statement. Was the statement based merely on arithmetic, or was it related to the conditions that obtain within the country to-day? A Finance Bill that is not intelligently related to the economic condition of the country is something that should not be boasted about too much. Take the astronomic expenditure on armaments. One asks, is that economically sound? Is an army of nearly 2,000,000 unemployed regarded as contributing towards the economic strength of the country? Then there is the vast debt that is such a burden of the country to-day. Were these facts in the mind of the Financial Secretary when he said so emphatically that this Finance Bill was financially and economically sound?

My criticism of the Bill is this: It reflects an appalling state of things in many respects, and in this matter the Chancellor cannot shirk responsibility. The Finance Bill should make a contribution towards removing or reducing very substantially the army of the unemployed that we have to-day. I have been interested in the Debates from the beginning, and I am not yet persuaded that in the planning of the Budget, in the imposition of taxation and so on, proper regard has been had to the causes of unemployment, the causes of poverty, and to the effect of low purchasing power amongst millions of our people. When I hear the statement that this Bill is economically sound, I ask myself a question as to the basic conditions that exist and that have determined a most important Bill of this kind.

References have been made to the need for increasing the trade of this country, and we all share the same view on that subject. But speech after speech has discouraged us from hoping for an increase of trade with many countries with which in years gone by a great mass of trade was done. Surely the best market the Chancellor has, the best market that the Government have, the most certain market that should have first consideration with any Government in this country, is our inland market. We are faced with the astonishing and almost tragic situation that a country such as ours, which has brought into being and evolved out of generations of industry the highest technique to be found in the industrial world, great instruments of production all capable of meeting the material needs of our people, cannot equate productive power to consumption in this country. Cannot that be done? Were it done, inevitably—and this cannot be challenged—our army of unemployed would be almost entirely eliminated, and a great increase in the purchasing power of the people would naturally be effected, but the Finance Bill does not remotely adumbrate that a need of that kind was in the mind of anybody who brought the Bill into existence. During these Debates speakers on the Government Benches have more than hinted that our expenditure in social services will have to be considered, and some hon. Members have been frank enough to tell the House that they would have to be very substantially reduced.

The question has been asked this morning whether we are getting full value for our money as far as our extensive social services are concerned, and education was mentioned. I am forced to confess that we are not getting the value for our money that we ought to get. Anybody who attempts to visualise the conditions of the children who attend the elementary and secondary schools in the depressed areas of the country realises that they are not being fed as they should be fed, and that they are certainly not being clothed as British children ought to be clothed. Children are being restricted, because of the lack of material things in a thousand and one ways. Homes, in many cases, are badly impoverished, homes, which, incidentally, have been called upon to pay the extra duty upon tea.

Obviously owing to the social, economic and pecuniary conditions of the home, and owing to the restrictions upon the children arising out of their material poverty, we are not getting full value for our money. The better-clad children living in more comfortable circumstances in homes which are not troubled or embarrassed by poverty are the children able to assimilate the best that our educational system can give. Whatever the Financial Secretary to the Treasury said, it is a reflection of the policy of the Government both at home and abroad and I have to admit that we are not getting full value for a great deal of the money that is being spent. The vast expenditure on armaments is the worst kind of imbecility and madness in which any country can indulge, and the Government cannot shed their direct and immediate responsibility for that policy of madness which has been admitted this morning on the Government Benches. It is a policy which means spending all that we have, and, in carrying it out, it means ruin to our people and disaster to a great many later on.

I am sorry that we have had to express discordant notes as far as the Finance Bill is concerned. As my hon. Friend the Member for Bassetlaw (Mr. Bellenger) said this morning, we cannot consider a Bill of this kind without having regard to the circumstances that determine the expenditure reflected in the Bill; the circumstances that draw away from far more useful and helpful channels vast wealth to be used for destruction and not for helping the country. We have to have regard to the policies of the Government, to their reactions and to great and terrible situations, and we are, in the passing of this Bill, conscious of the fact that we have now to pay a terrible penalty for the shortcomings, the misguided policy, the prejudices and the bias of the Government, and well will the country rue it in the near future.

2.32. p.m.

Mr. Magnay

I wish to make some observations on the Debate as I have heard it from the beginning this morning. I congratulate the Financial Secretary to the Treasury upon what, in my opinion, is the only cheerful speech we have had this morning. It seemed to me, as I listened to this speaker and the other, that we have had so many doctors giving their reasons for the ill-health of the patient, some saying that it is a kind of blood pressure, others that it is a slow pulse, and others a very high temperature. A thousand and one reasons have been given why England is not doing well. I hope the Press will adopt a very cheerful note to-morrow, because if there are any ambassadors representing foreign States here this morning, they will imagine that we are in a parlous way in this country. I regret this bedside manner. Someone has talked about the low voice that should be uttered and all that sort of thing. I suppose it is my inborn optimism and that I should be thankful for that. I thank God that I am an Englishman and that England is the best place in the world in which to live. I suggest that we might have as our topic, "Cheerio." and should take courage in the discussion on the Third Reading of the Finance Bill.

I have heard the Budget referred to as a balance sheet. That is sheer nonsense. It is a cash account of receipts and expenditure prepared in a state of war—economic, not political war—throughout the world. When we look round and take in the whole horizon of the world and the condition of the world, we have every reason to be thankful that that cash account is in such a good condition. It is not a balance sheet but a cash account. We can easily tell what our liabilities are and can put them down quite easily, but there has not been born the man who can take the assets of this country, take a material stock of this country and assess the goodwill of the country. What man, however capable, is competent enough to assess the spirit, the will, the guts of our people? Until you can do that you cannot draw up a proper balance sheet of this country. One would have thought, on hearing the discussion this morning, that we were really down and out and that we had only a few years to live. These doctors are quite certain about it. The experts, however, are generally wrong. The patient has the will to live, which is the thing that matters.

We have heard reference this morning to the national income. Who can determine the national income? It is not a static thing. It is not a reservoir that can be measured. It is always altering according to the productivity of our people. The expert who makes assumptions based on 1914 is a Rip Van Winkle. This is a totally different world from the world of 1914. The economics of J. M. Robertson and W. S. Robson, of 30 years ago, in which I was schooled, must be wrong, according to some of the speakers this morning. They have complained of the excess of imports into this country. How on earth is Argentina and other countries, which have had huge loans from our grandfathers generations ago, going to pay compound interest on our grandfathers' loans, except by commodities and services. Is there any other way? I do not know of any other way. Why should we prevent these benefits coming into the country. I should be only too glad if some well-to-do man owed me £5,000 and he paid me at the rate of £250 a year in interest. I should not complain about getting it. That is precisely, as I see it, the condition of this country. The dilemma into which these experts get themselves is that they must either cancel the debts and stop the im- ports coming in, to the disadvantage of our people, or they must raise the standard of living of our people. I want to improve the standard of living, and we will take all the imports we can get to feed them and do them good.

Reference has been made to old age pensions. I hope it may be possible soon for my right hon. Friend the Chancellor of the Exchequer to bring in a scheme for the augmentation of old age pensions to the most deserving of our people. I remember when the late Joseph Chamberlain could not bring in old age pensions, because they would cost £3,500,000. That was too much for the country. Those were the good old days about which we hear so much. There never were any good old days. In those times £3,500,000 was too much for the country to provide for old age pensions, but there was a man named Asquith, who was Chancellor of the Exchequer, and without telling anyone anything about it he laid aside a nest egg. When Sir Henry Campbell-Bannerman died and Mr. Asquith was made Prime Minister, the money that he had set aside for old age pensions was available, and the right hon. Member for Carnarvon Boroughs (Mr. Lloyd George) got the credit for bringing in the old age pensions. What was the result? There was immediate benefit to trade. All the small shopkeepers benefited. It is not a waste to put more and more money to the benefit of those who need it most. It is a wise course to adopt, not merely because it is a humane thing to do, but because it would be a very beneficial thing for the trade of the country.

We live in a new age. Anyone with eyes to see and who can read the signs of the times, knows full well that they are the birth pangs of the new age. The chaos, the misery the dreadful things that are happening throughout the world, are the signs of the new age, and we must apply ourselves with faith and confidence to do what we ought to do in order to make the new age what it ought to be. Then I think that there will be not a post mortem three or four years hence, which might seem imminent from the speeches this morning, but that the best is yet to be.

2.43 p.m.

Sir John Withers

I congratulate the Chancellor of the Exchequer on the practical completion of the Finance Bill, and I hope that he will excuse me if I repeat what I said on a previous occasion, that I hoped, in future years, some effort will be made to simplify the Budget and the Finance Bill. They are almost unintelligible. For instance, in Clause 41 there are three pages devoted to an explanation of expressions. We cannot expect the ordinary man-in-the-street to understand the Finance Bill, but we can expect that the ordinary solicitor, barrister and chartered accountant should be able to understand it and be in a position to advise. It is, however, very difficult for anyone to understand these matters. I hope that without delay the whole matter of simplification of the finance law will be taken into consideration. Every Member of the House and the people outside ought to be able to understand the why and wherefore of our taxation. There is only one section of the present Finance Bill which I can well understand and that is the Clause which increases the Tea Duty.

2.45 p.m.

Mr. Barnes

It is rather interesting to have the comment of the hon. Member for Cambridge University (Sir J. Withers) that the only part of the Bill which is plain to him is the Tea Duty. That is rather significant. That is the tax which falls extremely heavily on the poorest of the people, and one wonders whether the ambiguity of other Clauses in the Bill is to permit legal ingenuity to find opportunities for evasion. I can imagine that the Chancellor of the Exchequer will feel a great sense of relief when this Measure has passed to the Statute Book. It has not aroused any fierce controversy or called forth any considerable measure of approval. The House of Commons and the country is accepting the Bill with a sense of weary resignation. It will inflict taxation on the country of about £1,000,000,000; approximately one-quarter of the national income.

That is a very grave state of affairs, and I cannot understand the irresponsible attitude, I will not say carelessness, of the hon. Member for Gateshead (Mr. Magnay) when dealing with figures of this description. Despite this enormous burden, we are borrowing at the rate of £2,000,000 per week. The National Debt is £8,000,000,000 despite the fact that since the War we have paid off in interest £5,000,000,000, and we are now beginning to pile up an enormous future burden. It is a new version of visiting your sins upon your children. The circumstances of war expenditure are certainly beyond the control of this House, and in view of the burden which it represents on the resources of this country, there is no justification whatever for adding this burden to the National Debt, especially as this Bill does not represent the limit of our commitments.

Next year, unless unforeseen circumstances arise, we are likely to have to meet even heavier burdens. Surely before passing this Measure we should reflect on the circumstances which impose these staggering burdens on the community. There is general agreement that they spring from international conditions. The handling of our international affairs by the Government, which so directly reacts on the finances of the country, appears to be more confused and uncertain. Certainly public opinion cannot follow the policy which the Government are pursuing in international affairs, and leading representatives of all shades of thought and opinion are expressing their anxiety in a manner which, I think, has never been experienced before. It arises from the fact that the Government have allowed the initiative in international affairs to pass from the democratic states to the Fascist Powers. That is the fundamental error. We have sacrificed our position in the Mediterranean, permitted France to be surrounded by potential enemies, deserted the League and flouted collective security. In this Bill we are paying the price of that policy without in any way adding to the security of the country.

When we look at the Finance Bill in relation to home affairs, I cannot see that it any way appreciates the fact that we have a growing problem of unemployment. The figures now are 1,800,000 able-bodied unemployed. I ask the House to reflect for a moment on this position. The enormous armament expenditure must affect advantageously the primary trades of the country. In 1931 the nations of the world were spending £1,000,000,000 on armaments. This year the same group of nations will be spending about £3,000,000,000. This represents the pumping into industry of enormous artificial employment, and a good deal of this artificial employment in the natural course of events is bound to find its way into our primary trades. We are beginning to reach the peak of this expenditure, and the past year should have reflected some of the advantages to employment in our primary trades. I ask the House to consider these figures. If you take the number of registered unemployed in the coal, engineering, shipbuilding, iron and steel, building, public works, cotton and woollen, industries you will find that in December, 1936, the total was 1,628,700, and for the same group of trades in February, 1938, the total number was 1,719,876, an increase of 91,176. That group of trades, I submit, is one which should respond to this enormous expenditure on armaments, and surely the House should reflect on the serious state of affairs which these figures disclose, and what we are likely to have to meet in the future.

If you take the national financial position you will find that we are only paying now for our imports by visible exports to the extent of 60 per cent., and despite that drop in the proportion the exports for the first six months of this year, from January to June, have declined by another £25,000,000. Therefore, at the end of the present year the proportion of imports paid for by direct exports is likely to be even lower than 60 per cent. It seems to me that not only this country, but the world is facing two grim alternatives, and I think that we should consider the probable outcome of the policies that we are initiating and carrying through. If the armaments race continues without any check, it is likely to lead to war. It appears to me to be a reasonable deduction that war under modern conditions might easily lead to revolution and chaos. If, on the other hand, we escape the actual declaration of war, what will be the impact of the present state of affairs on the internal conditions of this country and of other countries?

During the last two or three years we have been doing what we did during the War. Every country has been, and is, piling up enormous productive machinery and agencies in addition to its normal peace productive capacity. After the War, we discovered that the productive machinery created for war purposes could not be used for peaceful purposes, and that led to an outbreak of economic nationalism and efforts to attain a state of self-sufficiency which eventually destroyed the whole basis of international trade and produced the conditions of crisis which led to our having, between 1920 and now, from 1,000,000 to 3,000,000 people unemployed. At the present time, we are deliberately pursuing a similar policy to that which we then pursued. I see no evidence of preparations on the part of the Government, despite the experience which we have had since 1920, to anticipate the situation that will arise. This Finance Bill, instead of doing anything to remedy that state of affairs, seems to me to worsen it.

Let us consider the oil duty as an example of the general policy of the Treasury towards employment. This Finance Bill further discriminates against road transport by imposing another one penny a gallon on the oil duty. I submit that that increase is bad from the social, industrial and Defence point of view. It is merely a continuation of the policy which the Treasury have followed for a good many years towards an industry that would be capable, if properly handled, of easing many of our economic problems. With regard to the social aspect of the matter, the motor car, the motor coach and the omnibus have added enormously to the travel facilities, the enjoyment and the recreation of the masses, and it would indeed be very difficult to estimate the advantage to the masses of the people. To industry, it is an economical and valuable means of transporting certain commodities from the factory to the customer. It reduces damage in the handling of goods and it reduces the expenses.

The employment aspect of the problem has been entirely overlooked by the Treasury. Surely, the continuance of this great unemployment problem has an important bearing on our national finance which ought to be recognised. I wish to call the Chancellor's attention to some figures which are very important, for they show the effect of this oil duty on our national finances and also on the larger problem of unemployment. In 1923, the number of persons employed in road transport was 257,000, in motor car production 191,000, making a total of 448,000. In 1930, 351,000 were employed in road transport, 247,000 in car production, making a total of 598,000. In 1937, 411,000 were employed in road transport, 351,000 in car production, making a total of 762,000. From 1924 to 1936, the number of people employed on the railways declined from 700,000 to 585,000. I do not quote those figures as a comparison, because I hope that we shall get rid of that attitude of looking upon complementary services as competitive services. What I wish to stress is the need for a public policy being framed which will look upon road transport and railway transport as a whole and take into consideration not only their capacity to bear taxation, but whether the taxation encourages or discourges a particular aspect of the transport industry, which has a bearing on employment, wages and purchasing power.

In 12 years there has been a decrease in the number employed on the railways of 115,000 people. That might necessitate a policy which would try to prevent the decrease, but I submit that such a problem should not be approached from the standpoint of trying to prevent the decrease by preventing a natural increase elsewhere, in a transport industry which, despite Treasury discouragement and discouragement in many other directions, has increased the number of its employés by 314,000 in 14 years. I submit that if this policy of financial discouragement of the road transport industry were ended, we should have one of those new modern industries that would give increased employment and thus help to solve the perplexing problem of 1,800,000 unemployed. This year the volume of taxation which the Chancellor will get from this industry will be between £80,000,000 and £90,000,000. If one takes the insurance costs, another thing which is imposed on motorists by law, I should think they are equal to both the licence and the oil duties combined.

We must remember that this taxation was imposed for specific reasons. It was appreciated that there was a new type of vehicle and a new type of user of the road, and that the old roads could not bear the new burden. It was felt to be unfair to place the cost of road reconstruction on local highway authorities, and Parliament imposed special taxation for the purpose of equalising the burden on the local authorities. Ever since, the policy of the Treasury has been to abstract this taxation for its own purposes in dealing with the budgetary position at the expense of the roads in the country. Indeed, I think that the responsibility for a good deal of the loss of life which is taking place on the roads to-day, a re- sponsibility which we are trying to push from one to another, is directly traceable to the financial policy of the Treasury in this respect.

I cannot conclude without making some reference to the Debate which took place at an earlier stage on the proceedings of this Bill when I endeavoured to have inserted a provision exempting co-operative societies from the National Defence Contribution. In view of the injustice which we have felt in connection with this matter, I should like to recall what the Chancellor of the Exchequer said on that occasion. He tried to explain his attitude towards the co-operative societies by saying that there was no mention of co-operative societies as such, in the provision dealing with the National Defence Contribution. I may be permitted to quote his words: You would almost have supposed that as the National Defence Contribution is now on the Statute Book, having been enacted last year in the Finance Act, you might think that there was a provision which said that the cooperative societies should also, and especially, be made to pay National Defence Contribution. There is not a word about them in the Statute from beginning to end. They are not mentioned. The reason is that the National Defence Contribution was levied by Parliament upon profits arising from a trade or business in each accounting period, such profits to be computed on Income Tax principles."—[OFFICIAL REPORT, 28th June, 1938; col. 1802, Vol. 337.] I venture to suggest that the Chancellor conveys the impression that the rules of the application of Income Tax have been followed strictly and without deviation in the application of National Defence Contribution. Now that is not the case, and I propose to prove it, again, from the Chancellor's own words used on the same evening when dealing with another aspect of the problem. Within the current year and within the limits of the Income Tax law as regards taxation placed upon trade and profit for the year, a business earning under £2,000 in profit, gets exemption.

The Chancellor of the Exchequer (Sir John Simon)

So does a co-operative society earning under £2,000.

Mr. Barnes

I admitted that in the previous Debate. I do not think the Chancellor is entitled to make that point, because when I was moving my Amend- ment on 28th June I particularly discrimination there. But it does not alter the fact that the right hon. Gentleman has introduced a variation from the conditions that he laid down that busiemphasised the point that there was no nesses earning less than £2,000 are exempt, although they are carrying on trade for profit, and so on. Then, when we came to public utility companies, which were carrying out trade for profit during the year under review, the Chancellor, in column 1806, makes this statement: I cannot proceed on any other principle than that, in enacting this national contribution principle, we voluntarily decided to exempt companies where they are statutory undertakings consisting, wholly or mainly in the United Kingdom or the Dominions, of certain services such as the supply of water, gas, electricity, and so forth. I do not think that it would be possible for the House of Commons to take out individual cases and say, "It is true you are not within the definition, but I will tax you.' You must proceed on some definition, and the definition here is the best we can make, though I confess that some of them are escaping when you expect them to come in."—[OFFICIAL REPORT, 28th June, 1938; col. 1806, Vol. 337.] On what basis can the Chancellor first, in column 1802, make that statement in regard to co-operative societies, in which he conveys the impression that there is no specific mention of any type of trade and no exemption to any type of trade, and then, in column 1806, admit that they could not accurately define a public utility company to come within that definition of a public service with limited profits, and yet be prepared to exempt the whole of them and to allow them to escape? Again I want to remind the House of the inequity of this situation. If you take the County of London Electric Supply Company, from 1923 to 1935 their profits ranged from 10 to 15 per cent. and the capital bonus distribution amounted to 133⅓ per cent.; the Kensington and Knightsbridge Electric Lighting Company in the same period averaged profits from 7 to 15 per cent. and the capital bonus distribution was 205 per cent.; the Midland Electric Corporation & Power Institution, Ltd., in the same period averaged profits from 8 to 15 per cent. and their capital bonus distribution was 140 per cent.; and the St. James and Pall Mall Electric Lighting Company profits averaged from 7 to 12½ per cent. and the bonus distribution was 241 per cent.

I say that the Chancellor has not the slightest ground for any statement that this type of company is exempted on the ground that it has a limitation of interest. One cannot say that profits of that description represent a limitation of interest from the point of view of a fair service to its consumers, and if the right hon. Gentleman cannot find opportunity to operate his taxation fairly, I think that when it comes to an organisation like the Co-operative movement, representing so many millions of working men and women in this country, with small capital resources, whose average interest per member only amounts to 15s. a year, there is no justification in exempting this type of company and refusing to exempt co-operative societies. I hope that if the Chancellor has not had a cheerful Budget, we shall eventually be able to remove the Government from office and put into power a Government that will carry through a wiser and more intelligent foreign policy, which will be reflected in time by the easement of our financial burdens.

3.15 p.m.

Sir J. Simon

When I opened my Budget in Committee of the House I confess that I rather expected that the proposals it contained might provide material for considerable and intense controversy, and possibly for Parliamentary debate of a vigorous order right to the end of the Finance Bill. The speeches which have been made to-day in different quarters of the House, and, indeed, the aspect of the House at the present moment, show that that calculation was exaggerated for, after the first shock, the first cold douche—I do not at all deny that it was a shock and rather chilling—what in fact has happened is that the country as a whole has accepted, not with enthusiasm, but none the less with something better than resignation, with determination, the general provisions contained in the Bill. I will not attempt to summarise them, because that task was admirably fulfilled by my right hon. and gallant Friend the Financial Secretary. It could not, I am sure, have been a better phrased or constructed summary. I must, however, be allowed to join him in expressing my obligations to the Law Officers, especially when the hon. Member for Chesterfield (Mr. Benson), in referring to the more abstruse provisions, said that the Law Officers had been of valuable assistance, because no matter what they said no one was in a position to contradict them.

I do not join with those who adopt the easy course of reproaching certain provisions of a Finance Bill for being unduly complex, because I think the critics have probably not themselves so complete a knowledge of the difficulties that have to be surmounted, and they do not always have occasion to think of all the unusual instances to which the Clause may have to be applied. I regret as much as anybody that sometimes the provisions cannot be put in more simple language, and when that is done no one is more grateful than the Chancellor of the Exchequer himself. I would remind the hon. Gentleman who made those observations of a passage to be found in the OFFICIAL REPORT many years ago, which I hope the House will allow me to read. It was an observation made on a similar occasion by Mr. Balfour when he was leading the Opposition in 1911. There was a Solicitor-General then—I will not say who he was—who took a modest part in explaining some of the Clauses in the provisions then before the House, and this is the language which Mr. Balfour employed in order to convey to the House his sentiments and his recommendations. He said: I feel incapable of taking the place of my right hon. Friend he was referring to a lawyer on that side— on this very technical question. I can only say that if the Bill is only half as clear as the explanation of the learned Solicitor-General there would be no difficulty. There is then a passage of personal commendation, which I will not quote, and he continued: Whether the Bill carries out the policy he has expounded I am not in a position to say. I think any hon. Member who suffers under the same educational disabilities as I do will probably experience the same difficulty as I do in regard to feeling that the policy so admirably propounded by the Solicitor-General is the same as that propounded in the Bill. I am ready to take it as a matter of faith, and if my hon. Friend has the same confidence in the exposition of the hon. and learned Gentleman I should imagine he will not ask the Committee to proceed to a division. I do not know whether there is any hon. Member present whose intellect is equal to the task of grappling with the various sub-sections of this Clause. If there is, and he can show that the Clause is not in conformity with the policy laid down by the Solicitor-General, that is another matter. I take it that on this subject there are many on both sides of the House in the same unfortunate position as I am and will be content as I am to rest my hope upon the statement which the hon. and learned Gentleman has made as to the policy which the Bill does really carry into effect."—[OFFICIAL REPORT, 9th March, 1911; cols. 1526–7, vol. 22.] I think that that is perhaps the classic passage in our records of the reflections—I will not say of a plain man, for there was no more subtle logician than the late Mr. Balfour—of the man not skilled in the law upon explanations which it is sometimes the duty of the Law Officers to offer.

The hon. Member for Chesterfield, in his interesting speech, also made some observations upon what he called cyclical Budgets, and I should like to make a comment upon that point also. I am not sure that I like the phrase very much. "Cyclical finance" leaves a slightly confusing, disturbing, kaleidoscopic impression, but what no doubt is meant is that we should not consider the finance of the 12 months without thinking of what was before and what is after, that the financial view of the House should be based upon a longer period and on what we calculate may be the course of things hereafter. In that sense I do subscribe to the view that we must not work out these financial problems as it were in blinkers which are set so that you can see nothing which is before 5th April this year and nothing beyond 5th April next year. Of course, there is a very good and sufficient reason why we should have annual Budgets. It is absolutely essential that we should have them. Historically, as everybody knows, it is one of the two main securities for Parliament meeting annually. In the old days, in the seventeenth century, the Crown, getting grants from the House of Commons in various forms, accumulated sufficient to enable it to carry on without having yearly recourse to Parliament, and as a result Parliament was not summoned annually. Another security for annual Parliaments is the necessity for carrying an annual Army Act, so that we may have discipline in our Forces for the time being without going back to the bad old system of a standing Army.

Therefore, there is one overwhelming reason why our Budget should be an annual affair, and it is absolutely necessary that it should concern itself strictly with the finances of the year. But it is at the same time most desirable that we should look beyond and lay our plans, as well as we can, in the light of a wider survey, and I claim that as a matter of fact that is what we are now doing. Take the Defence Loans Act. That was deliberately devised and presented to Parliament as a scheme which was to cover five years, because our rearmament programme would undoubtedly extend over the same period. In the same way the National Defence Contribution, which the hon. Member for South East Ham (Mr. Barnes) said just now, not for the first time, needs to be specially examined in its relation to co-operative societies, was by the very terms of last year's Statute marked down as intended to be a tax which lasted for five years. Of course we all know that that does not bind Parliament. Nothing can bind Parliament in respect of the future, but the idea is, especially in these difficult times, that we cannot scientifically handle our financial problems if we limit ourselves to a single twelvemonth.

The wider the view you adopt the more difficult it is to form an accurate estimate. Very little may upset the very best estimates that are made, even for 12 months ahead. Take the present Budget. Its fate—whether it will result in a surplus or a deficit—as that of all other Budgets, must depend to a very considerable measure on the course of trade during the year, and however accurately the Chancellor of the Exchequer or his advisers may judge conditions at the time when he frames his Budget and presents it to the House of Commons in April, the final result may not be in accordance with his expectations if business conditions have altered. Those considerations would become enormously emphasised if one were to endeavour to make a survey for many years to come.

I would make one observation, and it will be a brief and cautious one, as to the prospects which have been referred to by more than one speaker to-day, including my hon. Friend the Member for East Aberdeen (Mr. Boothby). The House of Commons is fully conscious of the fact that, in the world which examines these things with knowledge and discretion, it is well-known that the course of world trade has not been too favourable since I presented my Budget. Making the best estimate we can on every ground, do not let us exaggerate the disappointment. I am all for the view that we want to face facts and state them, and I have no sympathy with the idea that you can avoid difficulty by assuming an unnatural and unhealthy cheerful tone. On the other hand, do not let us inflict an even greater injury upon our country by jumping to the conclusion that things are blacker than they are. The present situation bears no sort of resemblance to the situation which existed before the great depression of 1931—not at all. While everybody is entitled to entertain any fears he likes, fears of that character appear to me to be quite ungrounded.

There are adverse elements, such as the growth of the doctrine of self-sufficiency as it has developed in certain great communities in Europe, and some aspects of contemporary international political conditions. Those things are the reverse of helpful for international trade. That is clear enough; yet, at the same time, you cannot really look at the picture of international trade as a whole to-day without seeing that there are abundant reasons for concluding that the present situation has no resemblance to the situation before the great depression. The conditions in the countries which produce primary commodities are generally speaking very different and much improved as compared with what they were then. In the United States there has, of course, been a setback, but still, on balance, undoubtedly things in that great country are vastly better than they were in 1931; and the same is true in our own case. I do not desire at this last stage to start any matter of controversy, but I think it is just as well to mention two or three considerations. We have secured in this country a far better and a far surer share of our home market than we had in 1931. We are much less dependent than we were on fluctuations in foreign trade. We have provided ourselves, by means of a flexible tariff and other things, with methods of precaution and protection that did not exist in 1931; while the developments in the monetary sphere—not merely our going off gold, but the successful working of the Exchange Equalisation Fund—have entirely freed us from the obligation to pursue a deflationary policy. These are considerations which I think we ought to put into the scale and encourage others to weigh fairly; we should not take what would be a very unjust and—what might be very disastrous—an unduly pessimistic view. As for the expenditure on rearmament, there are two sides—

Mr. Barnes

Surely, the conditions of 1931 did not arise from a deflationary policy. They were due to a collapse of commodity prices.

Sir J. Simon

At least at that time we had no valid protection in this country against a deflationary policy, and, when a country is in a depression, circumstances may arise in which a deflationary policy is almost forced upon it. As regards rearmament, I agree with the hon. Gentleman who has just interposed that there are different aspects of the rearmament problem which in this matter cannot be regarded as an unmixed good or an unmixed evil. Rearmament expenditure has undoubtedly done much to improve conditions, more particularly in the North East Coast and Clyde areas, which suffered so terribly severely in the former depression. I present to the House this rather balanced view because I believe it is a just view, and we all rather tend, at any rate in casual discussions, to lay a little too much emphasis on one side or a little too much on the other.

I would add one special word about the United States. I do not think it is generally realised how much the falling off in the world consumption of primary commodities which has undoubtedly happened in recent months has been connected with the situation in the United States. Very special conditions have been obtaining there, such, for example, as the growth of stocks in manufacturers' hands during 1937, and they have had something to do with producing that situation. But if you exclude the United States—which is always a very big thing to do—from the figures, and look, apart from the United States, at the world consumption of main commodities like copper, tin, or rubber, the world consumption of commodities like that, apart from the United States, has shown no special reduction during the first five months of this year. Of course, if the falling off in American consumption were to continue, there is no doubt that it would have its effect throughout the whole world, but, on the other hand, if there is a recovery there—and we hope there may be—there can be no doubt that that will mean a picking up of the engine of the whole machine which would speedily enable progress to be resumed; and the latest figures seem on the whole to show some tendency to improvement. It is true that it is largely, I believe, concerned with such things as stock exchange quotations and primary commodity prices more than actual trade statistics, but, on the whole, my advisers take the view that these conditions do present an added reason for distrusting and discounting gloomy prophecies as to the future.

Another most important topic has been alluded to—the topic of economy. I should be very sorry if these Debates on the Finance Bill passed without that all-important subject receiving its proper share of mention. My hon. Friend the Member for Aylesbury (Sir S. Reed), who made so successful and so welcome a Maiden Speech this afternoon, made special reference to the topic, and my hon. Friend the Member for Kidderminster (Sir J. Wardlaw-Milne) referred to it also. Of course, we must be quite clear in our minds which of two things we mean when we descant on the need for economy. It may mean either one of two quite different things. If you mean, "shall we cut down the objects upon which we are spending public money?" which is one sense of the phrase, whatever may be said as to the merits of one item or another, that really is quite as much the responsibility of the House of Commons as of anybody else. In that sense, Parliament is not justified in making speeches about economy as if it were the Treasury which was insisting on pouring out money on all sorts of objects. It is, first and foremost, a subject of public policy. There we can all make our contribution. Those who are prepared to resist a particular proposal because they feel that the public cannot afford it are well within their rights, but I usually find, in my experience, that that sort of thing is left to the Chancellor of the Exchequer.

There is a second meaning of the same word which has quite a different sense. I recollect my hon. Friend behind me when he raised the question to-day, saying that he would like to be fully satisfied that we are getting full value for our expenditure. That is a vital question, and if anyone supposes that the Treasury watchdog has ceased to growl and bark and worry, he is much mistaken. That is not the case. The difficulty of exercising complete control over this subject is well understood by everybody who has gone closely into it, and especially at a time when expenditure is very high. I have now had a little more than a year's experience of this great office, and the House will understand when I say that in the nature of things detailed examination of Estimate after Estimate cannot be the personal preoccupation of the political Minister, who has a thousand other things to do; but I know that the work that is being done in the Treasury, under the direction of the Chancellor of the Exchequer and the Government, examining item by item and detail by detail, in order to see that money is not being extravagantly squandered, is work of the highest value, and I am certain the country is being well served in that respect. But a great deal of the explanation of our apparent want of success comes from a circumstance which I should like the House for a moment to consider. Take, for instance, the expenditure on armaments—a terrifying total. Does the House appreciate that when we are increasing our armaments we are not only multiplying the units by means of which we are developing our Defence, but that under modern conditions almost every unit is costing more? The modern machine for Defence is so much more complicated than it was a few years ago. The aeroplanes which were provided 20 years ago for the armies in France and Flanders would not be accepted for a single moment, not one of them, by the Air Force, as a suitable type for use today. The consequence is that the price of each aeroplane has gone up because, amongst other things, it is a far more complicated machine, with far more ingenious and elaborate fittings and contrivances and supplementary attachments, besides being of far greater size and power.

Take another example from the Navy. In 1912 a destroyer was of 1,000 tons as a rule, and it was carried on the Estimates for about £140,000. In 1935 it cost four times as much, partly no doubt because the destroyer of to-day is bigger—it is nearer 2,000 tons than 1,000—but partly also because it is a far more complicated machine, with infinitely more fittings and details. Take a small cruiser, which remains at about 5,500 tons. It was built in 1911 at a cost of £400,000. The similar cruiser of to-day—I am giving the figure for 1936—costs four times as much. Then take the battleship. In 1911 a battleship of 25,000 tons cost £2,350,000. A battleship in the programme of 1936, of 35,000 tons, stands at the stupendous figure of £8,000,000. Therefore the House will see that there are really two things which are operating side by side and which together increase expenditure. We have come to the conclusion, and the country has come to the conclusion, that we must increase our defensive position, but each item is as a matter of fact more complicated and more expensive than before.

I shall not delay the House to make observations on the question whether the Budget is balanced or not, but I would like to observe that it is very desirable for us to preserve a reasonable proportion. If hon. Members mean that in this present year, when we are contemplating spending something like £1,000,000,000, £90,000,000 is being got under the Defence Loans Act, then it is true that expenditure and revenue do not balance. But at the same time it must be remembered that while £90,000,000 is being got under the Defence Loans scheme (which is going to provide, I trust, not merely for next year but for years to come—here we are not merely maintaining the level of last year but are increasing what was our previous provision, which had sunk too low)—while we are getting £90,000,000 by loan, we are raising £263,000,000 from taxes in respect of the defence loan.

Mr. Pethick-Lawrence

The right hon. Gentleman said that we were raising £263,000,000 by defence loan. He meant defence expenditure from taxation.

Sir J. Simon

I am obliged. I meant that we are raising £263,000,000 from taxation on behalf of the Defence services, and £90,000,000 by means of the Defence loan. I was saying that that proportion should be observed.

In my Budget speech I referred to our borrowing programme, and I reminded the House that we had already borrowed £100,000,000, and that the balance remained to be raised from time to time when circumstances were favourable for the purpose. Circumstances were favourable in the middle of last month for a further issue which took the form of £80,000,000 of 3 per cent. National Defence Loan at 98. That issue was a very considerable success. Indeed, it now stands at a premium of something like 1½ points. Perhaps I might note in passing that, in spite of the heavy borrowing from time to time in which we are engaged for various purposes, Government stocks of all classes to-day stand uniformly higher than 12 months ago. The increase in some cases is as much as five or six points. When we are making a survey of the present financial situation it is right, I think, that we should observe these encouraging symptoms.

I have only one other thing to say, and I hope that the House will allow me one or two minutes for this purpose. We all realise that, in authorising what is in effect a thousand million Budget, we have had to do this for the sake of three main purposes—paying interest on our Debt, providing for the social services and providing for Defence. I can see considerable satisfaction to be gained from two of those. It is undoubtedly a great thing when we have so enormous a burden of debt that we have been able by conversion to reduce and limit the charge through the rate of interest being so low. Certainly also I am one of those who feel the justification for this great country adopting what is the modern theory—the theory that the State ought to recognise a responsibility, out of the public funds that it gathers from the citizens, to make wise contributions of help to those citizens who need help most. That is the school to which I belong, and I believe it most sincerely.

But the staggering fact is the amount which we are having to spend on Defence. The whole world is pouring out more and more treasure in preparations for the possibility of war, and the figure is now becoming so immense that things which would have been regarded as fantastic impossibilities of expenditure for armaments 50 years ago are now accepted as inevitable. As a boy I took great delight, as I dare say others of my age here now did, in reading the amusing and fantastic story of Jules Verne, imagining that there might be a man who could go round the world in 80 days, and yesterday a bold American did the circuit in 91 hours. If we go on like this, and if a machine is ever devised that will fly at the rate of 1,000 miles an hour, it will be able to start on the Equator and remain on the Equator, and, if it goes the right way round, the occupant of the machine will not know anything of the passage of time.

Mr. Quibell

He will be back before he starts.

Sir J. Simon

It will be a remedy for those who feel that they are getting old. The contrast between making this circuit of the world in three or four days and the fantasy of Jules Verne that it might perhaps some time be done in 80 days, is not really more striking than the contrast between the sums which we used to think were enough to spend on our armaments and the sums that we and the world spend to-day. In 1888, 50 years ago, this House voted in all for Defence something under £30,000,000—only £29,000,000. We have done our best to set an example to the world in reducing armaments, but it was not followed.

It is not with any pride or exultation that I have to present to the House of Commons a £1,000,000,000 Budget. We can take pride in the courage and resolution with which our fellow-countrymen shoulder the burden. We can get some justification and satisfaction in the thought that it is not we who have set the race or set the pace. We can get some comfort from the knowledge that this country can endure at least as well as the rest of the world the bearing of the burden. But I must say for my own part that my overwhelming feeling is one of repulsion and resentment that humanity is really engaged in mortgaging so immense a part of its resources in preparation for a possible Armageddon, when so much might be done with those resources, if only a solution of this difficulty could be found. That is the reason why we have thought it right and wise to seize every opportunity of reducing tension and making friendships. That is the reason why there is no ultimate solution for the world's troubles if every country in the world is to go on piling up armaments for ever and ever.

We speak as if our civilisation was very securely based. There have been other civilisations before ours. Tutankhamen was forgotten till he was dug up, and it is very possible that the things that are protecting our civilisation are more slender than is sometimes imagined. Therefore, I think it is right that we should in a spirit of sober responsibility, not by any means in a spirit of depression, but rather in a spirit of determination, pass this Finance Bill. I agree with what my hon. Friend the Member for Gateshead (Mr. Magnay) said, that there is much about which we can be cheerful. That is true. This country has resources of character, courage and history which will see it through. But make no mistake about it. If we do not succeed and if the world does not succeed in finding some way in which we can stop the folly of this ever-increasing expenditure upon armaments, then, indeed, the future we are preparing for our children is one at which we may well shudder.

3.54 p.m.

Mr. MacLaren

My hon. Friend the Member for Ipswich (Mr. Stokes) asked me whether I would put a question to the Chancellor of the Exchequer. On 20th April the right hon. Gentleman promised my hon. Friend that an inquiry would be carried through by his Department in attempting to ascertain the overhead costs of the production of armaments, shells, and so on. My hon. Friend asked me whether I would inquire from the Chancellor of the Exchequer whether any progress has been made by his examiners in this work of finding out the exact costs.

Sir J. Simon

I think the hon. Member for Ipswich (Mr. Stokes) has been in consultation with the Treasury. I can tell the hon. Member that every aspect of economy is very actively pursued, and that continual attention is given to the best means of securing that there are no improper or excessive profits made on armaments contracts.

Question, "That the Bill be now read the Third time," put, and agreed to.

Bill read the Third time, and passed.