FINANCE BILL.

HC Deb 26 May 1938 vol 336 cc1425-88

Order for Second Reading read.

Motion made, and Question proposed, "That the Bill be now read a Second time."

3.50 p.m.

Mr. A. V. Alexander

I beg to move, to leave out from the word "That," to the end of the Question, and to add instead thereof: this House regards with concern the continuing policy of unbalanced Budgets, and cannot assent to the Second Reading of a Bill which, while permitting excessive profits on rearmament and subsidies to private industry to make increasing inroads on the public purse, penalises road transport and adds to the already heavy burdens of people of small means, instead of raising the necessary revenue from the taxation of great wealth. We, as a House of Commons, have had a few weeks since the introduction of the Budget by the Chancellor of the Exchequer to consider in somewhat more detail the financial position with which the nation is faced, and I am bound to say that the more time one has for reflection upon that position, the more serious the outlook appears to us to be. We are faced in Europe to-day with a very serious position. We speak almost daily of international crises, and one cannot possibly separate the difficult international position from the problem of finance which the country has to face. It is hardly more than rough justice that the present Chancellor of the Exchequer should find himself compelled to bear the burden in the House of Commons of responsibility for the Government's proposals for the finance requisite at the present time, because he had so much responsibility for the foreign policy in the last six years which has contributed to the difficult situation which we have to meet.

The financial crisis on which I desire to speak to-day-it is certainly a financial crisis that the nation is called upon to face-is in' large degree subject to two main causes. It is very largely due to the special contribution which His Majesty's Government call upon the country to make for armaments and, secondly, it is due in no small degree to the fact that ever since the National Government have been in office-even during the years when the present Prime Minister was Chancellor of the Exchequer—they have failed, in spite of the original purpose of their election in 1931, to deal with the finances of the nation on the basis of balanced Budgets. We make the first and the primary point in our Amendment the serious position which is created by this continuing series of un balanced Budgets, and at the outset this afternoon I wish to examine briefly the situation which has been created in that respect.

In 1931, when the Labour Government went out of office, there was a total dead weight of National Debt of rather more than £7,400,000,000. To-day, before we begin to speak of the borrowing which will come in the present financial year, if I read the figures aright, the national dead weight debt stands at over £8,000,000,000 —£8,026,000,000. We have, therefore, over £600,000,000 increase in the dead weight debt. One of the answers that is made from the Government Bench is that we must not overlook the fact that the figures in the dead weight debt include the extent to which public credit has been used for financing the Exchange Equalisation Fund. I do not think the House as a whole is very happy about the position of the Exchange Equalisation Fund. It is true that we are indebted to the Chancellor of the Exchequer for having met a promise to submit certain information, which I gather is rather old, to the Public Accounts Committee, but the House itself has no real information as to what the ultimate position is likely to be in respect of the £550,000,000 which has been met from public credit in order to manipulate our position in relation to the pressure which arises from time to time from different international sources in regard to our exchange. The fact that we have to face is that we have not been able to provide for that work out of revenue. We have had to add to the National Debt the figures required for that purpose. We are, therefore, faced to-day with an increase in the National Debt already of over £600,000,000.

The Chancellor of the Exchequer has been quite frank and honest about the present Budget, and that is one of the few things on which I can be complimentary to him. He admits that the Budget is not balanced, that even before the special steps were forshadowed by the Prime Minister, arising out of the annexation of Austria by Germany, we had projected borrowing £90,000,000 in the current financial year for armaments, which we could not meet out of revenue, and we have to face, in addition, the cost of Supplementary Estimates for the increased effort, the provision of funds for air-raid precautions and to meet any necessary charge which may arise during the financial year in regard to food storage. It seems clear to me, therefore, that the sum to be borrowed will not be £90,000,000, but is much more likely to be £115,000,000, and may reach £120,000,000. Therefore, at the end of the current financial year, on 31st March, 1939, it seems to me that the total dead weight debt will already have reached a figure of round about £8,150,000,000.

The total cost of the armament programme was originally estimated at £1,500,000,000, but almost every authority who has examined the proposals of the Government admits that the cost will be much nearer £2,000,000,000. We have to contemplate borrowing another £300,000,000 or £400,000,000 in the course of that programme. That means that, even as we hope may be the case, if the international situation may become so auspicious that we can rest upon our armaments provision, we shall have a total dead weight debt of something like £8,500,000,000 to £8,600,000,000. That is an extraordinary position for the country to have to face at the end of eight or nine years of a National Government, which claims to be national because it is said to represent all parties—a Government which was brought in for the specific purpose of restoring financial confidence and financial stability and the return, as was said in 1931, to ways of orthodox finance. When I consider the relationship of the picture we have to face today with what were the circumstances in 1931, then I say that the financial crisis we have to face to-day is far worse in proportion and far more difficult and serious in its nature, because of the way in which revenue resources have already been tapped by the Government, than was the position in 1931. It is to that situation that we want the House of Commons to address its mind to-day.

Let me examine the position for a moment. I have said that in 1931 our total deadweight debt on national account was just over £7,400,000, but in regard to revenue resources to be tapped to meet the demands at that time let us consider the situation in relation to what it is today. The Government come before us with a Budget which has raised Income Tax from 4s. 6d. to 5s. 6d. in the £. In addition, it has added to the burden of Income Tax the National Defence Contribution of Is. in the £ on practically all industrial and commercial profits. It is therefore, over a wide field of the ordinary Income Tax revenue producing resources, a tax of 6s. 6d. in the £. But in addition, following the fiscal policy for which it had no real mandate in 1931 but which it has steadfastly pursued, it is raising from the general taxpayer, from the consuming public, something like £110,000,000 a year more in taxation of commodities than was raised from that source in 1931. It is doing that in spite of the fact that in the interim it has had the good fortune to convert £2,000,000,000 of War Loan stock at an annual saving of £30,000,000, every penny of which apparently for the last five and a-half years has been liquidated in current expenditure.

Let me add something else. I come back to a point which was the subject of a little exchange of views between the Chancellor and myself at the end of his wind-up speech on the Budget Resolutions. When the Labour Cabinet met in the time of the so-called crisis of 1931 it was presented by the Treasury with a Bill which the Treasury said the nation had to meet.

The Chancellor of the Exchequer (Sir John Simon)

I suppose it was presented by the Chancellor of the Exchequer.

Mr. Alexander

I said the Treasury, but I suppose that the Chancellor spoke for them. I do not suppose that the present Chancellor, after his long association and intimate connection with the Treasury, finds it unnecessary to be advised by the very able staff of Treasury officials. In 1931 the Cabinet were presented with a Bill of £170,000,000, and included in that Bill of extra money to be raised in the following financial year were two items, £56,000,000 for the continuance of what we had always met, the annual contribution to the sinking fund for reduction of debt, and £39,000,000 for payment to the United States of America as a proper annual provision. So, of the £170,000,000, £95,000,000 was for the reduction either of the internal or external debt. Apart from meeting the contribution in the first following financial year, 1932–1933, to the United States of America, not one penny piece of those two commitments presented to the Labour Government in 1931 has ever been met by the present Government; and every year there has been this continuance of heavy expenditure. The Government have made no provision for the reduction of debt, and to-day, within a few months of the time when Ministers were talking about prosperity and boom, they are adding day by day, indeed hour by hour, to the deadweight debt that the country has to shoulder.

I am making the statement as undeniable, that behind the facade of complacent, pharisaical humbug on the part of the Government, the real financial figures in relation to the British Exchequer to-day reveal a state of financial crisis beyond all doubt much more serious and much more devastating in the burdens that the country is being asked to meet, than was the case in 1931. [Interruption.] I heard a word or two, a noise or two from the benches opposite, as though that statement did not meet with unanimity. I make the statement not only with regard to the vast amount of expenditure the Government are asking the country to meet, not only with regard to the increasing burden of debt and unbalanced Budgets, but I state the fact that that is not all, for it is in spite of the Government having enormously increased existing taxation both upon the direct and indirect taxpayers; and I challenge the Chancellor to deny either of those main propositions.

Apart from a purely verbal statement that they alone are the people who ought to have confidence placed in them, there they stand holding the reins of office, a dying Cabinet. [Laughter.] I notice that there is a little hilarity about that statement, too. When I look at the arrangements made in the last week or two for a reshuffle of the gentlemen who occupy the Government positions, and I find that the two latest additions of added strength, of new life and blood to this super-Cabinet, are the Noble Lord who sits for the Fylde Division of Lancaster (Lord Stanley) and the right hon. Gentleman who is now the Secretary of State for Scotland, both representatives in this House of the most popular and pleasant type of parliamentary colleague, but neither of them calculated to be, either in the mind of the House or in the opinion of the country, added bulwarks of strength to British statesmanship, and when I consider the manner in which this Cabinet has been deteriorating year after year and now month after month, and how they appear to be completely bankrupt of any real live reinforcement from their back benchers, I do not think it calls for dispute when I suggest that the Cabinet is a dying Cabinet, old, weak, feeble, but holding on to office when it ought to get out and let the country begin to deal on a new and rational basis with the greatest financial problem that it has ever yet been faced with in peacetime, far greater and more serious than was the position in 1931.

I want to add one or two further comments about the present position in relation to the Chancellor's general proposals. In our Amendment we refer to the policy of the Government permitting excessive profits on rearmament and subsidies to private industry. We have had numerous debates in which in some form or other this question of armament profits has come up, but in dealing with the proposals of the Chancellor to meet the financial position it is essential that we should show that before the country is called upon to bear this increasingly heavy burden and at the same time to increase its national indebtedness, the country has a right to demand of the Government that even if every part of the rearmament programme should be found to be necessary, at least it should be provided in the most efficient and economical manner possible. We have warned the Government in the last two years that unless they have some really effective and rational system for dealing with the control of armament supplies, excessive profits at the expense of the nation would be certain to arise. We have already arrived at a situation which enables us not only to check the statement but to give the facts. I hope the House will pardon me if I give the names of a few firms' individual rises in profits. Take the well-known firm of Messrs. Baldwin's, Limited. I see that their net profit in 1933 was £142,000; in 1937 it was £521,000. The Consett Iron Company made a profit in 1934 of £91,000; in 1937 the figure was £636,000.

Mr. Boothby

Under the National Government.

Mr. Alexander

My answer at once is that I am glad the hon. Member reinforces my argument. I am charging the Government with the responsibility for such an utter lack of efficient control over armament expenditure that profits are rising to undue heights.

Mr. Peat

Let us make the position clearer. Will the right hon. Gentleman tell us the capital investments of the companies to which he is assigning these profits?

Mr. Alexander

I am giving quite clearly the figures of the net profits. I am not arguing about the remuneration upon the capital employed. If you take, as an example, a rise from £142,000 of net profits to £521,000 in the course of two or three years, it is an extraordinary rise.

Mr. Peat

rose —

Mr. Alexander

I really cannot keep on giving way. I want to give the information that I have at my disposal.

Mr. Boothby

Does the right hon. Gentleman say that all these profits have come out of rearmament?

Mr. Alexander

They are very largely influenced by rearmament. I come next to Messrs. Dorman Long, whose net profit in 1934 was £38,000, and in 1937 had risen to £1,013,000. Here are some more figures: Lancashire Steel Corporation, 1933 profits, £96,000; 1937, £628,000. Tube Investments, 1933, £224,000; 1937, £825,000. Vickers-Armstrong, 1933, £188,000; 1937, £867,000. Vickers, Limited, 1933, £543,000; 1937, £1,351,000. I could go on and quote a large number of other typical steel firms dealing particularly with the raw material of armaments.

I want to come to another aspect of the armament industry. I come to the air side, and I am all the more insistent in pressing home the responsibilities of the Government in this matter—if no other Minister will do it, then the Chancellor of the Exchequer should do it in the interests of national economy—because of the almost insulting way in which the Secretary of State for Air treated the House last night in his complacent reply to the Debate, in which he practically disdained to answer many of the questions put to him. I take the Bristol Aeroplanes, Limited. In 1935–36 they paid a net ordinary dividend, not of 5 per cent., but of 22½ per cent. I am not going to admit for a moment that in a time of national emergency, when the country is called upon to pay as it is now, there is any justification for the payment of dividends at the rate of 22½ per cent. on capital in respect of armament provisions, and I do not believe that the Chancellor of the Exchequer himself will justify it. I take the accounts of the de Havilland Aircraft, Limited. In 1933 the profits were £63,000; in 1937, £213,000. I take Fairey Aviation, Limited. In 1934, the profits were £47,000; in 1937, £248,000. In the case of Handley Page, the net profits in 1933 were £20,000; in 1936, £100,000—an ordinary dividend of 50 per cent. Is there any justification for the payment of dividends at the rate of 50 per cent. owing to the boom in the armaments industry?

When the Chancellor of the Exchequer says that every worker in the country, or a large number of workers are proud to bear their share in the payment of the Tea Duty towards the armaments programme, we are entitled to draw attention to these cases and to urge that if the Government have not the good sense to see what they are doing and get out now, they should reform their ways and exercise some more effective financial control over this post-war repetition of profiteering at the expense of the nation, which was so rife and so disastrous during almost the whole period of the Great War from 1914 to 1918. It is a pretty comment upon the patriotism of the people who support this kind of thing to remember the answer which was made to me by the present Prime Minister some 15 months ago in debate, in which he asked me how I thought armaments were ever going to be provided for the country in its emergency unless profits were allowed. If that is the case, let me tell the Government that if they will get out and give us a Labour majority we will show how to get armaments without this kind of profit.

Colonel Sandeman Allen

There has been an increase in wages.

Mr. Alexander

I went to a by-election in Stafford the other day and the first meeting I addressed was in a small mining village. Some of the men employed in the pit talked to me about their wages. I asked one man what his conditions were, and he said "A six-day week with five days of nine hours each, and my pay docket is 39s. 3d." That is the marvellous effect of a National Government. These are the people who, the Chancellor of the Exchequer says, are proud to pay 2d. on every four ounces of tea which they consume in order to back up the lack of control of profiteering by the Government. [Interruption.] Hon. Members opposite, and also the Chancellor of the Exchequer, do not seem to understand the increase which is proposed on the Tea Duty. As a matter of fact the Chancellor of the Exchequer knows as well as anyone that the tax on foreign tea is 8d., and he also knows that although a substantial proportion of the tea comes from the Empire and is taxed at a rate of 6d. yet, in the long run, the consumer pays nearer 8d. than 6d. I have heard him argue that case many times when he was in a situation different from that which he occupies now, when he was a strong opponent of Imperial Preference and argued that a preference given to Dominions and Colonies was always reflected in the price of the foreign article to the consumer. I am not asking anything unreasonable in urging an increase of effective control of this armament expenditure when you consider its nature.

The actual armament programme this year will cost 343,000,000, but that is not the end of the story. If you take the £343,000,000 in the fighting Services Estimates, you have to add to that a sum which is not less than £15,000,000 for Supplementary Estimates, and, in addition, the cost of air-raid precautions, food storage, and oil reserves, costing approximately £12,000,000. Therefore, our war preparation for the present year is L370,000,000. Does the House realise that £370,000,000 on war preparation is more than the total yield not only of Income Tax at 5s. 6d. in the £ but also of the National Defence Contribution as well? To raise £370,000,000, Income Tax would have to be 7s. in the £ that is the extent of the provision we have to make in this one Budget for war prepara- tions. Is it unreasonable in such circumstances to ask for greater and more effective control on armament expenditure? We have asked and pressed for a ministry of supply. I go further and say that, instead of having the whole range of shadow factories which are partly vested in private profit-making firms, I would undertake to provide whatever is required of an emergency character on behalf of the nation with no profits except the service of the Government capital employed. It can, and it should be done in the interests of the nation.

I come to another matter to which the Chancellor of the Exchequer as Minister in a new office should give his attention. He is bound to face the problem of Budgets for some time to come of nearly £1,000,000,000, and I want him, therefore, to give his attention to the subsidy policy of the Government and to go into the question of the actual amount of the subsidies which are now a charge on the public purse. There is one subsidy which is of such long standing that people have begun to forget all about it. I refer to the derating subsidy. It is true that in the case of some of the heavy major industries, especially those of an exporting type, they would be in a difficult position if they had to meet to-day the full burden of local rates, but, as I pointed out during the course of the financial discussions in 1931, there are large numbers of very heavy profit-making firms in the country who are receiving part of this public bounty to-day, the only result of which is to increase the distribution on shares. I have referred previously to the fact that one large firm issued a balance sheet showing a dividend of 85 per cent., and that it was also distributing Li for every four 5s. shares held, and that it was getting this subsidy from public funds under derating.

The Chancellor of the Exchequer and his successors who will have to grapple with this awful burden of financial responsibility are bound to look at these things unless the whole standard of life of the mass of the nation is, in the words of the Prime Minister, to be steadily lowered for a generation to come. It is not that we are arguing that necessarily every single subsidy which the State has been called upon to bear can be removed, but that now there is such a heavy drain on the public purse they should be reviewed, and that where subsidies are continued two conditions of great importance should be attached—first, that where you give a subsidy there should be guaranteed proper remuneration to the workers, and, secondly, that you should acquire a national interest in the industry which is subsidised. Both these points should be taken into the earnest and serious consideration of the Chancellor of the Exchequer.

Now I come to the question of the inequitable distribution of the burdens which previous Budgets and the present Budget make in meeting the financial position. In the present Budget there are two outstanding proposals. One is the increase in the Petrol Duty and the other the increase in the tax upon tea. Both of them are symptomatic of the way in which the National Government have been moving the burden from the shoulders of the wealthy to the backs of the poor.

Mr. Boothby

There has been an increase in Income Tax.

Mr. Alexander

If the hon. Member had been listening carefully he will know that I have already referred to the increase in the Income Tax, and he need not be anxious, because I propose to refer to the wealth which can yet be taken from the wealthy before I sit down. But the burden to-day upon the poor is altogether out of proportion to that which they are able to bear. Take, for example, the kind of weekly wage to which I have already referred. Let hon. Members consider the family of a miner in that position. At the present time, there is not an article of their food, except bacon, which is not taxed directly, and even bacon is kept at an artificial price by other extra-fiscal methods. The right hon. Gentleman the Chancellor of the Exchequer was once a member of a party which always resisted to the last taxation on food, and now he is Chancellor in an administration which raises taxation on food. In the last financial year, the Government obtained roughly £40,000,000 from taxes on food, and with the addition of the Tea Duty —and we consider tea as a food, for it is a food to the working classes—an amount of £42,750,000 will be obtained from taxes on food alone. In the case of the Petrol Duty, do not for one moment think that that will be felt only be certain captains of industry and wealthy people who use motor cars. When one considers the extent to which the road transport industry enters into the national life nowadays in transporting essential goods, including food commodities, the additional burden that is placed upon that industry by the Petrol Duty is bound ultimately to have its influence on the poorer consumers. We say that these inequalities are not justifiable as long as there remain avenues of wealth in this country which can be taxed for the purpose of meeting the burdens which the country has to face.

Moreover, there are certain proposals in the Bill which effect slight amendments to the tax which caused so much controversy last year, the National Defence Contribution; but I fail to notice in any of those proposals any relief from the burden in the case of societies which do not make profits, but are engaged in mutual trading, nearly all of which are owned and controlled by the heavily-taxed workers themselves. I do not find any indication in the Chancellor's Budget speech or in this Bill that he has done what he told me last year he would do, namely, look into the question of the profits of certain companies which provide public services, which may or may not be public utility companies, but the profits of which, as I quoted last year, are exceedingly heavy, and many of which are exempted altogether from the burden of the National Defence Contribution. As long as companies providing for public services, having public utility conditions and making large profits, are relieved, then it is completely unreasonable to ask the working classes to pay taxation upon their own mutual efforts or to pay increased taxation upon their food. Therefore, I draw attention particularly to the iniquity of these proposals.

I could say a great deal about the Tea Duty, but as we had a Debate on it in Committee on the Budget Resolutions, and as no doubt we shall have other opportunities, I do not propose to enter into the details to-day, apart from saying that evidence has already accumulated in my own organisation, which is the largest distributor of tea in the world, that the whole tendency since the return to the tax on tea and its gradual increase during the last three or four years has been to concentrate demand in a larger degree upon the cheaper qualities, with a consequent rise in the price in those common qualities, and a stabilisation—and not an upward trend—in the case of the more expensive qualities of tea which are not used by the working classes. If at any time the Chancellor has any doubt about that, and wants to see the figures, I shall be pleased to show them to him. That is all I propose to say on the Tea Duty now.

I suggest to the House that, with this nation in face of a growing financial crisis in the National Exchequer, the position is still as the party to which I belong has so often said, namely, that wealth is allowed to increase in limited sections of the community while poverty increases among other sections, and that when one comes to the national burden, it is inequitably distributed among those sections. We say that the Chancellor, in dealing with the very complex financial situation which he had to face, had the opportunity of going to other sources to meet the needs of the moment. Much was said in the course of the Debates on the Budget Resolutions about the fact that, for some reason or other, no recourse has been had to new revenue either from Surtax or from Estate Duties. I know it may be argued that any drastic revision of the rate of imposition on the Surtax payer might lead to the operation of the law of diminishing returns, but after reading carefully the various annual reports of the Board of Inland Revenue, I am satisfied that we have by no means exhausted the extent to which the national burden could be met from the Surtax.

When I look at the record in regard to Estate Duties, I consider that the case of hon. Members on this side is absolutely proved, and that wealth continually increases in face of the continued deepening of the poverty of large sections of the community. I will quote to the House the figures of the yield from Estate Duties. In 1930–31, it was £82,000,000; in 1931–32, £65,000,000 (the fall was largely accounted for by the low market price of shares); in 5932–33, £77,000,000; in 1933–34, £85,000,000; in 1934–35, £81,000,000; in 1935–36, £87,000,000; in 1936–37, £87,000,000; and in 1937–38, a pound or two short of £89.000,000. During the last few years, there has been practically no change in the rates. In other words, the fortunes of a limited section of the community are increasing year by year. As far as I can see, there is no reason why, in dealing with the national financial burden, the Chancellor should not have refrained from overtaxing that section of the community which is so near, and in some cases below, the poverty line, and turned to those sources of wealth, and distributed the burden in a manner which was more equitable and just than has actually been the case.

Moreover, that is not the only resource to which the Government can turn. As has been mentioned before by some of my hon. Friends, there is perhaps no more able and well-informed student than the Chancellor of the general principles and law relating to the tax on the unearned increment of land values. When one considers what has happened during the last few months in regard to land values, when one considers the extent to which in incident after incident there has been abuse of land values at a time of national necessity, when land is wanted for national emergency purposes, I should have thought that, considering all the years during which the Chancellor ardently advocated the obtaining of wealth from that source, no one would have been as bold as him in making proposals to the House in that respect. I feel that, however inadequately I have painted the picture this afternoon, we are at any rate justified in moving our Amendment. I repeat that the financial crisis which has arisen so largely from the failure of the Government's policy is far greater than the financial crisis in 1931. [Interruption.] I hear something more like a snort than anything else from the other side of the House. I will give a quotation from someone who is not a Labour Member of Parliament and not a Socialist. A book has just been issued entitled "Can 1931 come again?" This is how the situation is summed up in that book by Collin Brooks — Behind the false facade of prosperity made by rearmament activity, Britain's true economic position is desperate. The remedies must be drastic. What is the disease we have to cure? These are its symptoms: (1) A lack of economic and commercial confidence in Britain itself …. (2) A lack of political confidence … (3) A general lack of confidence, felt abroad, in Britain's stability. [Interruption.] I am glad that causes amusement to hon. Members opposite. I shall not be upset if their amusement continues, because it will mean that they will continue to lose by-elections. If they remain in that position of complacency when we put such facts before them, they will go on losing by-elections; but, in the interests of the nation, we would rather that the House as a whole would give its attention to the problem that we have to face. We ask the Government to tackle these problems on the basis which we have outlined, or to make way for those who are willing to tackle them on a sound and rational basis. We ask them in the first place to apply to themselves, and in a more marked degree, the same medicine which they applied in a far lesser financial crisis to the Labour Government in 1931. As a matter of fact, with the grave problem of high Budgets which will come during the next few years, I do not believe that the Government will ever be able, with its political beliefs, to tackle the situation. Until there is a Government that will tackle the international situation on the basis of Labour's foreign policy and get rid of the drift from collective security, and relieve the problem of rearmament by getting a solution of the problem of collective security, it will not be possible to get any remedy. I do not believe we shall be able fully to meet the burden of these national Budgets until we get in office a Government which is prepared, not from the objective of private profit, but in the public interest, to plan and organise the whole of the resources of the nation in the public interest.

4.44 P.m.

Mr. Radford

I hope the right hon. Gentleman the Member for Hillsborough (Mr. Alexander) will acquit me of any discourtesy if I do not follow his lengthy arguments, which I venture to predict will be dealt with at a later stage by one who is far more competent to deal with them than I am. I wish to confine my remarks to the matters contained in Clauses 2 and 3 of the Finance Bill, taking Clause 3 first. Clause 3 deals with the Excise duty which is proposed of 9d. per gallon on power methylated spirits. During the Debate on the Budget Resolutions some hon. Friends of mine put down an Amendment to reduce the proposed tax of 9d. to 4½d. I, myself, took part in the Debate and I told the House that I was not a disinterested party, because I was a director of one of the companies distributing this alcohol blend. For the information of any Members who were not present on that occasion, may I say this power methylated spirit, or power alcohol, as it is commonly known, is made in this country, and, to a great extent, from imported molasses. At the same time, there is a certain amount of home-produced molasses used in its manufacture, and it is capable of being made entirely out of indigenous vegetable matter. The Potato Marketing Board at present have a proposal in Section 74 of their proposed marketing scheme that they should be allowed to buy and use surplus potatoes and erect the necessary plant for manufacturing alcohol from those potatoes.

The only argument that has ever been advanced in favour of the proposed Excise duty of 9d. per gallon on power methylated spirits, is that a certain percentage, somewhere about 15 per cent., of this alcohol has been blended with petrol and not being liable to duty, has caused a certain loss of revenue. This loss of revenue, even on my right hon. Friend's estimates, is on a maximum figure of I0,000,000 gallons, and that is far in excess of last year's consumption, which was 5,600,000 gallons. This loss of revenue from the expected figure of 10,000,000 gallons has occasioned these proposals, but the loss of revenue on between 50,000,000 and 60,000,000 gallons of benzol does not appear to have caused any distress or uneasiness to the Treasury. In fact the committee set up by the Government to report on the possibility of producing more of our motor spirit requirements at home specifically referred to this benzol. I will give their own words: A production in 1936 of 51,000,000 gallons of motor fuel was a helpful contribution to the needs of the country. The Committee then point out how it would be possible for additional supplies to be produced here, and they were only sorry that no more than 20,000,000 gallons could be obtained. They were anxious, however, that that much should be obtained. There is a definite difference between this home-produced benzol and the oil made by the hydrogenisation process. In that process the making of oil from coal is the definite goal aimed at, and the coal is destroyed, whereas benzol is only a casual by-product. But in view of the fact that the alcohol, although made mostly from imported molasses, could be made entirely from home-grown vegetable matter, I regret that my right hon. Friend proposes to subject this power alcohol to an Excise duty equal to the duty on imported petrol.

The only argument, as I have said, that has been advanced in defence of it, is that there is at present a certain loss of revenue. But there are other factors to be taken into consideration, primarily that of the national interest. There are innumerable cases where people buy home-manufactured articles and thereby occasion the Treasury a loss of revenue. Under the Import Duties Act, 1932, cotton and woollen goods for household use, brought from abroad, are subjected to a 20 per cent. import duty. But would anyone suggest for a moment that, because patriotic people were buying Lancashire cotton goods or Yorkshire woollen goods, which were not subject to Excise duty and using them in preference to imported articles, that was not in the national interest, because the revenue was losing money because people were using home-produced and not foreign-produced goods?

Mr. McGhee

Very unpatriotic.

Mr. Radford

I think the hon. Member must have been engaged in conversation with his neighbour, for he has got it the wrong way round. I was pointing out that, if they were patriotic and using home-manufactured goods, instead of imported goods, no one would say that, on account of the loss of revenue incurred, you should put an Excise duty on those home-produced goods. What is the attitude of other countries to this manufacture of power methylated spirits from vegetable matter and the blending of it with petrol? The attitude of other countries is more advanced than that of Great Britain. In Italy, about 15 per cent. of the total motor spirit requirements is provided by home-macle alcohol. In the case of our neighbours, Eire, they have a Measure before their Parliament, the Industrial Alcohol Bill of 1938, which will enact compulsory powers for alcohol to be blended with straight petrol in all cases. Japan, in 1937, passed a compulsory measure for the blending of this alcohol with all petrol brought into that country, and at the present time there are no less than 80 plants being constructed or projected for the making of this alcohol out of indigenous vegetable materials. Germany is much the same as Italy. She is making power methylated spirits out of potatoes and the like, in order to obviate her importing more motor spirit than she can help. That shows the view taken by go-ahead countries. Our own Potato Marketing Board is asking for these powers and intends to go in for wider planting of potatoes. Yet the Government have brought in a proposal to treat the product, some of which is even now made out of indigenous vegetable matter, and the whole of which could be made that way in a crisis, on the same terms as petrol imported from abroad. I am hoping, in view of what was said on the occasion of the Budget Resolutions Debate, when the Chancellor of the Exchequer and the right hon. Gentleman the Secretary of State for Scotland, the then Financial Secretary, promised they would look into the matter in the light of that Debate, that we shall hear that their proposals will be amended.

To go a little further, the Chancellor of the Exchequer announced some eight days ago in answer to a question as to whether he was in a position to announce the decisions of the Government on the report of the Falmouth Committee: His Majesty's Government have decided to accept the recommendations contained in the published report of the Falmouth Committee. Provision is accordingly being made in the Finance Bill to give effect to the recommendation for the extension for a period of 12 years of a guaranteed preference of 8d. per gallon on home-produced motor spirit and Diesel oil for use in road vehicles, subject to the adjustments recommended by the committee. My hon. Friend the Member for South Croydon (Mr. H. G. Williams) then asked: Will the Resolution cover motor fuels made in this country from materials other than coal? To which the Chancellor replied: No, Sir. That was not what the Falmouth Committee recommended.''—[OFFICIAL REPORT, 18th May, 1938; col. 406, Vol. 336.] I would draw my right hon. Friend's attention to page 54, paragraph 274, of the Falmouth Committee's report, where they say, dealing with the question of future preferences: The present guaranteed preference is available to all processes for producing motor spirit from indigenous materials, and the committee are of opinion that there is considerable advantage in preserving that basis in any extension of the preference. Am I not right in assuming that potatoes grown in this country are indigenous materials? Surely "indigenous materials" does not refer only to coal which certainly is a "most favoured commodity" in this country? Surely agriculture is entitled to as much consideration as the coal industry? I would ask my right hon. Friend whether the words I have read out of the Falmouth Committee's Report, namely, that they recommend a guaranteed preference, provided the motor spirit is made from indigenous materials, refers not only to coal but equally to home-grown vegetables? In his reply my right hon. Friend stated that the Government were following the advice of the Falmouth Committee. The Falmouth Committee recommended that there should be no differentiation between petrols made by an process, from indigenous materials. Are not homegrown potatoes indigenous materials? [Laughter.] Hon. Members opposite may treat this as a joke but there are industries which require all possible encouragement and they include not only coal but agriculture. Other enterprising and scientific countries find it possible to make this fuel out of home-grown vegetable matter. Surely it ought to be possible for Great Britain to do so. The Potato Marketing Board show by their proposal that they consider it possible. I ask the right hon. Gentleman, between now and the Committee stage, to make sure whether he is right in restricting this preference. In Clause 2 of the Bill there is a definition of "indigenous materials." The expression is said to mean: coal shale or peat indigenous to the United Kingdom or products produced from those substances. Why should our country not be able to do what every other enterprising and scientific country is doing, namely, producing such things as potatoes or artichokes, in order to make this power' methylated spirit? Yet the wording of that definition appears to close the door on any possibility of developing the manufacture of power alcohol in this country from home-grown vegetable matter. I ask my right hon. Friend apart from the question of the proposed duty in Clause 3, to go carefully into that definition. The use of power methylated spirits as a blend with petrol is, as I have said, limited to a certain percentage which, it has been calculated, is about 15 per cent. In other words, if anyone were to have this power methylated spirit given to him to blend with petrol in the proportion of 50–50, he would not take it, because it would ruin the blend. There is, therefore, a limit to the extent to which it can be used. This is not a matter merely of ekeing out petrol. The blending of a suitable proportion of alcohol with petrol raises its anti-knock value or what is called in the trade its octane rating.

If there is one problem which the country will have to face in time of war more serious than another, it is that of the provision of aviation spirit. By a suitable blend of power methylated spirits and benzol with petrol which would otherwise be unfit for aviation spirit, it can be raised to the level of aviation spirit. Let the House remember that we buy our aviation spirit mostly from the United States or South America, or the Dutch East Indies. Supplies from the Dutch East Indies would have to run the gauntlet of the Mediterranean and, as to the supplies from the United States, under the Neutrality Act of 1937, the export from the United States of what can be clearly defined as munitions, is prohibited in case of war, to either of the combatants, whether the combatant is a victim or an aggressor. The President has also power to prohibit the export of things which are in his judgment ancillary to the conduct of war. It is clear that under these conditions the export of aviation spirit to this country from the United States might well be prohibited, if we were involved in a war, even though we were the victims and not the aggressors.

We do appeal to the right hon. Gentleman to consider the matter seriously before he decides finally on the imposition of this duty. This is a young industry and we feel that the right hon. Gentleman is in danger of discouraging it fatally. We also ask him seriously to consider the provisions of Clause 2 so that the guaranteed preference shall be available not only in accordance with the definition of indigenous materials contained in Clause 2 but shall also be available for the products of vegetable matter grown in this country.

5.7 P.m.

Mr. Graham White

I propose to make some observations later on the subject of power alcohol to which the hon. Member for Rusholme (Mr. Radford) has referred, and I say nothing more about it at the moment except to congratulate the industry upon having such an able advocate in this House. Without any interest in, or prior knowledge of, the industry, I look upon this new form of tax from an impartial point of view and I am bound to say that such evidence as has come before me, has led me to a conclusion which differs somewhat from that placed before the House by the hon. Member. To return, however, to the general and somewhat sombre aspect of our financial affairs, may I say that no one who has given much attention to the course of our finances would quarrel with the statement of the right hon. Gentleman the Member for Hillsborough (Mr. Alexander) that we are in a condition of crisis and, furthermore, that the crisis is bound to continue as long as the international tension remains and we are obliged to make such tremendous efforts as we are making in the cause of Defence. Not only is this year's Budget conditioned, but future Budgets as far ahead as we can see, will be conditioned and controlled by the interests of Defence. We shall make a profound mistake if we think that there is any easy escape from these liabilities or if we underestimate the importance of maintaining, cost what it may, our financial structure on a sound basis.

It is with a sense of gratitude that we see that the Chancellor of the Exchequer has avoided the devices which were suggested to him in various quarters. If we wish to see the consequences of unsound finance, we have merely to look at what has happened in other countries. If we are to avoid the dangers and difficulties which always follow the adoption of some form of closed economy, with all its restraints upon liberty and upon the remuneration of the worker, we need to steer our course very carefully at the present time, and we must be prepared to shoulder even heavier burdens than those which we are considering to-day. It is something that, in the present situation, we have turned away resolutely from devices which, though they might have served the purpose for the moment, would not have solved or even ameliorated our long-term problem. Other countries have found it necessary to curtail liberty and to submit to an extraordinary degree of control in all aspects of industrial life. They have adopted the expedient of "buffer Budgets" and even in this country, it is suggested that we might have something of that kind in order to help us to meet the expenditure upon armaments. But the "buffer Budget" is nothing more than a shock absorber. It is a series of dodges and devices for deferring default.

If mankind is so mad or so foolish, as to continue to allow his efforts to be frustrated, by devoting the whole of the surplus available from those efforts to purposes of destruction, let us, at any rate, make up our minds that, as long as it is open to us, we will avoid any departure from the path of sound finance. It is true that the last War used up the resources which had been accumulated in this country on the foundation of sound finance laid by Mr. Gladstone. It is extraordinary to think that one of the most beneficient results of the labours of that great man was to enable the last War to be won on behalf of freedom. At the moment the actual position is that rearmament has just had the effect of cancelling out from an Exchequer point of view, the whole of the gain from the expansion of national revenue, since the National Government took office. That, in a sentence, is the net result of the Budget before us, and it is the arithmetical measure of the long series of lamentable events which has brought the foreign policy of the Government to such a lamentable conclusion.

I have no doubt that if it should be necessary for us to shoulder even heavier burdens than those here proposed, we can do so. I believe the country would be willing to do so on certain conditions, and those conditions are fairly simple. The first is that the taxation which we are asked to pay should be fair as between one taxpayer and another. Adam Smith, who is little quoted in this House in these days, said that a tax must be "clear, definite and equal," and that is a useful test to apply to any taxation proposals even in these times. The second condition is that not only must there be no waste in expenditure, but that the people must be satisfied that there is no waste, and the last part of that condition is, in my judgment, even more important than the first. People are far from satisfied at the present time that there is no waste. We do not need the great array of figures and statistics quoted by the right hon. Gentleman who opened the Debate, to arouse the feeling in people's minds that there is waste. The third condition on which the country would be willing to undertake these added burdens is that the armaments which are being provided at such enormous cost will be used only for purposes of which the nation approves, and behind which the nation can rally in unity. There is one other condition. People must be satisfied that no undue profits are being made out of the necessities or misfortunes of the nation.

The right hon. Gentleman the Member for Hillsborough made a passing reference to the Income Tax, and I would like briefly to draw attention to the change which is taking place, or appears to have taken place in policy as regards the Income Tax and the nature of our direct taxation. The Chancellor of the Exchequer, by increasing the standard rate of Income Tax, has altered the progressive character of our direct taxation. From the point at which the standard rate comes into operation up to the Surtax level of £2,000 the increase is equivalent, roughly, to 10 per cent., but from £2,000 upwards the proportionate increase falls away. That appears to be a change in the character of direct taxation, and significance is to be derived at the present time from the fact that while this year Income Tax is higher than in the crisis year 1931, Death Duties and Super-tax remain at the same level. It would not have been impossible by means of some combination of an increase in the standard rate of Imcome Tax with increases in other forms of direct taxation to bring before us an instrument which would have achieved the same, and possibly an even greater, revenue, with more efficacy and less disturbance to business as a whole.

Bearing in mind the condition that taxes must be fair between one taxpayer and another I would say in passing that there is a feeling among some of the bigger insurance companies that they are not being treated quite fairly in relation to the National Defence Contribution. They do not in any way wish to contract out of the general liability for the National De fence Contribution, but they fail to see why, in respect of the income from those funds which they accumulate for the benefit of insurers against fire, burglary, accidents and one or two other forms of insurance, they should be called upon to pay anything to the National Defence Contribution as though it were an ordinary part of their trading profits. The result is that in comparison with other industrial corporations they are called upon to pay a higher and, as they say, an unjust proportion of the tax. In the later discussions we shall have an opportunity of dealing with this matter in more detail.

I will now say a word or two with regard to the question of power alcohol which was raised by the hon. Member for Rusholme. It seems to me, on an examination of this matter, that it is a subject of taxation which seems to answer most of the qualities that ought to justify a tax. The growth of the manufacture of this material has been very rapid and almost phenomenal. The amount of power alcohol blended with petrol has risen from 18,000 gallons in 1931 to 6,369,000 now. The hon. Member said that the Chancellor's proposal would close this business down. I notice, however, that the Chancellor, in his estimates, budgets not for a decrease in the use of power alcohol, but for an increase of something like 3,000,000 gallons in the current year. That seems to me a most desirable thing, and I shall have something to say about it later. Here is an expanding production and the increase in taxation will not have the effect of choking down what the hon. Member says is a desirable development.

Mr. Radford

By taking thought you cannot add a cubit to your stature, and because the Chancellor has said that during the coming year the gallonage will be so-and-so, that does not mean that it will actually be so.

Mr. White

But I presume that the Chancellor, in making his estimates, has relied on the best advice which is available to him.

Mr. Macquisten

The advice that he gets from his experts is not advice but prophecy.

Mr. White

In a matter of opinion prophets must either agree or disagree, but when the Chancellor of the Exchequer, supported by the best advice available, comes to the House and gives us that advice, we should be well advised to accept it. The hon. Member for Rusholme went on to develop the matter further, and suggested it was a great pity that the distillation of this product from potatoes should not be encouraged. since this matter was first projected and brought before the House, considerable argument and controversy have developed in regard to it. In the "Manchester Guardian" there was an article which took a different view from the one which the hon. Member has put forward. The "Times" was on this matter in complete agreement with the "Manchester Guardian" and dealt with the arguments which the hon. Member has placed before the House, and dealt with them faithfully. I have here another paper, a less decorous but more popular paper. The matter seems to have become news, for in the "Daily Express" of 2nd May the whole matter is set out with captions of the kind which are usually reserved for the activities and antics of celestial bodies in the film world.

Reference is made therein to the enormous profits which are being made by those who have demanded that this product should be free of tax and who are, in addition, receiving an Excise subsidy of something over 8d. a gallon. The right hon. Gentleman who spoke above the Gangway referred to the profits of armament firms, but some of the profits which are indicated as having been made in this commodity put anything which the right lion. Gentleman mentioned in the shade. There is one company—the Petroleum Storage and Finance Corporation—which between 1929 and 1931 seems to have doubled its capital and to have paid dividends of an amount that might be regarded as beyond the dreams of avarice. In 1929–30 the dividend was 8 per cent., and a year later 20 per cent. Then there seems to have been a setback when there is no dividend on the ordinary capital. But in 1935–36 it was 72 per cent. on the deferred capital, and in 1936–37 it was 344 per cent. on the deferred capital.

Mr. Radford

I told the House I was a director of one of the companies that blended and distributed this motor spirit. That is the company in question. It would be only fair if the hon. Member mentioned that the deferred shares were Is. each and had been without dividend for many years previously. About three-quarters of that company's business did not touch alcohol at all. It did not, therefore, make its money out of what the hon. Member described as an article free from duty; and what about the people who distributed over 50,000,000 gallons of Benzol free of duty? Are they making nothing out of it?

Mr. White

Those who know me in the House know that I am the last to wish to be un fair to anybody, and if I have exaggerated in any way I am sorry. These are not figures taken from the "Daily Express." I took them for greater accuracy from the Stock Exchange Year Book. In spite of the hon. Gentleman's intervention, I still cannot help thinking that on this occasion the Chancellor has found a subject of taxation which will commend itself to the House. I hope that he will not be prevented from carrying the Clause which he has inserted in this Bill.

With reference to the Tea Duty, the Chancellor in the discussions on the Budget said that there was no such thing as a good tax. I do not know that I agree with him altogether, but perhaps I may have his acceptance of the proposition that in the category of necessary evils there may be variations in the degree of merit. The tea tax, I think, is a very bad tax, and there is really nothing to be said for it. I hope that anybody who may be tempted to defend it will not allow himself to say it is a tax that falls equally upon the consumers, because that is not the case. It was not the case when the tax was raised by 2d. before, nor is it the case on this occasion. The tax falls on the poorest members of the community because tea is their main beverage. The poorest consume far more than the average of 9 lbs., which is the average of the country as a whole. The poorest people are the only people who pay the full tax because there are no cheaper qualities which can be bought. Upon them falls the consequences which flow from the imposition of the tax, for it concentrates all the buying power of the market on the cheaper qualities and thus forces up the prices of the cheaper qualities.

When the tax was put up 2d. two years ago, that process went on steadily, with the result that a further 2d. had to be added to the price of the cheapest blends. I do not know whether that will follow now, but the process has already started. since the Budget was introduced there has been an addition of one halfpenny to the price of tea in the auctions. It is inevitable that the imposition of the tax will attract to this country some undesirable and cheap qualities of tea from Japan and China. An effort will be made to try to produce a blend of tea which will be within the reach of the poorest people. If the Chancellor wishes to introduce a tax upon tea which will fall equally upon all consumers, he must arrange that all tea shall be of the same quality and sold for the same price. That is the only condition on which it can be done. This tax is placed on a product which is finding it hard to maintain its consumption, for it is competing with a large number of other beverages which are heavily advertised. The consumption is, in fact, declining. It is unfortunate that at a time when planters have devised a plan for popularising tea, and are spending about £50,000 upon advertising it, a step should have been taken which will neutralise the effect of what they are trying to do.

I notice that some growers in Ceylon and India are petitioning the Governments of Ceylon and India to protest to the Home Government against the imposition of this increased duty. We do not wish to have any extension of the discord between India and ourselves. In the world to-day conditions are not very happy as regards trade, and we do not wish to have any further trouble over a thing of this kind. I would also remind the House of the great disadvantage which growers of tea in India and Ceylon suffer owing to the continuation of the preference of 2d. per lb. in the duty upon Empire tea. The result is to divert the natural flow of the exports of tea from India and Ceylon. As one illustration of what I mean, before the preferential duty the Australian market used to import about 75 per cent. of its tea from Imperial sources, India and Ceylon, but the quantity has now fallen to 25 per cent. I do not ask the House to rely upon my word in this matter. Here is the statement of the chairman of one of our biggest planting concerns, who said on 17th May: He again emphasised the harmful effect on British Empire teas of the preferential duty applicable to them in this country. Teas displaced from the London market had in turn displaced Indian and Ceylon teas in outside markets, and he was convinced that it would be in the best interests of Empire producers if the preference were removed. The recent additional duty of 2d. per lb. would tend to accentuate the demand for commoner teas and diminish the demand for medium and better qualities. If the right hon. Gentleman wishes to help consumers in this country, to help planters, and to help the development of the tea trade, the simple course would be to do away with the differential duty. That is a proposal which has the support of the planters and of the practical experience of the trade.

My right hon. Friend the Member for Caithness (Sir A. Sinclair), in his speech upon the Budget Resolutions, commended a series of proposals to the Chancellor of the Exchequer as a means of fortifying his Budget. Among them was a proposal for an investigation—on lines such as we have had experience of in our administration, or on some other appropriate lines—into the vast expenditure in our own country to-day. In his reply the Chancellor made rather light of that suggestion. He went over various items of expenditure in which he said, very truly, the House would not wish to see any economy made, and in that way, by a series of subtractions, he reduced the field of investigation to very small proportions. But I would point out that we are not dealing with a level of taxation which is going to decrease; indeed, we have increases in prospect, and I suggest in all seriousness that the sooner the right hon. Gentleman does institute some process of investigation into and control of expenditure the greater chance there will be of the people being willing to shoulder the vast burdens which he is calling upon them to undertake.

Even as things are I am not by any means sure that waste is being avoided, and I will ask the right hon. Gentleman to give attention to one specific matter in connection with the social services. Nobody wants to curtail any benefit which comes to any individual who is a beneficiary under the great system of social services which we have built up in this country, but I would draw attention to the tremendous growth of the purely administrative expenditure of the Unem- ployment Assistance Board. In the year 1932–33 there was a weekly average of 988,000 payments to applicants for allowances, and the administrative cost was £3,385,000, or something like £3 4s. per head. The work at that time was being done by the Ministry of Labour in conjunction with the local authorities. In 1933–34 the number had fallen to 957,000 cases per week on the average, but the expenditure had risen to £3,740,000. The Unemployment Assistance Board took over the work in 1936, and for the year 1936–37 the average number of payments weekly was 600,000, something like one-third less, while the expenditure of the Board in making those payments had risen to £4,430,000, or something over £7 per head.

There is no beneficiary under that scheme of public assistance who has derived any money benefit at all from that increased expenditure. I ask the right hon. Gentleman to direct his searchlight in that direction, and there are no doubt other directions in which he could look because this is an important matter. The stability of our finances, and the willingness of the country to bear the burdens which are placed upon it and which are grievous enough, demand that we shall have the knowledge that no waste is being incurred. I have already spoken longer than I had intended, but in conclusion I would ask the Government to realise that the only hope of any substantial amelioration of our financial position lies in the prosecution of a policy of appeasement.

5.37 P.m.

Brigadier-General Sir Henry Croft

The speech with which the right hon. Member for Hillsborough (Mr. Alexander) opened the Debate was forceful and wide in its compass, and interested everyone, I am sure. He had a few flings at His Majesty's Government, and among other things brought in a reference to the by-elections. He will forgive me, I hope, if I recall in passing a series of by-elections many long years ago when I was a young man seeking to enter the portals of this august assembly. There were no telephones in those days—perhaps that will not be believed—and I used to get a young man to cycle out to me in the middle of the night to tell me the latest triumphs in those by-elections. It was during a period when the fortunes of our party were very low, and I was delighted to think that the future for us was most rosy, because we won every one of those by-elections—I think there were six in all. I see one of Inc culprits in those night adventures sitting on the Government side of the House now, and I am sure he will remember that series of great by-elections which made us imagine that the country had changed its mind. The fact is that it is rather good for a Government to lose one or two by-elections, because they arc always won back in the General Election, and it stimulates interest in politics when it might otherwise be at a low ebb.

Although later I may have to say a word or two of warning to my right hon. Friend the Chancellor of the Exchequer, which I hope he will not take amiss, I should like to say now, with regard to the general principles underlying the Finance Bill, that in my opinion the people of this country ought to be grateful to the Chancellor for the sanity of his policy and for the fact that he is not gambling at a time when things are so uncertain in the world. Gambling may be wise if there are definite indications of a movement towards prosperity, but it cannot be justified when conditions are static, or when there is the amount of disturbance in the world which we see at the present time. I, for one, feel that he has chosen wisely. As an income-tax paper I very much dislike this increased imposition, but who have been more guilty of asking for the insurance of the safety of this country by adequate defence measures than I and those who think with me? I am glad to find that hon. Members of the Labour party are also now demanding increased measures of defence. What right have we to demand that our country shall be made safe if we are not prepared to face the fact that it must inevitably mean a greater burden upon all classes? Therefore, I think we should realise that the addition to the Income Tax was an equitable form of increasing taxation. As to the Tea Duty, everybody dislikes a tea duty, but it must be admitted that if we want to tax a commodity which is consumed generally by everybody in the country there could not be a fairer choice.

Mr. Silverman

Does the hon. and gallant Gentleman really say that the drinking of tea by people with incomes of his standard is so great in proportion, or is so important, as it is among people at the other end of the scale?

Sir H. Croft

Not for one moment. What I was trying to convey was that probably everybody drinks tea, and that if, after the extra tax placed upon the rich, a still further contribution to revenue has to be found, you probably cannot find fairer taxation than the Tea Duty. It is quite understandable that the Opposition should make a great deal of the increase of 2d. in the Tea Duty; I should have done the same thing myself if I had been sitting on their benches; but I must remind them that when my right hon. Friend the Member for Epping (Mr. Churchill) was Chancellor of the Exchequer and took 4d. off the Tea Duty he got no blessing from them, and, indeed, was almost cursed. One of the most vigorous leaders of left wing thought in this country said, "What does this mean to a working-class family in the course of a year? Only 7s. 4d. Thank you for nothing." In the General Election people all over the country were told that this remission of 4d. was no advantage to them. If that were so, then an increase of 2d. in the Tea Duty cannot mean such an appalling burden as the hon. Member who has endeavoured to assist the fortunes of the Liberal party by his eloquent speech would have us imagine.

In reference to the increases in both the Income Tax and the Tea Duty I would say to the people of this country that it is far more important that they should be able to live free from the fear of death than enjoy a little temporary ease or comfort. We have to face the fact that the money for Defence must be found, but I entirely agree with the hon. Member for East Birkenhead (Mr. G. White) that in view of the vastly increased expenditure upon armaments it is vital that we should look afresh at our general expenditure. We cannot carry both burdens. In one of our country districts not long ago I was talking to a distinguished man who remarked, "In the near future we are going to spend £400,000 upon educational establishments in this area." That is very good in good times, but when we know that the children of school age are decreasing in numbers, are we wise in going ahead, at this time, with great expenditure upon educational establishments? It is to satisfy a need which, though desirable, is not imperative.

I should like to refer to the speech of my hon. Friend in relation to power alcohol. It was an eloquent speech. I look at this matter from a rather different standpoint from the hon. Gentleman who spoke before me. I submit that we have come to a decision that we should never discriminate, if possible, against home industries. Having, after due consideration, decided that we should give an advantage to certain power liquids, we should not go back upon it in the case of power alcohol. We should treat it in the same way as we treat benzine. The hon. Gentleman said: "Look at the profits," but the Chancellor of the Exchequer knows as well as any of us that he likes success from which he can recover the finances of this country in the days to come. Let us not hear criticisms, especially from the Liberal benches, suggesting that an industry must be taxed because it is a success. Successful industries are necessary in order that we may be able to wring taxation from them as a result of their high profits.

One or two emphatic remarks were made by the right hon. Gentleman the Member for Hillsborough. He instanced four or five industries in this country, saying "Look at the increase in profits." If he really went into the history of those industries I wonder what he would find. I have not been able to check the facts, but the right hon. Gentleman cited Dorman Long. I am not in the City, and so I do not know. He cited the Consett Iron Company, and other companies, and called attention to their subscription lists. Does the right hon. Gentleman) realise that from the days of the blight when he and his colleagues were in control of the government of this country several of those companies have paid no dividend or only a very small one? Is it not a fact that some of the industries which he mentioned have issued great blocks of new capital and are expanding greatly; but is it a crime that the National Government are succeeding in bringing about expansions in industry which have given immediate employment to large numbers of people in all these industries?

Mr. Alexander

And bonus shares to the shareholders.

Sir H. Croft

Certainly. It must be of advantage if you are making an industry so successful that you are able to extend the advantage to the shareholders, as the right hon. Gentleman and those who take that line of argument are inclined to forget. I think I am right in saying—and were the hon. Member for Oxford University (Sir A. Salter) here at present he would probably bear me out because he, like myself is an economist. [Laughter.] Yes, I have been an economist all my life. I spend three hours every morning studying world returns. I may not be able to put my case well, but at any rate I study these matters as much as hon. Gentlemen. Until recovery came about four years ago, during the preceding eight years the average rate of interest on capital in this country did not exceed something between 4 per cent. and 4½ per cent. Even if you had a Socialist Government in this country British credit would hardly be able to borrow from the rest of the world at a rate much better than 4½ per cent. I am talking of capital invested as a whole.

Hon. Gentlemen say: "Look at these vast ordinary profits," but I reply: "Look at the number of companies who paid no ordinary dividends at all until the recovery four years ago." We see increased profits to-day from firms who made no profit at all before. I mention this aspect of the matter because we ought to get a fair outlook upon the whole subject and not pick out two or three industries for castigation. I will give an instance of what I mean. Here I think the right hon. Gentleman will probably agree with me. We want to stop profiteering, but none of us will deny a reasonable profit on every article of armament which is required. You may say that the industry which is producing Zoo aeroplanes ought not to be allowed to make great profits, but if it is producing 2,000 aeroplanes we are always ready to see a reasonable profit on everything they turn out. Surely that is right. [HON. MEMBERS: "No !"] That is efficiency.

Hon. Members

No!

Mr. Alexander

If the hon. and gallant Gentleman were engaged in business would he not want a reduction upon a quantity?

Sir H. Croft

Certainly, I would, but I would say that I was going to get speed in my production. If the profit upon the single article is not excessive I do not mind how much profit the industry makes. I might give the homely example of Messrs. Coats. I have not followed the fortunes of that firm lately, but I think they have made very great profits and that they have been rather an asset to this country. [Interruption.] I hope hon. Members will bear with me. I do not want to delay my speech on these points, but this is an example of what I am trying to point out. I think that the actual profit they made upon a reel of cotton was ½d. Who else would have been content with a profit like that? The cheap cotton thread that they gave to the housewife in this country was the result of their enormous production. If we got that production in aeroplanes, or in other munitions, it must be to the advantage of the State.

Mr. Benson

Are we not getting that enormous production in aeroplanes?

Sir H. Croft

I do not want to make a speech on that subject. Pressure came from various parts of the House that we must have greater expansion in air production. It would be folly to try to reduce the legitimate profits upon the article turned out. What we want to see is a speedy production. I am sorry to have been taken off my main theme.

The adverse balance of trade of this country is a serious matter. Last year it was £443,000,000. I think the President of the Board of Trade gave a slightly different figure by eliminating silver at about £11,000,000 from the figure. Following upon the adverse balance of trade last year, taking all invisible exports into consideration the adverse balance was £52,000,000, and that of the year before at £18,000,000, and it appears that for the first four months of this year the adverse balance of trade has increased, taking the world over with ourselves, by £17,000,000. If that rate were continued for the whole year—although no one can prophesy on that subject—it would mean an increase of something like £68,000,000. If you add that to the adverse balance last year and to the increase in last year's balance, the total increase is over £100,000,000.

Mr. White

£118,000,000.

Sir H. Croft

I was going to say £120,000,000. Heaven forbid that we should make alarmist speeches, but it seems a good thing that we should take action early when we see tendencies approaching. I had the audacity in 1928, speaking in this House, to point out that the adverse balance of trade was going against us and that before 1932 we should have a very difficult situation unless steps were taken to rectify that adverse balance. I ask the Chancellor of the Exchequer whether, in view of the present tendency of world trade, we can hope that invisible exports will be much better than last year. I do not want an answer now, but I doubt whether they will be better, or that our interest on world investments will be much better than it was last year. If that is so, ought we not to take steps now to rectify that position? It may surprise hon. Members who have not followed these matters to be informed that we are importing practically as much into this country to-day as we were importing before the tariff was introduced. It is very surprising. We are importing at an increasing rate large quantities of manufactured goods which we are definitely capable of producing.

When Lord Runciman was President of the Board of Trade in this country, he saw dangerous times, which were rather similar in a way, and he even went so far as to impose an abnormal Import Duty. If we see people losing their jobs in this country owing to greatly increased importations of foreign manufactured goods, would it not be wise once more for the Government to take a hand, apart from the Import Duties Advisory Committee, and put a check on the flood which is now coming in? In reply to questions, Ministers say that Opel cars are no longer coming in. If that is so, the probable reason is that Southampton Docks are so congested that it is no good sending any more. I travel by Southampton Docks every week. The place was black with them. It was like a swarm of bees, all coming in so suddenly. It has had a very serious effect upon the producers of cheap cars in this country. Think of all the men employed in these industries. Has not the time come for exceptional treatment in this matter?

Did time permit I could give a long list of Class 3 manufactured goods, showing a surprising rise of imports in the last two or three years, not only in the bulk, but in the percentages; truly re- markable, but I shall not weary the House with the figures. Hon. Members are probably aware that out of the Class 3 list of goods—goods like textiles, silks, wrapping paper, typewriters, motor cars and other goods, which we have certainly proved able to produce ourselves—there is an enormous increase in imports in the last two or three years. If that is so, and if people are no longer being absorbed in larger quantities into employment, let us be frank. As the result of the policy of His Majesty's Government, we have 300,000 more people at work to-day than a year ago, and in April more people employed than ever before in our history.

Mr. Quibell

Who is buying these cars?

Sir H. Croft

I do not know, but I say, do not let them. I ask His Majesty's Government to consider these facts. Not only is there the rising tide of the adverse balance of trade, but even in the countries with which we have made trade agreements in recent years, the adverse balance is increasing against us. Perhaps I may just give, briefly, to show what I mean, the names of countries with whom we are on very good terms and with whom we have made trade agreements. In the case of Sweden, our adverse balance of trade has increased from £1,500,000 to over £3,000,000; in the case of Norway, from less than £500,000 to nearly £1,500,000; in the case of Denmark, from £3,750,000 to over £4,500,000; in the case of Germany, from over £1,000,000 to £1,500,000; in the case of the Netherlands, from £1,500,000 to £2,000,000, and in the case of Belgium the same. In the case of France, a favourable balance of £2,000,000 has become an adverse balance of £300,000. In the case of Japan, the adverse balance has increased from £1,250,000 to £2,000,000, and in the case of the United States of America from £11,000,000 to nearly £31,000,000.

Surely our trade agreements, if they had been wisely drawn, would not have permitted of a progressive adverse balance of trade against us in all these cases. Everyone knows, of course, that the Government were really out to create a bigger flow of trade between these countries and ourselves. They are friendly countries, and I do not want to say anything unfriendly to them, but we do not want continually to see the balance of trade going against us, and surely that question must be considered when these treaties fall for reconsideration. In the case of the United States, the adverse balance has increased at a truly alarming rate during the last four months. We have had an adverse balance for the last three years of over £180,000,000, and during the last four months it has become greater than it was before. Surely this indicates that when we are discussing, as we want to do, the promotion of a trade agreement with the United States, we must insist that at least the main result of that agreement will be that the adverse balance will be greatly lowered, and that we shall be trading more on equal terms than has been the case in the past.

The one hopeful picture,' looking round the world, has been the fact that the British Empire has been buying more from us than all the rest of the world put together during the last four months. That is a wonderful result of our longterm policy, and I believe that in these difficult days we should do everything we can still further promote trade between the various parts of the Empire and this country. With all the dangers of the world before us, can we not get together as a nation with the fraternity of British peoples overseas, and say that, if all the rest of the world is insane, we at least will be brethren and get together to extend our flow of trade and improve the lot of the workers in all our countries, for our mutual strength and unity. If His Majesty's Government can concentrate in the future on making the flow of trade between the various parts of the Empire still more liberal and still more rich, will not that be one way of ensuring the strength of this country, and, by ensuring our commercial strength, ensuring the defence of the British Empire as a whole?

6.5 p.m.

Mr. Poole

I claim the indulgence of the House, as this is the first occasion on which I have spoken in this Chamber. I was delighted to hear the previous speaker say that it was good for the Government to lose by-elections. I am very glad to have had the opportunity of bringing some goodness to this Government, who are badly in need of it. I have dared to intervene in this Debate only because of the circumstances following that most important by-election at Lichfield. My opponent gave, as the prime reason why he was not successful and I was, the fact that the Chancellor of the Exchequer had introduced a Budget which was very much in my favour and was certainly not in his favour. Therefore, I feel that my first act of worship in this House should be at the shrine of one who has made it possible for me to sit here, and for that reason I have ventured to intervene in this very important Debate.

The whole House, I feel sure, is impressed with the magnitude of the burden which we as a nation are now called upon to face. The Chancellor of the Exchequer, in his Budget statement, made it abundantly clear that he would expect all sections of the community to bear their fair share of that burden. Whilst we on this side of the House may be prepared to accept that statement if the burden be equitably distributed, we place the responsibility, first of all, for the need for that burden, as the right hon. Gentleman the Member for Hillsborough (Mr. A. V. Alexander) has done, on the shoulders of the people to whom we think it rightly belongs, namely, the present Government, for their failure in foreign policy. That is the primary cause of the necessity for this burden. More than that, we feel that there is no equity in the distribution of the burden under the present Finance Bill.

I have been endeavouring to imagine just exactly what it was that inspired the Chancellor of the Exchequer in fixing his taxation in the manner that he has. I visualised him, with the idea of equity of distribution of the burden, thinking that various classes of the community should pay their contribution towards this expenditure. I visualised him looking at the ordinary working-class man and woman and saying, "These are people who ought to pay, and they can only pay by taxation upon their basic commodity of food. Therefore, I will impose an extra 2d. on tea." Then visualised him coming to the middle class and saying, "What is there different in this class that I can tax, so that I may call upon them to bear their share of the burden?" and suggesting to himself that this class of the community were people who perhaps were fortunate enough to have motor cars, and that they might pay in the form of additional taxation upon motor spirit.

Then I visualised him as coming to a higher stratum of society—I must confess I am not an authority on class distinctions—where the people were fortunate enough to pay Income Tax. I state openly in this House that I have never been fortunate enough to have to pay Income Tax. [Interruption.] It is not even coming to me. I have additional responsibilities, and I also have some knowledge of how to fill up an Income Tax return. I think I shall be fully exempted, even though I have achieved the status of an hon. Member of this House. The right hon. Gentleman arranged that that section of society should share the burden by paying another 6d. in the in Income Tax. There is still another stratum of society—and this is why we feel that the burden has not been equitably distributed—there is another section of the community who ought really to have borne a larger share of the burden, namely, the Super-tax payers, the armament manufacturers, the financiers in the City, who apparently are not going to be called upon to shoulder any additional burden.

The injustice of the taxation as regards the poorest section of the community lies in the fact that it hits the homes of the workers of this country. What is 2d.? I can imagine hon. Members on the other side of the House saying that 2d. is such a small thing—that in the average working-class home, where they consume a pound of tea a week, they are only called upon to pay 2d. extra. I can quite sympathise with the inability of hon. Members to understand just exactly what an additional 2d. means in the budgets of some working-class homes. One can only appreciate the effect of a 2d. increase on a basic commodity in household use if one has felt the need of 2d. at some time in one's own experience. It is only when you have felt, perhaps through the grievous sickness of a child of yours, the necessity for providing for that child something that it needs, and have lacked even the elementary 2d. to pay for it, that you can understand the effect of a small tax of 2d. on a pound of tea. That is the difference, and that is why I am afraid the Chancellor himself and hon. Members opposite have failed to appreciate the tremendous significance of the additional 2d. on tea.

The petrol tax, too, is a tax which of necessity must also hit the poorest homes in this country. What is that tax going to mean to the municipal transport undertakings? It is going to be reflected, of course, in increased transport costs and increased fares for the working-class housewife every time she requires to go from the new estate into the centre of the town to do a bit of shopping. Miners, factory workers and others who are called upon to travel long distances by bus will have to pay increased fares, which they can ill afford. Foodstuffs which are brought into our great industrial centres by road motor transport will of necessity have to be increased in price, because motor transport undertakings to-day cannot afford to bear any additional burden of taxation without its being reflected in the price they charge for the services they render, since price-cutting in road transport has now been reduced to such a fine art that 'there is no margin for taking on additional taxation such as this without passing it on in the price of the services rendered.

In the division which I have the honour to represent, there is a large body of people who work in the city of Birmingham and in Coventry, many of them engaged in carrying out the rearmament programme of the Government. They are compelled to live some 15 or 20 miles away from their employment, having been driven right out of the industrial centres and into the arms of the building societies. Because of the restricted housing legislation of the Government, they have been compelled to engage, through building societies, in the purchase of their houses, and then, in an endeavour to eke out their income and make their position better, they have undertaken the purchase of a motor car in order to reduce the cost of transport to their employment. Here they are taxed again a second time. Their tea having been taxed, their motor transport to their work is also taxed. Therefore, I say that the burden is not by any means equitably distributed. Moreover, through the National Defence Contribution, these same people who are members of co-operative societies are taxed yet again to the extent of 3s. 6d. a year. Therefore, practically every aspect of the additional taxation except that of the Income Tax is hitting the same class of workers over and over again.

I want to give expression, if I may. to some fears that arise in my mind with regard to the enormity of this burden and the proposals for shouldering it. I find that the Chancellor of the Exchequer, in the Debate on the Second Reading of the corresponding Bill in 1937, said: Our prosperity does not depend upon rearmament. The recovery of the country was thoroughly well advanced before rearmament began, and the pace of recovery, though it goes on, has not noticeably quickened 4s the result of rearmament"— [OFFICIAL REPORT, 31st May, 1937; col. 712, Vol. 324.] I am wondering whether the right hon. Gentleman still holds that opinion, whether he believes that the recovery in the trade of this country is still advancing so well, even apart from rearmament, and whether the financial provisions during die present financial year are going to be based on that assumption. If so, I feel that the yield is going to be a disappointing one. Prior to coming to this House I can claim to have been in touch, not with any specific trade in the City of Birmingham, but to have touched all the staple trades of that city, and whereas, in the business in which I was employed, we came in the early part of the year to talk about a temporary lull in trade, and then about a recession of trade, before I was elevated to this House we were talking of it as an absolute slump. I believe we are facing a veritable slump in industry to-clay. I believe the danger is that if the yield the Chancellor is expecting, based on the assumption of improved trade, is not forthcoming, we shall have a repetition of the experiences we have had before, and an attack on our social services and the standard of life of the people of this country.

Apart from the burden of this Bill, there are ever-increasing burdens on ratepayers and local authorities due to the war psychology. Air-raid precautions are causing the local authorities grave concern. The Fire Brigades Bill, in its local aspects, is causing local authorities grave concern. Public Assistance also is causing them grave concern. They are being compelled to cancel schemes of local expenditure because they cannot face the intolerable burden; so unemployment is growing and public works contractors are without work. In the circumstances which I have detailed, my fear is that this country is facing a slump. Should this arise, I have a very grave fear, knowing the past his- tory of this Government, that there will be an attack on our social services and the standard of living. I trust that my fears are unfounded; but, should they be borne out, we on this side will very definitely resist any encroachment on our social services or on the general standard of living. We are not going to tolerate any repetition of 1931. [HON. MEMBERS: "Hear, hear!"] Yes, "hear, hear," comes from the other side. The encroachments of 1931 also came from the other side; and, should there be any repetition, the resistance from this side will be much greater than it was in 1931.

I want to thank you, Mr. Speaker, and the House for their indulgence to me this afternoon. I trust I shall be able, in the days to come, to make an effective contribution to the Debates, often criticising perhaps, but, I hope, making an effective contribution to the welfare of the people we represent. I trust that I shall always receive the toleration I have had this afternoon; but, knowing the temperament of hon. Members opposite and also my own temperament so much better, I very much doubt it.

6.19 p.m.

Sir J. Simon

We have reached a point in this discussion when, I think, it would be suitable for me to intervene. I am glad to do so at this stage, because it makes me the mouthpiece of the whole House; and I tender very sincerely our congratulations to the hon. Member for Lichfield (Mr. Poole) for his contribution. We shall always be glad to hear contributions from him as good tempered and as forceful as that which he has delivered this afternoon. Indeed, I owe him a special debt, because he has been good enough to pay me a compliment. I understood him to say that I am the sole cause, or almost the sole cause, of his coming here. He is new to the House, but I am sure that he will understand me when I say that any incense that is burned on the altar of the Treasury at this time of the year will be very gratefully received. The fact that the hon. Member's was a maiden speech after a by-election indicated, I think, the general character of the arguments which he presented, very forcefully and very effectively, I am sure, to his constituents.

If I remark upon one aspect of what he said, it is not for the purpose of having a quarrel with him, but in order to correct what, I think, is a mistaken point of view. He said, and I was very glad to hear him say it, that he would accept the proposition that, in the circumstances in which we stood, contributions ought to be got from the community as a whole; of course, he objected to the proportion, but really it is a most profound error to speak as though the proposals embodied in this Finance Bill did not fall with very great severity on the rich. I think it is perfectly right that heavy contributions should be got from those who can contribute most. I have never differed from that view. It is a perfectly sound principle. But it is not correct to represent the main proposals of this Finance Bill as being a departure from that very necessary rule. I have raised the Income Tax to 5s. 6d. Quite true. But does everybody in this House and outside realise that no single soul in this country except a Surtax payer ever pays 5s. 6d. in the £ on the whole of his income? The scheme of our taxation is one which makes, as we all understand, a graduated scale, and the only people who can ever pay 5s. 6d., rather than a lower figure, on the whole of their income are people who, in fact, are within the Surtax limits. That is the result of the abatements which the hon. Gentleman so happily referred to by saying that he has only recently joined the chosen band of those who might have to pay.

Let me illustrate the effect of this Bill on the richer members of our community. You can find out what is the total of the Income Tax, Surtax and Death Duties which are gathered in a year from the group of people who are within the Surtax limits; and these are the figures: in the case of Income Tax, something like £134,000,000; in the case of Surtax, another £62,000,000; and in the case of Death Duties, £69,000,000. That makes a total of £265,000,000 in the coming year, as far as can be estimated, which will be provided from those three taxes by those who are Surtax payers—only 100,000 people. Without discussing whether that is enough or too much, it really is presenting the matter without any sense of proportion, as it seems to me, if one does not realise that, taking those three taxes together, 100,000 Surtax payers are, in fact, contributing enough in this year to pay the cost of Defence charged to revenue in the year or, to look at it in another way, the cost of the social services.

If you take those 100,000 Surtax payers, and select out of them those who are the richest of all, those with incomes exceeding £10,000—and there are about 10,000 of them—you will find that of that £265,000,000 which I have just spoken of as being produced by direct taxation within the Surtax limits, no less than £133,000,000 is contributed by the 10,000. I can understand the argument that there ought to be other ways of collecting wealth; but what I have said does show that it is not a fair description of the Budget to say that it is failing to get a very big contribution from the very rich people.

Mr. Benson

Is the amount of Death Duties that the right hon. Gentleman has said could be got from Surtax payers an estimate, or can the Treasury actually link up the two taxes?

Sir J. Simon

I had the same reflection when I saw the figure as the hon. Member has. It is a natural question to ask. I am informed that the estimate can be made, and I have given it as it is given to me. But it is a significant figure, because it shows that the £69,000,000 which comes from the Surtax paying class is £69,000,000 out of a total this year of, I think, £88,000,000. I am not seeking to make any controversial point; I am asking the whole House to consider whether it is not fair to say that the provisions in this Finance Bill are made with a view to getting substantial contributions from all quarters in a fair proportion.

Mr. E. J. Williams

If the right hon. Gentleman will allow me —

Sir J. Simon

I cannot give way too often. But no doubt the hon. Member has some original idea.

Mr. Williams

I just wondered whether the right hon. Gentleman would take the other side of the balance sheet, and say how much the Surtax payer is receiving by way of interest on War stock out of the Budget.

Sir J. Simon

I cannot do that; it would not be relevant. The real point is to see how the tax burden is distributed between different sections of the population. When I hear this argument about the increase in the tea tax, which is expected to produce this year £2,750,000, my answer is that I would never for a moment deny that that is by itself a more severe burden on a small income than it could be on a big income, but I think that I am justified in saying that, taking a fair view of the Budget as a whole, it is a perfectly honest attempt to spread the burdens as they ought to be spread through the whole community. I believe that outside this House that opinion is so widely held that a proposal which was expected to produce a great storm has been recognised as being, on the whole, tolerable, and I hope, as far as any tax can be, acceptable.

I now turn to the speech of the right hon. Gentleman the Member for Hillsborough (Mr. Alexander). I will take, first, his statement that one of his objections to the Finance Bill was that it represented a continued policy of unbalanced budgets. Here again—he was good enough to say that I have been perfectly frank—I have made it clear from the beginning that if we were to rely on taxation alone, without resource to loan, there would be £120,000,000 to find—there would be at least that. There is a sense, no doubt, in which any Budget can be regarded as not balanced if tax provision for any service is supplemented by borrowing. At the same time I think that we are entitled to claim, as the hon. Member for East Birkenhead (Mr. White) said in his speech just now, that through these difficult times we in this country as a whole are struggling to keep on the straight road when we have many bad examples set us in various parts of the world. In the present case this borrowing of £90,000,000 for Defence purposes which we are meeting this year, is, it is fair to say, compared with the total defence expenditure of 340,000,000, a small proportion.

The justification for the Defence loans have been discussed in this House again and again. While there is no hard-and-fast rule by which you can decide whether, in a given instance, the policy of borrowing is justified or not, I think that the argument for dealing with the matter as we have dealt with it is a strong one. There are some simple cases in which most people would have no difficulty in coming to a conclusion as to whether borrowing should be resorted to. If you have a project of a non-recurrent nature, if it involves expenditure of abnormally large sums within a short period, and if the expenditure is going to produce assets which will provide a constant revenue, if all these conditions are satisfied, the case for borrowing on the most classic principles would, I think, be met. We would be perfectly justified in borrowing, say, for telephone development. But we are not dealing with a case as simple as all that, but with a much more difficult and complex case. Some of these tests would be satisfied, and others of these tests would not. It is true that the outlay which we arc now facing is a terrific outlay, and it is also true that it is not being incurred simply for the benefit of the present year. There are large items of expenditure this year, such as the erection of these shadow factories, which certainly could not recur year after year. They represent the spending of money on something which will have a remaining value. It is true that our plans include a large element of what might be fairly called exceptional expenditure and that that expenditure is designed to be of advantage for years to come and not only for to-day. The figures are abnormally large. But it is very important, from the point of view of all who look seriously at our finances, to realise that, though this is vital and indispensable expenditure, which we must find and we must meet whatever happens, still it is not the sort of expenditure which produces revenue in future years. Rather it adds to our liabilities. Therefore, I willingly admit, and every serious student of the subject must admit, that this is a far more difficult case than a simple case of borrowing.

I have asked myself, and I ask the House for a few minutes to reflect on what sort of considerations should guide our action about it. I have laid down for myself one or two warning propositions. I make this observation: Borrowing may mean paying later on rather than paying now, but it means paying all the same, and, after all, that is a very serious consideration for a Chancellor of the Exchequer to determine in a given year that he can resort to borrowing for meeting some portion of the burdens of the country. It is so easy—we all have it in our own sphere; it is a human failing—to see our immediate burden and our difficulty very clearly indeed, and we recoil and say, "I cannot do that. How can I get through next week?" It is much more difficult to look ahead, but by postponement there may none the less be a more difficult situation later on. That was the reason why I ventured to say in my Budget speech, that I knew perfectly well that, if I met all this extra expenditure by borrowing, I should be taking the easy course. But I warned the Committee then that it would be the easy course for the moment, but it did not follow that it would be an easy course when we looked at it later on.

There is a second warning proposition which I would venture to make. We talk about abnormally high expenditure. We say, "These things should be postponed or put upon other shoulders because the expenditure is abnormal," when what we really mean is, that it is a great deal higher than it used to be. Expenditure on national defence not so very long ago was of the order of f £110,000,000, and certainly, as compared with that, we are facing very abnormal figures. There was much force in the observation made by more than one speaker this afternoon, that we must judge the abnormality of the expenditure by reference to the future rather than to the past. It is my duty to warn the House and all of us to look at this circumstance. We must not assume that we shall get back to lower figures as easily as we would wish. The expenditure we are incurring, absolutely necessary as it is, in its turn is going to mean that we shall have a larger outfit to keep in condition, and the maintenance of it, apart from everything else, will not be a small but may be a large figure.

I am making these observations, I think the House will see, in an effort to serve the House, and not in the least with a desire to defend myself or anything of the kind. The responsibilities I have just now are pretty big, and I feel it my duty to take this opportunity to point out these considerations, somewhat gloomy and serious as they may seem. I think that our expenditure, as things have turned out, was abnormally low when we were trying to bring about unilateral disarmament, and we are now under an obligation to improve our defences. At the same time we must consider what is likely to be the development in the future, and not lightly assume that we shall get back to easier times.

I think that in those circumstances we were justified in taking the middle course. As I expected, the middle course is criticised by two sets of people from opposite points of view. We get people, the purists, who tell you that you should not borrow at all. Let them sit down and imagine exactly what their proposals would have been on Budget day in respect of that additional £120,000,000 which was required? You get other people who have been inclined to suggest that the whole of the money should have been borrowed. It is now clear that the general good sense of the country, without partisanship—we have plenty of things to quarrel about—on these essential and fundamental financial arrangements, does take this middle view and recognises that it was right to make a modified use of both resources—of borrowing and of taxation. I would call attention to the fact that observers abroad, our critics over the world—and we have many—are not reproaching us for failing to pay our way or because we have used these two resources, taxation and borrowing. They are very much more impressed by the fact that the country as a whole is resolutely facing and bearing its burdens. It is that in which they are interested. Their interest is in the fact that Great Britain is not insisting upon having recourse to an easier method which would have avoided additional taxation, but that the people are willing to recognise that, in the times through which we are passing, it is right that a certain burden by way of additional taxation should be put upon the country as a whole. That, I think, is the broad defence to the criticism that has been made.

The right hon. Gentleman opposite early in his speech gave point to his general criticism of the Budget by some reference to the deadweight debt. I do not think that the right hon. Gentleman's account of this matter is quite complete. It seemed to me that he gave a view of it which was extremely partial and, indeed, one-sided. It certainly is, as he said, a very sobering thought that the deadweight debt is over £8,000,000,000. I should be the last person with responsibility to minimise that fact, but really I do not think that such a deep point can be made of this contrast between to-day and 1931 in that respect. He said that if we took this £8,000,000,000—it was £7,400,000,000, or a little more, in 1931–32—there was an increase of nearly £600,000,000, and he asked everybody to observe how much that bore out his criticism. In the first place, as the right hon. Gentleman indicated, nearly the whole of that difference—£550,000,000—is due to the Exchange Equalisation Account. It is perfectly correct to speak of the deadweight debt as having increased, but it is somewhat satisfactory that practically the whole of that increase is represented by assets. That makes an enormous difference.

The Exchange Equalisation Account, it is true, has been put into being by guar-teeing public credit to the tune of £550,000,000, but it is an asset, and is making a profit, which is not the same thing as an addition to our borrowing without anything to show for it. The small balance such as it is—and I have only been able to have the figures looked at a little hastily—I think I am right in saying, represents in part the expenses of the conversion of the 5 per cent. War Loan. If we are going to look at the matter as a whole we had better realise that the important thing is not the size of the deadweight debt, but the annual burden which rests upon the people to-day in respect of that deadweight debt. If you have to pay a higher rate of interest it is increased, but if something has happened to reduce the rate of interest, the burden is reduced. The position is that in 1931, the first of the two years taken, interest and management of the then debt cost the country the annual sum of £298,000,000. Interest and management in 1937 was £216,000,000. The right hon. Gentleman was good enough to say that the present Government had the good fortune to find that they could borrow money more cheaply. Good fortune comes to people who direct their policy in the right way. What has really happened is that the burden of the debt has been most materially reduced as compared with 1931. Those facts ought to be borne in mind when we are having a serious and powerful argument put forward in comparing the deadweight debt of 1931 with that of 1937.

Mr. Alexander

We recognise that there has been that reduction, but we remember that you were not meeting the interest charges on the American debt, which we were doing in 1931.

Sir J. Simon

That is a fair point to make. The interest and management cost in 1931–32 was £298,000,000, of which, so far as I can make out, the interest on the United States debt was £13,500,000. That is a correction that should be made. If I subtract that £13,500,000, I have a balance of £284,500,000. That is the right figure.

Mr. Macquisten

We were collecting money from other countries at that time.

Sir J. Simon

The two comparable figures are that the annual burden was £284,500,000 in 1931, and £216,000,000 in 1937.

I should like now to take the opportunity of making a short statement, as was promised from this Bench to-day, on another subject, with one aspect of which I propose to deal by an amendment in the Finance Bill. It has to do with the very difficult question of whether anything can be done to ease the burden of expenditure for air-raid shelters by a modification in the instrument of taxation. It is a very difficult and complicated subject, as I am sure everyone who has studied it closely will admit. The suggestion has been made from many quarters, and I have been considering it very closely, whether or not it would be possible to secure under Schedule A that the annual values of property shall not be increased for the purpose of Income Tax by reason of expenditure incurred in structural alterations, or additions, or improvements made solely for the purpose of protection in the event of air raids.

I have felt for some time that there was a good deal of force in that argument, and that when the community is pressing on everyone to take a hand in providing shelters and protection it seemed odd, perhaps anomalous, if the expenditure which they incurred in answer to that pressure should actually increase the amount of tax which they have to pay under Schedule A. One of the difficulties that had to be overcome is this: it is not, I suppose, absolutely necessary but, to say the least of it, it is traditional and very convenient, that Schedule A assessment and assessments for the purpose of local rates should be dealt with, broadly, on similar lines. Therefore, a rating question as well as a taxation question arises, and I have done my best to devise a plan which will cover both. It appears that it is not possible to introduce in the Finance Bill, within the Rules of Order, any amendment in the law relating to the assessment for local rates. That will have to be done by another Bill, and that shall be done and as a result of consultation with my right hon. Friend the Minister of Health and my right hon. Friend the Secretary of State for Scotland I am able now to make this statement:

The Government have decided to introduce legislation to secure that the annual values of property shall not be increased for the purposes either of Income Tax under Schedule A or of rating by reason of expenditure incurred in structural alterations, additions or improvements made solely for the purpose of protection in the event of air raids. So far as Income Tax under Schedule A is concerned, however, the exemption will, in the case of rented properties, be subject to the condition that the additions, etc., are not reflected in the rents thereafter payable in respect of the properties. If a bigger rent is charged there is no reason why we should make an allowance in respect of Schedule A. The House will not expect to hear the details of the necessary legislation which will, broadly speaking, be on similar lines for both purposes. But it may be for the general convenience if I give the following outline of the proposals:

1. (1) No assessment, whether for Income Tax or rating purposes, of any property shall be increased by reason of structural alterations, additions or improvements made solely for the purposes of protection in the event of air raids. This provision will apply both to properties which are already in existence and to those which are hereafter built, but will be subject in regard to Income Tax to the condition that no increased rent is payable in respect of the alterations, etc., in the case of leased properties.
2. (2) Where a shelter, which is occupied and used solely for the purposes of shelter in the event of air raids, has been provided as part of new property, no regard shall be had, whether for Income Tax or rating purposes, to any additional letting value arising from the provision of the shelter. But where such property is let, regard will be had in determining the assessment to Schedule A, to any rent payable.
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3. (3) There shall be exemption from both Income Tax and rates for separately assessed properties which are occupied and used solely for the purpose of shelter in the event of air raids.

There are many cases where air-raid shelters are being constructed independent of the main house. If that is done it is a new property, and if the shelter is occupied simply and solely for the purpose of shelter in the event of air raids there will be no rate payable and no Schedule A applied. A Clause will be introduced for inclusion in the Finance Bill, and in order to give effect to the corresponding proposals in respect of rates, my right hon. Friend the Minister of Health will introduce legislation in the course of this Session.

Now I return to a subject which is dealt with in the Amendment and was referred to by the right hon. Gentleman. He returned very forcefully to the charge that in connection with the expenditure for which this Finance Bill provides we are permitting excessive profits on rearmament. If there is anybody who is really interested in preventing that, it is the Chancellor of the Exchequer. He has more to gain than anybody from anything that can be done in that direction. Therefore, I am not in the least disposed to cavil because the point is made a very important one as a subject of inquiry in the Amendment. But I hope the right hon. Gentleman will allow me to make this general comment on what he said. I think it is pretty clear that so far as the references are references to dividends paid on ordinary shares, such references are very likely to be illusory when it is attempted to argue from that, that excessive profits are being made on armament contracts.

The truth of the matter is that in the structure of many companies the ordinary shares fluctuate very much in their productivity. It constantly happens that the ordinary shareholder or the deferred shareholder gets no return. None the less he regards his holding as of value and is prepared to keep it because the time may come when he will get a considerable yield on his ordinary shares. If you have money invested in an average range of ordinary shares you find that over a period of years you will not get more than a very moderate return. Some companies will cease paying dividends altogether, some will in certain years pay a high rate, but on the whole the return will be only an average one. That fact must be looked at if we are to judge fairly what is the remuneration that is being produced.

I should have thought that the real test, the proper test, is the relation between the total profits and the total capital employed, and I must add that it would be a very serious mistake to assume that you can get at the total capital employed merely by looking at the share capital. That does not in the least follow. You may have a company with a comparatively modest amount of share capital which, none the less, is able to provide itself with capital for its business, for its plant, its materials and its buildings not because it is spending the capital which has been subscribed by the shareholders but because its credit is good and, through borrowing from the bank, it has acquired greatly additional resources, and it is earning a return not on the subscribed shares but on the whole totality of the capital that is involved in the business. These are perfectly manifest considerations which anyone who looks at the matter seriously must allow as legitimate.

Moreover, if we are to get a fair view one has to remember that share capital may have been severely written down in recent times. Everybody knows that that has happened to a great many companies in the iron and steel trades, to which the right hon Member referred.

Mr. Alexander

In many of the cases that I quoted the share capital has been written back since.

Sir J. Simon

I am not putting this in any captious way, but these are elements to be properly explored if we are to pronounce a judgment. A further point. It is surely quite an unfounded assumption if we assume that all these companies are engaged wholly on armament work or in some cases mainly on armament work. I happen to have looked at a passage available to me from a certain publication and I find that in the case of the English Steel Corporation even in 1937 60 per cent. of the company's work was ordinary commercial work. I think it is true that the iron and steel trade is more prosperous than it was some years ago, and I am glad of it. I believe that that is partly because of the policy of the Government. At any rate it seems to me to be wrong to say that because you can show a great increase in the return on certain classes of shares that therefore that is proof that there has been vast profiteering in armaments contracts.

What has really happened is this. As soon as our rearmament programme began we sought and obtained the very best expert advice we could find for the purpose of trying to devise an effective machinery to ensure that profits should be reasonable and not excessive, and I think that anybody who examines the elaborate system that we have will not treat the Government or the Government Departments as though they were indifferent on this subject.

I am not at all saying that everything is perfect and nothing more needs to be done. I am not in the least complacent about it, but I ask the House to take a fair view about this, because it seems to me that it is a jaundiced and untrue view that Government contractors are left to their own devices to accumulate wholly unreasonable profits. I believe that the methods that are being adopted, which have been discussed in great detail both by the Public Accounts Committee and the Estimates Committee, and have been examined by many impartial persons, are very thoroughly and ingeniously devised to secure what must be secured, that the State when it places these contracts is not exploited.

Mr. Alexander

What we are anxious about is that the Chancellor should consider two things. In the first place, the basis of his policy of check should not be that of allowing a fixed margin upon every single commodity produced, that is to say for an aeroplane £300, or a certain amount for a particular type of ammunition, gun or rifle. In the second place, we have had no answer yet to the case put by the hon. Member for Ipswich (Mr. Stokes) on the Budget Resolutions. I should like to know that those things are being inquired into.

Sir J. Simon

I have not omitted to observe what was suggested, and that very suggestion is in course of being investigated. The Amendment mentions subsidies to private industries. I am always a little surprised when a Socialist raises this question. I myself, being a believer on the whole in private enterprise, think, other things being equal, that it is better to let private enterprise fight its battles, win them if it can, and sink if it cannot. I regard cases of helping particular industries by subsidies as essentially exceptional and as cases which must be justified, either because of special need or of special difficulties. But I am not a Socialist. I cannot understand a Socialist who wishes to see a vast variety of enterprises carried on, whether they make profits or losses —

Mr. Montague

You cannot make a profit under Socialism. You ought to have studied the subject better than that.

Sir J. Simon

The hon. Gentleman makes a most illuminating observation which throws a flood of light. He says that in a Socialist State you cannot make a profit.

Mr. Montague

Or a loss. May I explain.

Sir J. Simon

I really think I understand.

Mr. Montague

You do not understand Socialism.

Sir J. Simon

The system, I understand, is one in which there are to be no rich men and the whole of the revenue is to be got by taxing the rich. If any particular enterprise—railways, waterways or anything else—does not make a profit it does not matter a row of pins, because in the Socialist view there is no such thing as profit and no such thing as loss.

Mr. Montague

Produce what you want and enjoy it.

Sir J. Simon

It is a system under which you produce what you want and enjoy it. How you pay for it no one knows. [Interruption.] I shall have to apply to the hon. Gentleman for private instruction.

I shall not speak on the duty on power alcohol, the subject of the speech of the hon. Member for Rusholme (Mr. Radford), except to say I hope very much that a tax of a little over rd. on each gallon of the particular mixture that he is interested in will not entirely destroy the fortunes of a company, which I understand last year made a larger amount of profit than the whole of its paid-up capital.

Mr. Radford

Can the right hon. Gentleman tell me of any other commodity where a tax is applied with the intention of taking the profit, if it is available, as it cannot be passed on to the consumer?

Sir J. Simon

On another point in the Amendment I do not think that the additional tax on oil that we are proposing is going to do the injury to road transport that is supposed. The capacity of the road transport industry to meet the demands of this taxation is very easily illustrated. The number of commercial passenger vehicles in use has increased from 45,700 in 1934 to approximately 51,000 in 1937. If you take commercial goods vehicles, as between the same dates they have increased from 403,000 to to 463,000, and the number of cars taxed according to horse power has risen in the same period from 1,308,000 to 1,798,000. I really think the motoring community is prepared to accept this additional contribution and recognises that it is not an unfair demand to make.

I come lastly to more general considerations. For practical purposes we are facing a £1,000,000,000 Budget. When I look back to the days when I was a young Member the contrast is perfectly staggering. It is true, no doubt, that the State now undertakes a far widen range of duties than it used to undertake in the old days, and I think the change is all for the better. It is right that we should regard the instrument of taxation as a method by which we attempt to do something to adjust inequality and I believe that has become the general opinion of the country. There has been one Chancellor of the Exchequer in the last generation or two who never produced a Budget. That was Lord Randolph Churchill. In the autumn of 1886 he was preparing his estimates, but he resigned in December. What was the staggering prospect which caused him to break his career and resign? It was that the Defence Services were demanding no less than £31,000,000. Here we are facing a total of £300,000,000. We are unquestionably facing a very serious position. I am not at all disposed to minimise its seriousness, but, though we have to face it, and will face it, it is my firm belief that, if we do our utmost to maintain sound principles of finance we shall get through it. We are doing it most of all for the sake of the defence of our native land and the security of beliefs and convictions which we all share.

When I first went to the Treasury and began to study the complicated and technical questions which every Chancellor of the Exchequer has to do his best to understand and pronounce upon, to one who has not been all his life a trained economist the task appears very serious and difficult indeed, but in this, as in so many other things, there are sometimes simple principles running through very complciated technical and difficult questions. This immense provision that we are calling upon our fellow-countrymen to make for Defence illustrates a very simple economic principle. We are spending this large sum for the sake of liberty. The law of supply and demand teaches that when things are abundant they can be got cheaply and when they become very rare they cost more. Liberty is not so abundant as it ought to be. This country has to preserve that precious thing and, in preserving it, it must pay the price.

7.15 p.m.

Mr. Bellenger

The right hon. Gentleman the Chancellor of the Exchequer in the course of his speech attempted to define Socialism. I am not going to attempt to explain what it really is, but if the right hon. Gentleman does want to know something about the subject and is thinking of using the knowledge he gets for political purposes, ha cannot do better than go to the hon. Member for West Islington (Mr. Montague). I was sorry to hear the hon. and gallant Member for Bournemouth (Sir H. Croft) refer to the cost of primary and secondary education in the manner he did. I do not think it is unfair to suggest that the education of his own children would be one of the last things upon which he would attempt to economise, and I suggest that it is false economy to cut down the expenditure on our educational services.

Sir H. Croft

I hope the hon. Member will not imagine that I said any such thing. What I said was that the number of children approaching school age was decreasing and, therefore, in view of our armament expenditure we should be wise in not increasing our expenditure on school buildings in the immediate future.

Mr. Bellenger

I understood the hon. and gallant Member to say that we should decrease our total expenditure on education. In answer to a question as to the component parts of this expenditure the Parliamentary Secretary gave the figures which go to the cost of educating a child and also the figures for building costs. Many of the buildings in this country, particularly in rural areas, are totally unfit for the education which is to be given, and I suggest that it is false economy to reduce our building costs, just as much as it is false economy to leave slums standing. That is why hon. Members in all parts of the House are agreed that slums should be pulled down and rebuilding take place.

Many of the things which the Chancellor of the Exchequer has said are fundamental and worthy of the consideration of hon. Members, wherever they may sit. Many of them are truisms, but there are certain aspects of his speech with which I cannot quite agree. The right hon. Gentleman referred to the burden of debt, and attempted to show that between 1931 and the present year it has been considerably reduced. As far as the figures go that is true, but the same would be true in the case of a person who purchases a house, borrows the money from the bank or from a building society, pays the interest on the money year after year, but makes no provision for the redemption of debt. That is what is happening in the case of the National Debt. The figures the right hon. Gentleman gave only showed the cost year by year of the maintenance of that debt, and no provision is made for redemption. Any provident individual, whether he has a hank loan or is buying his house through a building society, generally puts aside a certain sum of money for the reduction of the debt for what is generally a depreciating asset, and it would be well in the management of the country's affairs if some provision for amortisation of the burden of debt was made. A quarter of the National Debt consists of War Loan, provided during the years of the War for destructive purposes, and if we are unfortunately engaged in another war in the future it would necessitate more loans. I ask hon. Members to reflect on what the position is likely to be. Previous wars have caused the piling up of debt, and then the debt has been repudiated. I suggest to the right hon. Gentleman that we cannot continue piling up debt in the manner we are in non-productive enterprises, without at some future date envisaging the possibility of repudiating the capital sum we have borrowed.

I want to deal with the Clauses of the Finance Bill which relate to tax evasion, but before doing so I want to make one or two observations on the Exchange Equalisation Fund. The right hon. Member for Hillsborough (Mr. Alexander) paid a tribute to the right hon. Gentleman for giving the House information as to the gold holdings of the fund, but the Chancellor of the Exchequer knows that the gold holdings are not the only asset of the fund. I think that we ought to get a balanced view of this fund. After all, there is £550,000,000 of credit in the hands of the Government about which the House knows very little indeed, and if the House of Commons is to be the guardian of the national finances, we should know as much as possible of all the transactions which take place. Would it be possible to disclose, in the same way as the right hon. Gentleman has disclosed the gold holdings of the Exchange Equalisation Fund, something about the other assets? Would it be possible for the Government to say something about the profits? I think the fund is an additional weapon in our economic armoury. I regret the necessity for this huge fund in different countries. It is hidden in mystery, but it can be a potent weapon in the economic warfare going on between countries, and I suppose that leaving the Gold Standard made it inevitable that a fund of this nature should be set up.

On the Finance Bill, I regret that it has not been possible for the Chancellor of the Exchequer to make a better allowance to married men in the way of wife's allowance and children's allowance. I should like to have seen the right hon. Gentleman do something for a class of individuals who are most deserving and who in times like these ought to be encouraged. The burden of children on parents is extremely onerous especially in the early years of the children's lives, and I had hoped that the right hon. Gentleman would have reverted to the allowances which operated at the time of the economic blizzard.

There are seven Clauses in the Bill dealing with tax evasion, and they occupy something like nine pages. So far, very little has been said about these Clauses, and the right hon. Gentleman did not find it necessary to refer to them. I think the Chancellor of the Exchequer has made considerable efforts to put a stop to this unworthy evasion of taxes by people who ought never to attempt it. Tax evasion is largely among Super-tax payers, and I think the House viewed with considerable alarm the fact which came out in a notorious law case recently that certain individuals in high places in this land, with more than adequate incomes, are attempting to evade their liabilities and obligations. As we say in our Amendment, if money is to be found it is obvious that it must be found in the taxation of those who are best able to bear the burden. I pay a tribute to the right hon. Gentleman's efforts to see that those who are able should pay their taxes.

I should like to ask one or two questions on these Clauses. Clause 32 says: where any such power as is referred to in paragraph (a) of this Sub-section cannot be exercised within the period of six years from the time when the first of the annual payments so referred to becomes payable. I should like to ask why the period of six years has been put in, and also what provision is made to insure that payments duly reach the trust or the objects of the settlement? I think it is possible that trusts may be set up and settlements made under the provisions of which money which is supposed to go to the beneficiaries actually never leaves the settlor, and remains in his pocket as his income. Is there any provision in the Bill to prevent that happening? A similar question arises later on in the same Clause. The Chancellor of the Exchequer has made provision in the Finance Bill, as his predecessor did, to stop tax evasion. It is a well-known principle of our tax law that the subject is only liable to pay taxes which have been provided for in the Finance Act or other Acts of Parliament, and if there is no provision in the law whereby he should pay taxes, then he need not pay taxation. Under that principle it has been possible for taxpayers to avoid liability, and in doing so they have provided a very nice income for lawyers.

Would it not be more simple to do as I understand they do abroad, and that is to throw the whole onus on the owner of the income, and to say that where an indi- vidual has an income, of whatever sort and from wherever derived, it should be regarded prima facie as his own income and, therefore, liable to taxation, and that the onus should be upon the individual to show that it was not his own income? If some such method as that were adopted, instead of trying to stop leaks as they occur, and as they are likely to occur in the future, I think we should have a much simpler method of getting taxes in. We should not require the courts to adjudicate on all these intricate questions, with the cost to those engaged in trying to avoid taxation or even to the Commissioners of the Crown in trying to enforce taxation. It would be possible perhaps for the Special Commissioners to settle these things with a jury of the taxpayers themselves in a far simpler manner than is provided for in this Bill.

I generally set myself about a quarter of an hour or 20 minutes when I rise to speak in this House, and I do not like exceeding that limit, particularly when there are others who want to speak, but may I say, in conclusion, that we on this side realise the difficulties of every Chancellor of the Exchequer, whatever his political views may be. We know that when the time comes for us to occupy the seats occupied at present by the Government supporters, our difficulties will be just as large as, and perhaps larger than, those of to-day's Government, but we suggest to the right hon. Gentleman that an attempt must be made, and not necessarily in the orthodox fashion which has been adopted by the right hon. Gentleman himself in this Bill, to put the finances of the country on a much more stable basis. It must be obvious to hon. Members opposite, many of them business men themselves and some of them financiers, that you cannot go on increasing the enormous debt of this country, and thereby piling up the current expenses of management and interest from year to year without sooner or later something terrible happening. We have seen this Government transfer £2,000,000,000 of War Loan from a 5 per cent. to a 3½ per cent. basis, and that was all to the good. It reduced the management part of the debt. But there is this tremendous capital debt piling up, which is likely to increase probably at a much heavier rate if our rearmament programme increases as we are led to believe that it will increase. What steps are the Government taking to deal with this very serious problem? It is because we believe that they are not taking the right steps to-day, that we have put down our Amendment.

7.34 P.m.

Mr. Hely-Hutchinson

I thank you, Sir, for this opportunity of speaking in support of the Finance Bill. As I listened to the hon. Member for Bassetlaw (Mr. Bellenger), I derived both refreshment and support from what he said—support because of the very strongly orthodox tendency of his remarks on the growth of the National Debt, refreshment from the more personal note when he made reference to the burden which all parents bear and suggested that the Chancellor might give us some additional relief. But when he went on to ask the Chancellor for an alteration of the whole basis of our Income Tax law, and to put the onus of determination of income on the taxpayer, I think he had not really thought out his problem. He said that everybody who receives income should have the onus on him of establishing that it was not his own income.

Mr. Bellenger

What I said was that prima facie it should be accepted as the income of the taxpayer and, therefore, as liable to taxation, unless he could prove that it was not his own income, by the instruments that he is using to-day, by which, incidentally, in one of the Finance Acts, if he transfers money abroad, he can avoid payment of taxation, if he can prove that it was not transferred for the purpose of evading taxation.

Mr. Hely-Hutchinson

Perhaps I misunderstood the hon. Member, but surely a definition of income is necessary before a taxpayer can be taxed upon it. There can be no such thing, for taxing purposes, as a definition of income other than a statutory definition. Any receipt of money is not necessarily income. It is not sensible that every receipt of money by a private individual or company is to be presumed to be income until the taxpayer has established that it is not.

I find myself so heartily in support of the general outlines of the Finance Bill that I do not wish at this time to say very much in reference to them. There may be some minor points with which it may be more suitable to deal at a later stage, but I would like to refer to the speech of my hon. Friend the Member for Rusholme (Mr. Radford) on the sub- ject of the 9d. duty on alcohol, and to say that I am entirely in sympathy with the suggestion of the hon. Member for East Birkenhead (Mr. White) that the tax which is now proposed should be retained. The hon. Member for Rusholme very frankly admitted that he had a personal interest in the matter. For my part, I have no interest, so that the House need not regard this as a sort of internecine struggle between two deep-sea monsters. I feel that this tax, which is now proposed, falls on an article which is manufactured from a raw material 92 per cent. of which is imported from abroad, and on its way to us across the seas that article takes up two-and-a-half times as much tonnage space as the finished article would take if imported. When we are doing, as we must now be doing, everything with an eye to the necessity of economy of ocean tonnage in war time, I think this is an article to which we need not show any special favour.

I would like also to associate myself with the remarks of the hon. Member for East Birkenhead on the subject of the incidence of the National Defence Contribution on the income from investments which constitute the reserves of insurance companies engaged in forms of insurance other than life insurance. I think those companies have made out a very strong case that the holding of investments is not a regular part of their business. The part of their profits which is properly the subject of taxation, and which, therefore, properly falls under the scope of the National Defence Contribution, is the excess of their premium income over their expenses and claims. I hope that my right hon. Friend will entertain the suggestion that the incidence of this tax should be confined, as it is in the case of other companies to whose operations investment is merely incidental, solely to the operating profits of those companies.

Believing as I do in the general structure of the Finance Bill, I feel that there is very little that I need say in direct support of it, because I think it carries with it its own commendation. I propose, therefore, to confine myself much more to knocking down some of the ninepins which hon. Members opposite have kindly set up for us in the form of the Amendment which stands on the Paper in the name of the Leader of the Opposition. In the first place, may I say how cordially I welcome the opening phrase of that Amendment: That this House regards with concern the continuing policy of unbalanced Budgets. I think that is a sentiment which finds an echo in every corner of the House. We none of us like to see unbalanced Budgets, but coming from hon. Members opposite, it is particularly interesting to me, because of an impression which I received in the first few weeks of my membership of this House, when I heard hon. Members opposite offering a direct challenge in words to the proposition that good finance and good government are merely different aspects of the same thing. I paid great attention to that challenge, because I feel that any views sincerely maintained by a considerable body of men must necessarily rest upon, or be presumed to rest upon, a rational process of thinking. The only explanation that I could find of that challenge to the proposition that good finance and good government are practically the same thing was the suggestion that perhaps hon. Members opposite looked at finance solely as a matter of money, and felt that there should be higher values than mere money considerations which should be taken into account in matters of government.

I do not know whether I have correctly interpreted their views by that statement, but I would like to offer to hon. Members opposite a slightly different conception of finance. Finance is concerned primarily, as I understand it, with the making and fulfilment of promises. I believe the word itself in its derivation has nothing whatever to do with money. Money is merely incidental to it, because we happen to live in a money economy. Promises are capable of expression in terms of money, measurement in terms of money, and fulfilment in terms of money, and as government is little else than the making of a series of promises —