AMENDMENT OF LAW.

HC Deb 26 April 1939 vol 346 cc1175-278

Question again proposed,

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

4.27 p.m.

Mr. Pethick-Lawrence

In view of the grave and highly controversial statement which the Prime Minister made to the House only a few minutes ago, I do not think it is surprising that the thoughts of very large numbers of Members are rather on that statement than on the Budget which the Chancellor of the Exchequer introduced yesterday afternoon, but I think the Committee must realise that that statement itself had a very important bearing on the Budget, as I shall hope to show before I sit down.

The speech which the right hon. Gentleman made yesterday was typical of himself. He was pellucidly clear, he was unprovocative, he did his best not to overstate the argument and, so far as he saw and represented the case, he steered a middle course, and if these were ordinary times the result would arouse no violent opposition. Although there might have been some criticism of deaails, it would have been fairly safe to say that he had introduced a not highly controversial Budget. To the minutiae of his proposals I shall return later, but I want to say at once that, in view of the extraordinary nature of the situation to-day, I take an entirely different view of the Budget from that. For the Budget is also typical of another aspect of the right hon. Gentleman which has been revealed in other parts of his career as a Member of this Government, in that he has avoided present difficulties by storing up for the country grave and almost insoluble problems for the future. I should like to quote from an article which appears in the "Financial News" to-day: His plan has been not so much to try to cut the Gordian knot as to ignore it. He has provided for expenditure 'in sight'—and very little more. And he has framed his revenue estimates in terms of the economic situation as it now exists, not as it may be in a few months' time. That is 'sound' budgeting in the Gladstonian sense. Events alone can prove its adequacy or otherwise in a wholly abnormal period to which neither peace-time nor war-time financial canons are truly applicable. To these larger questions I shall return before I conclude my speech, but I will now deal with the immediate issues. First I should like to speak of the proposals which the Chancellor has adumbrated for stopping up leaks in taxation. I pay a tribute to the effects, as far as they go, of the attempts made last year. He then gave the problem full consideration, but I knew quite well, and probably so did the Chancellor himself, that the measures taken were not adequate to cover the whole ground. I realised that much more would be necessary. How far the leaks continue and to what extent they affect the revenue it is not, of course, possible to say. I believe that the estimate of the Treasury is that they are not very large but, on the other hand, lawyers who are familiar with the various practices adopted take a different view. The figure given yesterday by my right hon. Friend the Leader of the Opposition of something like £10,000,000 or£12,000,000, relating to the leakage in Surtax, and the somewhat smaller figure in Death Duties, may well be within the mark.

The main method of avoiding Surtax is, of course, to convert the income into capital, and there are various forms which that method takes. Let me give one illustration. The principle is that an income accumulated by A for the benefit of B, who will become entitled to receive it only upon attaining a given age or upon marriage, is not the income of any person for the purpose of Surtax. When B attains the age or marries he takes the accumulation as capital and not as income. Quite clearly a very large loophole is left in that way for avoiding Surtax. Another case is where A hands over money to trustees for the benefit of persons not ascertained during the period of accumulation. In that event again, the accumulation accrues, no Surtax is paid and if a person B ultimately benefits he can either keep the money himself or can return it to A, and Surtax is entirely avoided. Another method is related to what is known as the Archer-Shee case. As to that I suggest to the Chancellor that there is no reason why he should not, by statutory means, reverse the decision in the Archer-Shee case in so far as it results in the avoidance of tax.

I have given two or three illustrations, but there are a great many more which could be given, and it would be of interest to know how far the proposals of the Chancellor will affect those cases. So far as I know they will not do so, because his proposals relate only to companies. I come now to the question of Estate Duties,, and companies are involved in both of the cases which I shall quote. There is the case in which a man transfers investments of, let us say, £250,000 to a private company, in consideration of 250,000 ordinary shares, issued in the following way: One share to himself and the remainder of the shares to various members of his family, while the man is appointed managing director of the company for life, with complete control of the company's affairs, at a salary equivalent to 49 per cent. of the income of the company. In that way no Estate Duty is paid when the man dies and, in addition, Surtax may be avoided.

The remaining illustration is one which I understand is not unknown to some of the Noble Lords who sit at the other end of the passage. The procedure relates to the case of a man who has some form of arrangement touching property in which he holds the interest for life and his son holds it after his death. The method adopted, say, by a Noble Earl is that he sells to a company his life interest at its actuarial value and his son, the Viscount, sells his reversionary interest for the share capital of the company. I am told that in that way a method is devised by which nothing passes at death which attracts Death Duty. I hope that either or both those methods of avoidance of Death Duty will be covered by the proposals of the Chancellor. If not, perhaps as time goes on he will consider them, and see how far he can devise proposals to meet these cases.

Of the many ways in which taxation can be avoided, some can quite properly be dealt with only by specific proposals, but I suggest to the Chancellor that there is one thing which he might do, and I am not sure that he cannot do it this year in this Budget. It would be quite a reasonable thing to put an additional question on the Income Tax form which the taxpayer has to sign, calling upon him to state what arrangements, if any, he has made for the disposal of his income. At the present time he is not called upon to make any such statement, and it is left to him to decide in making up the return whether he is to get out of taxation or not. The Treasury has no knowledge of the extent of the practices which I have described, but if the taxpayer were compelled to make some statement of what he had done in these various directions the Treasury would know, at any rate, what loopholes there were to stop up—provided that the taxpayer did not make statements which were deliberately false—and we should be much nearer to a solution of this problem.

When all is said and done, I am bound to agree with the point which was made by my right hon. Friend the Leader of the Opposition that this question may simply be a race between the hare and the hounds in which the hounds never catch up with the hare. I am not at all sure that the attempts of the Chancellor will be ultimately successful. Maybe he will have to adopt other methods of the kind to which I referred in my speech last year. Probably all Members of this House agree that tax avoidance by whatever name you like to call it should be prevented. It is really dishonest and the more avoidance is practised the greater is the share of taxes which falls upon the shoulders of others. I believe that the suggestions that I have made are such as meet with the approval of the Chancellor and hon. Members generally, but I am not sure that what I shall further say before I sit down will be given an equally warm welcome.

While on the subject of escape from taxation I should like to point out to the Chancellor of the Exchequer one small gap which no attempt is made to stop. It was discovered by the Anderson Committee, of which I had the honour to be a member, and which dealt with Unit Trusts. There is no big money in this matter, but we made certain proposals of a financial kind and a large number of other proposals for dealing with the trusts. For some reason or other the Government seemed rather sticky in adopting any of the proposals, but, under pressure from the House and in another place, they included in the Prevention of Fraud Bill, which I think has now become an Act, most of the general recommendations. I had in mind that perhaps the Chancellor of the Exchequer would take this opportunity of embodying the taxation proposals in his Budget at this time. This is a matter of some detail with which I do not wish to weary the Committee, but if hon. Members will look at page 44 of the report they will find four proposals. One was that settlement duty should be exigible on the initial settlement of the trust and on its subsequent expansion; another that Stamp Duty should be payable on transfer of units except on the original issue; a third that bearer certificates should be dutiable; and a fourth, that the contract notes should be liable to Stamp Duty. So far as I am aware, none of those perfectly straightforward proposals has been taken into account by the Chancellor of the Exchequer, and I therefore commend them to his attention.

I turn now to very much larger questions, and first to the principal matter which the Chancellor of the Exchequer set before himself when he prepared his Budget. I am using the limiting words deliberately because I believe that it was not the major financial problem of the year, which the Chancellor had already decided in February, and on which I shall have more to say later. There were three questions which the Chancellor had to put to himself. The first was, how much should he allow for possible Supplementary Estimates, and he took the figure somewhat arbitrarily, of £50,000,000. I do not make any complaint of that, because quite clearly the Chancellor is not gifted with the power of prophecy, and it would be impossible for him to tell what was likely to take place. He himself said that it "may well be more," and, in view of what we have heard from the Prime Minister today, I think it may very well be more; while, of course, if the calamity of war itself should overtake us, it will not merely be more, but all the figures of the present Budget will be left far behind.

Having made that decision he then had to decide between borrowing and taxation, and someone, no doubt, said to him, "There are some who want the one and some who want the other; why not make it fifty-fifty?" And the Chancellor said: "Well, I do not know that fifty-fifty would be quite right; I will make it sixty-forty, and put £30,000,000 to loan and £20,000,000 to taxation." In that way, of course, he increased by no less than £30,000,000 the grave figure of £350,000,000 which was already put into loan, and made it £380,000,000. Then he had to decide another problem. He had £20,000,000 to add to the Budget, and, taking into account the £4,000,000 of other deficit, he had to provide £24,000,000. Again the question was, how much should go to direct and how much to indirect taxation? No doubt someone said that fifty-fifty would be a good proportion in that case also but the Chancellor said he would put a little more on indirect taxation, and so he actually put £7,000,000 on to Surtax and Estate Duties, and £11,000,000 on to tobacco and sugar. Then he took motor taxation, as a kind of no man's land between direct and indirect taxation, and put £6,250,000 on to that. We shall have plenty of opportunities of discussing these changes in taxation, and I do not want, on this important day, to take up time in dealing with minutiae, but, with regard to the Sugar Duty I will only repeat what I said on the Tea Duty last year, namely, that, whatever may be said with regard to the ordinary people of this country, this particular tax will fall heaviest on the very poor, and it is with regard to these very poor people that we have to consider what may seem to hon. Members this quite trivial burden of indirect taxation. As to the direct taxes, so far as the Chancellor had determined on the figures he wanted to collect, I think he has proceeded on sound lines. With regard to motor taxation I shall have a word or two to say later.

I come now to my major criticism of the whole Budget. I have already quoted a paragraph—not a highly condemnatory paragraph, I agree—from the "Financial News." I will now quote another from the "Daily Telegraph." It comments adversely on the omission by the Chancellor of all reference to the principles which are guiding him in the conduct of the present wholly abnormal public finances. It goes on to remind him of the fact that permanent recurring expenditure cannot be met by borrowing, and it adds: Another important subject on which Sir John Simon was silent was the effect which he expects the loan programme of £380,000,000 to have on the national economy generally. I am the last person to want the Chancellor, in making a financial statement, to enter on airy nothings based on mere conjecture with regard to the problem of the future. It is necessary that his statement should be real, actual and concrete. But I do say that some estimate of the future is necessary if we are to face up to the realities of to-day. That estimate was not made, and nothing was said with regard to it in the Budget speech.

What are the facts? We are embarking on an expansion programme of which no man can foresee the end. Whatever the outcome of the international situation, a great deal of this expenditure is likely to be recurring and permanent. The prospect that the Budget outlay will contract substantially in years to come is exceedingly small, and the idea of getting it down below £1,000,000,000 is almost inconceivable; and yet the Chancellor is comfortably budgeting for a revenue of £942,000,000, and is content to throw on to the future, not only the recurring expenditure of the year, but the cost of the debt which he is now incurring.

We have to face two possibilities. The first, which we all hope will be the case, is that there is no war. In that case we must remember that we have thrown on to the debt in previous years some £200,000,000. The Chancellor of the Exchequer is adding a further £380,000,000 this year. Undoubtedly there must be a large additional amount in 1940–41, and it is exceedingly unlikely that less than £1,000,000,000 will have been added to the debt by successive Chancellors during these times. When the war scare is over, as we all hope it will be, and rearmament begins to be reduced, resulting in something in the nature of slump, we shall have to meet all these additional burdens unless we are prepared to find some entirely new method of meeting the cost. I hesitate to state the blacker alternative, but we all know that, if there were to be a war, then the methods which the Chancellor is adopting to-day would soon be left behind, and we might have to spend £10,000,000,000 or even £20,000,000,000, on a war. I would say to the Government that the people of this country, patient, easy-going, accepting, as many of them do, the gross inequalities of the present capitalist system, will not bear patiently for an indefinite time the frightful additional burdens that this indebtedness to a small section of the population will involve. They will not tolerate the productive capacity of this country being throttled, and the results of it passing over, not to the people, but to this tiny section who have lent money to the State. The time to do something with regard to that is not in the future; it is now.

There is another aspect of this borrowing business which we must not allow to pass unnoticed, and that is the question of inflation. In the last War we had inflation naked and unashamed. Bank money was created to the tune of hundreds, I think thousands, of millions; prices soared, and all kinds of things happened. The essential fact to remember with regard to war and to rearmament for war, is that the goods required to be used in the war, and the services required to be rendered in the war or in rearmament, have to be given at the time, and cannot be postponed to posterity. No doubt many hon. Members have read the articles which Mr. Keynes recently wrote in the "Times"; in fact, they were quoted in the Debate yesterday. Mr. Keynes argued that, so long as unemployment remains, there cannot very well be inflation. I have great respect for much of what he says, and there is a great deal in his articles with which I agree, but I want to suggest that that does not at all necessarily follow in this case. A great deal of the unemployment from which we are suffering at the present time is of a particular kind, and a great deal of the labour which will be required for a war is of a different particular kind. It is only to a very limited extent that you can adapt round pegs to fit into square holes, and there might very well be a continuance of a considerable amount of unemployment in certain areas and in certain industries, while at the same time there might be an acute shortage of skilled labour in certain bottle-necks where labour is urgently needed for the purposes of rearmament.

Where the Government fail, as they do in so many other matters of a similar nature, is that they do not realise the absolute necessity of planning to relieve the situation. Quotations were made yesterday with regard to Germany. It was pointed out how Germany had succeeded in effecting her vast rearmament by calling in unemployed persons. But that was all done by planning. I dislike intensely nearly everything the Germans do, but I respect the fact that they plan, and I have very little respect for the Government because they do not plan. Unemployment will not disappear merely as a result of throwing money about. It will never disappear unless the Government use this money with planning in order to bring the whole available man-power of the country into operation.

On that subject there is another question that I would like to put to the Chancellor of the Exchequer, because it is of great importance that the financial position of this country shall be sustained vis-à-vis other countries. The Chancellor has recognised that the export of capital abroad is to be avoided, but has he taken all the necessary steps to safeguard that in every form? I am given to understand that steps which were taken on an earlier occasion have been omitted in this case, and I should like to know whether everything has been done that can be done to stop up any loopholes through which capital export to America can be effected.

The Budget, as I see it, represents to a large extent a missed opportunity. Two measures were necessary. The one was to secure that the exports of this country should continue, and that imports of unnecessary luxuries should be stopped, in order to preserve the purchasing power of this country elsewhere. The other was to see that labour would be available for the work which the Government require to be done in rearmament. The Chancellor of the Exchequer seems to me to have entirely ignored this in his Budget. Let me give one or two illustrations. Take the question of silk. Silk is a quite unnecessary luxury, and, if the Government had thought it desirable, the Chancellor could certainly have reduced the imports of silk into this country, which would have had a very important effect upon our position. With one possible exception, I see in the Budget no recognition of the fact that such taxation as the Chancellor intends to impose should be designed with a view to preventing the expenditure of money on luxuries in trades where men would be required for rearmament work.

The one exception, of course, is the motor tax; but the Chancellor did not say, directly at any rate, that he had anything in view except pure revenue. I cannot help thinking that if he really had in view the discouragement in any way of the manufacture of motor cars, it would have been very much better if he had done it by an excise tax, coupled, of course, with a Customs Duty. The tax he has imposed, as far as I can see, will have quite a different effect from what he may think will occur. I am not at all sure that it will free men for other work. It may result in keeping out cars from abroad of a higher horse-power, it may make people put up their cars for the winter, which they would otherwise not do, and it may make them scrap old cars, but I am not at all sure that the Chancellor will realise the figures he expects from his proposal; I am not sure that the measures people will take to avoid having to pay the tax will not neutralise the revenue aspect. But the point I am considering for the moment is that it does not seem to me that the Chancellor, in the Budget, has used his taxation power in the least to plan in order to enable the employment of the country to be adapted for the purposes of our rearmament.

I come now to my last point, which is the most important of all. That is the larger issue of the whole financial situation. The Chancellor has said that this was not a suitable time for increasing more than he has actually done the Income Tax, and that view has been warmly supported on the benches opposite, by the City of London, and by the bulk of the prosperous people of this country. Neither I nor my hon. Friends must be taken as accepting that view. But I think it will be agreed, even on this side of the Committee, that nothing like the whole of the £380,000,000 —not even the major part of it—could have been placed on the Income Tax; certainly still less the fabulous sum which would be required if an actual war were to take place. Equally, Death Duties, even if you took the whole of what was left in one year, could not provide more than a fraction of what was required. Indirect taxation would be strongly resented on this side as utterly unfair, and I believe a large number of hon. Members on the other side of the Committee would take a similar view. Therefore, much of the cash must be provided by those who are in a position to save, and therefore to lend money for the purposes of the present situation.

But that is not to say the last word. The answer is to be found in the proposal which I made in embryo last year, and which was referred to by the Leader of the Opposition yesterday. If the country is to face the burdens which war, or even the preparation for war, entails, the possessors of wealth must make their substantial contribution—and that is still more true if the young life of this country is to be compulsorily mobilised for service, as we have been told this afternoon that it will be. In that case, the wealth of this country also must be compulsorily mobilised for service. It was suggested in the House yesterday—and the Prime Minister referred to it to-day—that there was, in fact, a conscription of wealth through the actual taxes which are being imposed at the present time. That is entirely a misuse of words.

What are the actual facts? The total wealth of the country in private hands has been very carefully estimated by a number of people. At present it is between £20,000,000,000 and £25,000,000,000. It consists, of course, of a very great variety of different things, and it is represented in the hands of its owners by title deeds of various kinds, of which the principal are stocks and shares. The quiet possession of this wealth is secured by the integrity of our country and by our laws, and it is this quiet possession of wealth which war threatens. If it is threatened by war, it must be mobilised in the present emergency. I hope no one will be so stupid as to imagine that I think that by any alchemy, still less by anything we can do in this House, we can convert a piece of land into guns, or stocks and snares into, shall we say, army clothing? But we can in this House enact and enforce that the owners of wealth shall hand over to the State in an emergency a fractional part of these title deeds as an offset against the creation of new debt.

I do not propose to weary the Committee with any elaboration of detail, but I must give some round figures to illustrate my meaning. I assume that any such contribution would be graduated, so that those with more wealth would pay a larger contribution. I am quite sure that the Chancellor will agree with me that, administratively, it would be much simpler if this contribution were confined to those possessing substantial sums. It might be confined to those having capital wealth of over £50,000—which would correspond roughly to the Super-tax class—not counting additions to income earned by their own exertions. In that case, it would be a matter of dealing with about 50,000 persons, with an aggregate wealth of something like £8,000,000,000. or, if the contribution were extended down to those who hold £20,000 and upwards—which might be called the comfortably-off class—it would involve dealing with about 120,000, owning between them some £10,000,000,000. A contribution on an average rate of 1 per cent. would bring in something like £80,000,000 in the one case, and £100,000,000 in the other. But when I speak of 1 per cent., I should not like the Committee to think that this would be a flat rate contribution. It would be graduated and might extend, say, from ½ per cent. to 2 per cent.

When I thought yesterday, while listening to the Chancellor, of what I was going to say to-day I had the idea of a contribution of something of that magnitude as a fitting counterpart to the various sacrifices which were at that time being demanded of the ordinary people of this country. But since yesterday we have had a statement by the Prime Minister. If we are to have conscription of life, a far larger contribution than that would be appropriate from those who own the vast wealth of the country, which is equally essential for promoting a war. Therefore, in view of what the Prime Minister said, I would put the rate at at least two or three times what I have suggested; and, even so, I do not think the sacrifice demanded would be equivalent to what was being asked for in life. I say that, not only from the human point of view but from that of the actual monetary sacrifice that is being asked for. If you take for war a young man who is otherwise going into an occupation—I do not care whether he is in the working class or a man in better circumstances who is setting out on his career—you deprive him of the opportunity of making his way. You keep him out of an occupation for several years, and, even if he comes back entirely sound in wind and limb, you have held him back. Do you think that that man would not willingly give up 4 or 5 per cent. of his income for several years as an exchange for the time that you have taken out of his life? of course he would.

The Chancellor of the Exchequer (Sir John Simon)

I thought the suggestion was that you should take a percentage of the capital. Is the suggestion—which, of course, I shall study—that the percentage is to be taken every year out of the capital, or only once?

Mr. Pethick-Lawrence

I thought I had made it plain last year, but I will repeat it. I am not speaking of a levy on capital which would be taken once only and the capital then left alone. I am speaking of an annual contribution. I say that to call on the possessors of great wealth in a period of emergency to make a fractional contribution this year and another contribution next year is not by any means a full equivalent, not merely in regard to the sacrifice of health and strength but to the actual monetary sacrifice, which you are going to enforce on the manhood of this country if you impose conscription.

Captain Crawford Browne

If you do it for 20 years what will be the result?

Mr. Pethick-Lawrence

I cannot answer for 20 years hence because we do not know what the situation will be then. We are discussing an emergency. The Government in dealing with conscription—or whatever the Government choose to call it—are thinking of a period of three years. If the emergency goes on for 20 years no one knows what will happen. What I am proposing is a definite annual contribution, and I say it is not unreasonable in view of the circumstances. I am not proposing any wild, fancy scheme. It is a perfectly practical proposition, whether you agree with it or whether you do not, and though there will be some administrative difficulties to overcome, they will by no means be insuperable. The vast majority of the people with the wealth in the neighbourhood of the figures which I have quoted hold, at any rate, a part of their wealth in gilt-edged or certainly marketable securities, and there will be no difficulty in their transferring them to the State, and in the few cases where that will not be so, it will be possible to meet the matter by other arrangements. I want to make it clear that the people who I am proposing should make the contribution are not taking the place of the persons who are expected to save money in order to provide the Government with cash. It may be that some of these people themselves would prefer to pay their contribution in cash, but in a great many cases it will not be so. The cash will be provided by the people who save, and the contributions to capital will be provided by the people of great wealth. In some cases they may be the same persons but the transaction must not be confused by confounding the two.

As I said earlier in the Debate, I did not expect that these proposals would receive a hearty welcome from all sections of the Committee, but in my opinion the vast mass of the people of this country will say that this proposition is only a fair counterpart of the proposals which the Prime Minister made this afternoon. The Government will have to consider very seriously something of this kind. Unless there are some such proposals as this, the Chancellor has no plans for the future except the indefinite piling up of debt for which he envisages no ultimate remedy of any kind whatever.

The country looks for financial leadership just as it looks' for leadership from the Government in other ways. The country at this critical juncture wants to see some principle behind which it can unite. When I realise the breaches of the pledges, one after another, which this Government have made, the errors of judgment in many fields which they have committed, and their paralysis of action, and when I remember that these are the men to whom the destinies of this country will be committed if, unfortunately, we should find ourselves in a war, I cannot help recalling the saying of the great Duke after he had reviewed his troops: I do not know what the enemy will think of them, but, by God, they frighten me.

5.21 p.m.

Mr. Graham White

As the Chancellor of the Exchequer unfolded his Budget yesterday afternoon in the admirably lucid way of which he is a master, I could not refrain from feeling that there was a certain unreality about the whole proceeding. In the first place the financial practice of this country in recent years has grown up in a way which takes the financing of many of our important transactions outside the; purview of the Budget, and therefore makes the Budget: an incomplete survey of our national finances. Also in recent years the march of events has quickly outstripped the provision of the Budget and made it a very unreal provision for the necessities of the nation. Since the important statement which was made by the Prime Minister this afternoon, I believe that every one in the Committee must feel that there is an element of even greater unreality in the Budget which is now under consideration. I do not know whether or not the Chancellor of the Exchequer in fixing his Supplementary Estimate for the current year at £50,000,000 had any idea of relating that sum to the development which we heard from the Prime Minister to-day. It would be interesting to learn from him whether that sum is in any way commensurate with the expenditure that will be necessitated by the steps which are foreshadowed by the Prime Minister, if in fact they are adopted by the House.

No doubt there will be much controversy about the statement of the Prime Minister this afternoon, but there is one thing at all events which will meet with the acceptance in all quarters of the House, and that is the proposal that steps should be taken to see that profits made from armaments in this country are strictly limited. We are promised legislation on that point, and it will be welcomed in every quarter of the Committee. But in the circumstances in which we have to try and order our finances in these days, the Budget becomes little more than a sort of clinical instrument for measuring the degree of madness which has settled upon some of the rulers of the world which is driving countries, large and small alike, to spend more upon the means of destruction than they can afford. That does not absolve up from the necessity of giving the closest consideration to our financial arrangements for meeting the situation as we see it. There is a danger that spending Departments may regard money in times like these as a secondary consideration; that the one thing is to get the means of defence or whatever it may be at any cost, and that money is not an essential part of our policy as a whole. I issue the warning that that would create a very grave condition if it tended to spring up in the Departments. Unsound defence may not only be a symptom of a disorderly world, but also a means of promoting disorder in our economic system. It will be hard enough to preserve any ordered and progressive yield from our finances in this country unless we show the greatest sagacity in looking after them.

I do not propose this afternoon, in the short time that I propose to address the Committee, to make any very detailed criticism of any of the taxes which the Chancellor of the Exchequer has proposed in the Budget. In ordinary times, one would have been disposed to deal in some detail with some of them, but that is not the major purpose of the Budget to-day. The Chancellor of the Exchequer recalled that Mr. Gladstone in 1853 suggested that although he could not let the country off taxation—that was quite beyond his power—nevertheless he would spare us a speech of the length to which his right hon. and distinguished predecessor treated the House on that occasion. A Budget of £53,000,000 took in explanation a matter of some 43/4 hours. I did not happen to notice how long the Chancellor of the Exchequer spoke yesterday afternoon, but it did not seem to be a very long time. There certainly were a number of things about which I would have been very glad to have had some observations from him, and I would have made no complaint of the length of time. The statement was very different in many ways, although it was in the well-established form of Budgets of previous years. We had our Blue Paper, our White Paper and the conventional forms in which our finances are always served to us at Budget times.

It would render a very great service if we could have on these occasions something like a national balance sheet. It would serve to bring into true perspective the financial strength of this country as well as the magnitude of our efforts in all directions. All our old canons of sound finance, and familiar phrases such as the sanctity of the Sinking Fund, have all "gone with the wind" and been swept into the maelstrom which is produced by the hectic competition in armaments. It would be of real value if we could have a complete statement of our national finances. That has a particular significance when we atempt to make any comparison, as the Chancellor of the Exchequer did, between direct and indirect taxation. No doubt in order that the balance of taxation might be as, he sug- gested, fairer as between the direct taxpayer and the indirect taxpayer, he put a farthing a pound upon sugar, and I associate myself at once with what the right hon. Gentleman the Member for East Edinburgh (Mr. Pethick-Lawrence) has said in criticism of that tax.

When it is proposed to consider the relationship of indirect taxation and direct taxation in this country, let us not forget that, outside the Budget altogether, there has grown up a system of charges which in the aggregate amount to a very considerable sum. There are large numbers of taxes which are imposed by boards and other institutions set up for that purpose. There is a charge, for example, in respect of the Wheat Act which is estimated this year at £9,000,000. That is borne out of the pockets of the consumers. In relation to a multitude of other things, milk, bacon, coal, etc., there are charges which have been established by boards and which amount in the aggregate to something like £100,000,000 a year. All this comes out of the pockets of the consumers. The Chancellor of the Exchequer did not refer to that matter yesterday in any way, yet a comparison of the relationship of direct and indirect taxation would not be complete without taking these matters into consideration.

It would be impossible to arrive at a comparative study of taxation in this country by merely taking the figures of the Budget as they stand. It is true, as the Chancellor of the Exchequer said, that in the last three years the indirect taxpayer has had his burden increased to the extent of £12,000,000 and taking this sum into account the direct taxpayer is to submit to an additional charge of £100,000,000, but do not let us forget that in estimating these extra charges it is necessary and desirable not to leave out of account the other charges to which I have referred. tA the same time we have to take into account all the extra budgetary transactions involved in National Health Insurance, Unemployment Insurance and the other funds which are accumulating. It would be very useful if we could have a complete survey of our national finances which would put them in true perspective and reveal strength as well as weakness.

The Chancellor of the Exchequer issued a warning in regard to social services in these times of mounting and extravagant expenditure. I would, however, point out that while we are dealing with these enormous sums we have a very different perspective in regard, for example, to the comparatively small sum of £10,000,000 required in order to give medical benefits to the wives and dependants of insured persons, and the somewhat smaller sum necessary to set free the old age pensioners from the necessity of getting relief from the Poor Law. These seem to be small and insignificant transactions in comparison with those we are called upon to enter into to-day, and it is a reflection upon our courage and determination that we have not in the past carried out those transactions. It is, unfortunately, more difficult to contemplate those developments in the circumstances in which we are living to-day, which again indicate the necessity for the establishment of an economic general staff which would survey the whole of our social services. There is no single individual, nobody who is charged with the duty and responsibility of surveying the social services as a whole to see that we get value for the money expended upon them. There are various statutory bodies with concurrent powers to do the same job, and there is much overlapping. Therefore, I have no doubt that a body of the kind I have suggested would be useful in saving money and in seeing that we get full value for what we spend.

There were two other matters which struck me as remarkable in connection with the statement of the Chancellor of the Exchequer. The first was that, as far as I can remember, the right hon. Gentleman did not refer once to the word "interest." I think it must be the first time that a Chancellor of the Exchequer has introduced a Budget without making reference to the rates of interest. It would be of very great value at the present time if the Government would make a statement of policy in regard to interest rates. It may be that the fact that the Chancellor of the Exchequer proposes to leave his provision for the Debt Service at £230,000,000, may be taken as an indication of policy. If a definite statement could be made on the subject it would be very desirable, because it is obvious that we cannot allow the ordinary process of inflation to proceed, and interest rates to mount as they did from 1914 to 1920. That would be impossible having regard to the size of the debt. If I remember aright, the cost of the service of our debt at the present time is something between £100,000,000 and £120,000,000 less than it was 10 years ago. It is impossible to contemplate that interest rates should be allowed to rise in such a way that this saving would be absorbed; but it must be obvious that without some such a scheme as that suggested by the right hon. Member above the Gangway any system which allowed the rates to rise as in the previous emergency would inevitably lead to repudiation in some form or other. Perhaps we may have from the Chancellor of the Exchequer or the Financial Secretary some definite pronouncement of Government policy in regard to interest rates.

An even more remarkable omission from the speech in the circumstances of the time was that the word "inflation" was not used by the Chancellor of the Exchequer. It may well be that he did not think it necessary to use it, because it may be said with some degree of certainty that at this time we are not in danger of general inflation. We cannot, I suppose, be in danger of general inflation so long as there are such a very large number of persons unemployed. Nevertheless, when our borrowings are approaching, if they have not exceeded, the full amount of our national savings, we cannot disguise from ourselves the possibility of inflation being very real, and steps must be taken to guard against such a possibility, otherwise we may suffer the inconvenience and the injustice which arise from indiscriminate general inflation. It is certain that although there is no immediate prospect of general inflation, when we are proposing in one year to borrow £380,000,000 at least, a sum which is larger than our free savings, we have reached the amber light in this respect and we ought to take precautions.

I do not think that there will be any difficulty in raising the loans which the Chancellor of the Exchequer has indicated we shall require in the current year, so long as they are kept within their present dimensions; but I would emphasise the point that although we are not in immediate danger of general inflation, we are undoubtedly within close approach of partial inflation or bottle-necks in regard to some of our services. There are two ways in which the dangers and incon- veniences which would arise from the process of diverting our national resources into rapid and effective means of defence —that is the point of view from which we must regard this Budget—can be avoided and the first way is the establishment of a complete Ministry of Supply with complete powers of control and authority to decide upon priorities, working in close co-operation with the Treasury and the financial authorities of the country. The Ministry of Supply must make its great contribution, but alone it cannot achieve all that is necessary to give us immunity from the dangers which I see coming in the not very distant future through the creation of bottle necks in the sources of supply, which will lead to a definite shortage of skilled workmen in some employments engaged in essential services. Therefore, I hope the Government will expand their Ministry of Supply and give it all the powers that may be necessary, and that the Ministry will work in close co-operation with the Treasury and the financial authorities. We ought to have a carefully planned scheme between these authorities, otherwise we shall find ourselves spending sums of money which will not be effective for their purpose, but will be wasted.

I did not follow the Chancellor of the Exchequer in his reference to the Anglo-American Trade Agreement and his expectation of reduced income following the reduction in duties. As far as I can remember the only duty which was completely abolished in that Agreement was the preferential duty on wheat, and as the object of the whole scheme was to increase trade and not to decrease it, I think the Chancellor of the Exchequer would have been wise not to budget for a reduction of income in that connection. I think he would have been unduly pessimistic in thinking that the Agreement was not carrying out its purpose in creating trade between the two countries. In contemplating the misfortunes and disasters of these times we are apt to forget that there have been some bright spots. The Anglo-American Trade Agreement was one and the Agreement with Eire was another. These Agreements show that the process of sanity still has some place in the ordering of international affairs. We were all glad to hear what the Prime Minister said in regard to the taxation of war profits, and I can only express my regret that he did not in that respect accede earlier to the desires expressed on that subject two years ago from these benches.

I have referred to the Budget as being an instrument for directing the sources of the country into effective means of Defence. If the Budget expresses the full mind of the Government on this matter I must say that it falls short of what it ought to have been. The right hon. Member for East Edinburgh also referred to the question of skilled labour. There are many occupations and industries which are employing labour which is skilled which it may be desirable to utilise in the processes of Defence. I thnk that an instrument of taxation in co-operation with a Ministry of Supply might be directed, by a careful selection, to the diversion of labour to the processes of Defence. I hope the Chancellor of the Exchequer will give further consideration to that aspect of our national affairs. When we talk of these tremendous financial transactions we must ask, what is the outcome of it going to be? Perhaps we do not see very far, but there is an important and growing problem ahead. The right hon. Member for East Edinburgh has produced a scheme the general proposition of which is that money must be found by those who have got it. There will be no disagreement in any part of the Committee about that.

Sir John Wardlaw-Milne

Is not that the case now?

Mr. White

Yes, and it must always be the case. I am unable to follow the right hon. Gentleman in the computation he makes as to the money value of life as compared with a monetary sacrifice. I do not think they are comparable sacrifices at all. Speaking for myself I say that if the nation is to be impoverished, it will be for the contentment and happiness of everyone if we are all poor together.

Mr. T. Smith

Or all rich together.

Mr. White

Yes. If I have expressed myself ill, I hope hon. Members will understand what I am seeking to convey. There is no dispute as to the necessity for raising these vast sums of money. There is not very much dispute between us as to the means by which they must be raised. The general verdict of the Press is that it might have been worse; the worst possible form of faint praise. If we dismiss these minor aspects and these shorter aspects of these financial transactions, and relate the Budget to its major purpose of stimulating our production and directing it as quickly as possible to vital matters of defence, I think it does not go nearly far enough nor is it moving in the right direction. I hope, therefore, that before our discussion ceases we shall have some more revelations as to what is in the Government's mind.

5.50 p.m.

Sir George Schuster

I have listened with great interest to the hon. Member for East Birkenhead (Mr. White) and there is a great deal in his speech with which I agree. I want, however, to refer more particularly to the speech of the right hon. Member for East Edinburgh (Mr. Pethick-Lawrence). There was a point in the proposals made in his closing remarks which requires to be cleared up. The right hon. Gentleman made proposals as a means of giving effect to the principle that wealth should bear its proper share of sacrifice. In weighing up the value of the proposals on one side of the scale and then on the other side putting the sacrifice which has to be made by those whose personal services are to be called upon, the right hon. Gentleman spoke of the latter in terms of personal service in war. That was the picture he put before us. The point should be made clear. There is, I feel sure, nobody in this House who, if we were involved in war, would not expect wealth and business profit and everything else to be thrown in as fuel to drive the machine of our effort in order to win that war. None of us who are interested in business or who would fall under the flail of the right hon. Gentleman's tax proposals feel that if we were to become involved in war we could look forward to a continuance of anything like the present system or would think it worth while to preserve privileges if by sacrificing privileges we could help to make the country's effort in war successful.

But what we have before us now is not a war Budget, The proposal of the right hon. Member for East Edinburgh is the sort of thing which might figure in a war Budget but, I submit, is not appropriate for a Budget framed at this particular stage. I imagine that the problem which the Chancellor of the Exchequer saw when he framed his Budget proposals was this—we have to make our preparatory effort effective and we have to be ready to put a greater force behind that effort if we are called upon to engage in war; in the meantime we must as far as possible preserve our normal strength. We are not forced to look forward to war as a certainty and I refuse to accept it as a certainty, so that we must try to preserve a condition of affairs which will be healthy for the country if after all the worst does not occur and we are able to look forward to years of peace. I put it to the Committee that if the Chancellor of the Exchequer's proposals are looked at in that way they do represent a well balanced plan. He has not been able to balance income and expenditure for the year but he has produced a well balanced plan for meeting an abnormal situation.

What I particularly like about the plan is that it shows quite clearly that we are not yet calling up all our reserves. We are taking up a position to engage a particular difficulty with our forces fairly well disposed and with very appreciable reserves in the background. That is a desirable position in which to manoeuvre to overcome our difficulties. The right hon. Member for Caithness (Sir A. Sinclair) called it a "pedestrian Budget." It was pointed out in the course of the Debate yesterday that it is a good thing for the Chancellor of the Exchequer to keep his feet on the ground and may I add keep his head out of the clouds? On the whole this is a realistic Budget well calculated to meet the present situation. There is only one feature in the proposals on which I venture to express a doubt, and that is the increase in fee horse power tax on motor cars. One has to remember that that particular form of tax is one which affects manufacturing policy. It may be very disturbing for manufacturers to have that tax varied upwards or downwards, especially after a fairly long period when they have become stabilised in relation to a particular rate of tax. I should like to throw out a suggestion to the Chancellor of the Exchequer that if he wants to raise money on taxing motor cars it might be better to take at least a part of his requirements in the form of a sales tax on motor cars. I shall return to that question again as there are special reasons for making that proposal.

Some people have complained that the Budget is a dull Budget and lacks thrills. All of us in reflecting on our own reactions to the proposals must have asked ourselves why it had not the thrills which a Budget generally has. I think the answer is that we are discussing all these affairs in a certain sense of unreality. We have to look forward in the Budget to what is going to happen in the next 12 months. What changes there may be in that period. We may either be involved in war or we may find ourselves moving into a position where that nightmare is shaken off. In either event the situation with which we should have to deal would be entirely different to that with which the Chancellor of the Exchequer had to deal when putting forward his proposals. Quite apart from these big developments we are dealing with a constantly moving situation. We have only to look back six weeks to realise how our problem has changed. To many of us the introduction of the Army Estimates was the first intimation we had that we had to be prepared to send substantial forces to fight on the Continent. We had just got accustomed to that idea when we had to contemplate more than a doubling of the Territorial Army, and now to-day we have had a new announcement—with which I personally entirely agree—which again changes the situation. In these circumstances I feel that the Chancellor of the Exchequer may very well find it necessary to come before this House before the expiration of 12 months with new and different proposals. Therefore I think the Budget has to be judged as a plan framed to deal with a situation as far as it can be seen to-day, but which is essentially a moving situation.

Now changes in the situation might affect the figures, but whatever changes there are the figures must remain vast figures and the real problem behind the figures will remain the same. That problem, as I see it, is essentially a physical and human problem rather than a financial one. The real question before the country now is how the spending of this vast sum of money will affect the economy of the country. There are two points which affect the answer to that question. First, what proportion is to be raised by loan? Secondly, what is to be the nature of the expenditure? On the question as to whether the Chancellor has been right in settling the proportion which is to be raised by loan, I think each one of us must exercise his own judgment, weigh- ing up such factors as we all know. I do not think it matters very much whether my right hon. Friend arrived at his conclusions by the method suggested by the right hon. Member for East Edinburgh. He might have arrived at his conclusions by the toss of a coin. I do not think any of us is concerned with that. What we are concerned with is the result. My view is that, broadly speaking, the balance chosen by my right hon. Friend is a right one, and I think that view is generally supported in financial circles and by economists, on the basis of the situation as it is. It is a tight fit, but I believe that it can be done.

But when we are considering whether this large sum will overtax our loan-raising resources, there is one point that I would like to put to my right hon. Friend. We have to try to form a judgment on these matters, and merely to tell us what are the expenditure proposals of the central Government is not really to give us the full picture. In February, the right hon. Gentleman the Minister of Labour told us, in one of the unemployment Debates, that in the last year for which complete records were available there had been spent on works schemes for which the Government or the local authorities were responsible a sum of £300,000,000. I followed up a reference in the right hon. Gentleman's speech and looked back to a Debate last year in which he had given a list of the items of expenditure which he included. I venture to think that the figure of £300,000,000is perhaps a little optimistic, but at any rate, the sum involved under these heads is a very large sum, and the effect of the central Government's loan proposals must be measured together with what are likely to be the expenditure proposals of the local authorities. I feel that when the financial position is being put before us, we ought to be given a complete picture, so that we can form our own judgment. Apart from that, on the loan proposals, I find myself generally in agreement with Mr. Keynes. I think that, provided certain conditions are satisfied, we shall find that, as a result of the expenditure, the savings of the country will increase in a way which will enable loans to be floated. I agree particularly with Mr. Keynes in respect of one of his conditions, which was that the loophole for the escape of capital outside this country must be stopped. I hope the Chancellor will watch that loophole, and if he finds that the general instructions he has already issued are not being effective, I hope he will tighten those instructions.

As regards the question of the so-called inflationary effect of these proposals, I must confess that I was rather glad that the Chancellor did not use the word "inflation" in his speech. I think the word is often very loosely used, and I very much doubt whether more than 10 per cent. of the people who use it really understand what they are talking about. I think we get into considerable confusion in using these technical terms. I believe we can see the practical problem before us if we try to look at the matter in a rather simpler way. I think the real problem before us in connection with this loan expenditure—and indeed the total expenditure proposals before us—is a problem that has already been referred to by hon. Members who have spoken, the problem as to whether we are going to overtax the producing capacity of the country in certain directions. Mr. Keynes, in his recent articles, gave some very impressive figures. His calculation was a simple one. The effective additional loan expenditure he takes as being £200,000,000,and using his multiplying factor, he says that will mean an effective increase of £400,000,000in primary demand. Every man may be taken as producing £250 value in a year. Therefore, £400,000,000 means that 1,600,000 unemployed will be put to work as a result of these proposals. I submit that to use these global figures is really misleading. What we are going to have is heavy pres-sure on employment in certain industries, while certain other industries will not be touched, except very indirectly, as a result of this expenditure. That general point has been made by many hon. Members, and I think it is one of the most important points that we have to consider in judging the financial programme before the country.

I have tried to see whether one could get from the Estimates any reliable guide as to where the pressure would come and how dangerous that pressure would be. It is difficult to make any accurate calculations from the Estimates, if one attempts to classify the expenditure exactly according to the various trades that will be affected. But the figures over the last years are extremely interest- ing. If we look back to1934–35,the total that we were spending on Armaments and War Stores was just over £15,000,000, while in the proposals for this year, without the Supplementary Estimates referred to by the Chancellor in his speech, that amount of £15,000,000 has risen to £188,000,000.The amount for Works and Buildings has gone up from £8,000,000 in1934–35 to £104,000,000, and Shipbuilding, Repairs, from £20,000,000 to £82,000,000. The total for those material Votes, if one adds about £32,000,000 of material expenditure on the Air-Raid Precautions programme, is, for this year, without the Supplementary Estimates, about £407,000,000 as compared with £45,000,000 in 1934–35. The increase for this year as compared with last year is something like £140,000,000again without the Supplementary Estimates. Meanwhile, the item of Pay has gone up only from £19,000,000 to £45,000,000. What one wants to bring out is the enormous volume of expenditure included now in our Defence programme on account of materials of war.

Now, I agree that it would be very misleading to try to draw any exact conclusions from these figures — to take, for example, the fact that output per man is £250 per annum, and to say that, therefore, an increase of £50,000,000 on Armaments and War Stores expenditure will put 200,000 men back to work. I do not think one can argue in that way, and I can well imagine that anybody who did do so, and who went back to 1934–35 and looked forward to the expenditure incurred in1939–40, would be able to argue very convincingly that we should be moving into a totally impossible position. Still, the figures give a definite pointer to certain danger spots. If, for example, one takes the expenditure on Motor Vehicles and Aircraft, in the Estimates for 1939–40, without the Supplementary Estimates, I arrived at an increase of £46,000,000 as compared with last year. On the other hand, if one looks at the unemployment returns, the number of wholly unemployed males in the relevant industries is only just over 13,000. That seems to indicate that, in the case of the motor-vehicle and aircraft industries, there is bound to be very great pressure on productive capacity.

I do not want to press that point any further, because I feel sure it is fully appreciated by the Government, but I would like to ask—and no doubt there are satisfactory answers—certain definite questions; I want to ask whether there has been any full survey of our resources, whether the Panel of business men appointed by the Prime Minister have at any time made any recommendation on this, and whether the Government consider that the time has come to exercise some control and to damp down the private demand for certain articles which compete with Defence needs. I hope we may be able to get some answers to those questions. I do not at all associate myself with the criticisms that have been advanced by hon. Members opposite. I feel confident that the Government have got their eyes on this matter, but I would like to know how they view it now.

In this connection I would like to make one remark with reference to the experience of Germany. The lessons to be learned from Germany have been brought up by several hon. Members, and although I hate the whole German regime, I feel that now that we ourselves are faced with the necessity of a co-ordinated national effort, there are very valuable lessons to be learned from the way in which Germany has produced her own co-ordinated national effort. I think it is true to say that Germany's first effort was to get the whole of the industrial machine working at full speed ahead. It was only when they had got the whole machine really moving that they applied their controls, and I feel sure that was a wise thing to do. It is much easier to steer a ship which has a certain amount of way on it, and I think that is the proper way to look at this situation. Because the Government have not yet taken any steps to impose controls, or, for example, to damp down the private demand for motorcars, I do not think it is fair to argue from that, because one can now see dangers ahead, that therefore the Government have been to blame. But what I do feel is that the time is coming now when the Government may have to consider measures of that kind. I hope the Chancellor of the Exchequer will be able to deal with that question when he replies. It is very material to the programme of taxation. If it is a fact that we are now within sight of a time when it will be necessary to damp down the private demand for motor cars, we have to ask ourselves whether a sales tax on motor cars would not be a more effective instrument of taxation than the horse-power tax which has been proposed.

I wish to make one further point on that subject. I do not think that a system of Government priority is sufficient to deal with the situation. If the Government have the right to come in on a particular industry and claim priority as regards part of the manufacturing output and reduce whatever is available for supplying private demand, then, if they do nothing else, the result will be an enormous rise in prices for what is supplied to private demand. Thereby, possibly, unnecessary profits—profits which are not justified in present conditions —will be made by the manufacturer and at the same time great encouragement will be given to the importation of goods from abroad. I feel that to have an effective system would require not only the power to impose priorities for Government purposes but also an instrument of taxation which could be used to damp down the private demand for articles which compete with the Government's Defence needs.

Another point to which I wish to refer concerns our export trade. It has already been mentioned by several speakers but it is a matter of such importance that I feel that one cannot over-emphasise it. It may be, that in order to keep our position in the export market, and having regard to the intense pressure which is being placed on certain industries in the country, some sort of special help from the Government will be required. Industries such as the engineering industries for example will not be in a position to export to a great extent once we get going full steam ahead with our programme of armaments. But the programme itself will not help industries like the textile industry, or the coal-exporting industry. There is no time to enter into all the possible ways by which something might be done to encourage exports from those industries which are not going to be "boosted" very much by the armaments programme, but I hope the Government will give very special consideration to that problem because, as everyone knows, our balance of payments is causing great anxiety. We have an adverse balance of payments which is estimated, I think with approximate correctness, at something like £60,000,000 a year. That involves a weakening of our war reserves, for our external investments and assets are really the most important part of our economic war reserves, and we must do everything possible to keep them intact.

I have spoken of the desirability of the Government having power to exercise control over private demand in relation to industries which are to be occupied mainly with war work. That is desirable not only from the point of view of the immediate supply of our war requirements, but is also extremely important if we look ahead. Otherwise there is a danger of getting a tremendous distortion and inflation of certain industries and if, as I still feel entitled to hope, we are going to move past this crisis into times of peace, then we shall suffer immensely from the distortion of those parts of our industry. That is a subject upon which we can learn very valuable lessons from our experience in the last War. If we look into the figures, we find that something like 75 per cent. of the increase in the male population between the ages of 16 and 65 in the years between 1911 and 1921, went into the engineering and war industries. Anyone who studied the problem of unemployment in the two or three years after the War found how closely a great part of that problem fitted in with those industries which had been so abnormally expanded. If now, in the case of those industries, we can damp down private demand and prevent them becoming unduly inflated, then when we move into peaceful times, we shall find that there is a big gap to be filled in the satisfaction of private demand. And then we shall have something to help to carry us over the very difficult period of readjustment.

I hope the Chancellor of the Exchequer will not consider that I have been out of order in dealing with these questions of general economic importance, but I would put it to him that there is no occasion, as far as I can see, when this House is able to review the general economic position of the country except the occasion of the Debate on the Budget. I feel therefore that one is entitled to take advantage of that occasion to present the right hon. Gentleman with conundrums which do not strictly belong to his Department, but which I hope he will regard with extremely close interest, in view of their effect on the general economic position of the country and therefore upon his revenue.

6.22 p.m.

Mr. Sexton

The Chancellor of the Exchequer in the opening of his Budget statement referred to those happy far-off days when there was no Income Tax and when a Budget speech could last for four and a half hours amidst intense enthusiasm. During yesterday's Debate, enthusiasm for the right hon. Gentleman's Budget seemed to evaporate and to-day the same lack of enthusiasm is exhibited in the Committee. There is a great contrast between the Budgets of 100 years ago and those of to-day. There is even a great contrast between, say, the Budget of 1913, the year before the War, and the Budget of to-day. That great difference is largely due to defence expenditure. Just before the War the combined defence programmes of Great Britain, France, Germany, Russia, Austria, and Italy, amounted to £360,000,000. To-day, Great Britain alone is going to spend over £580,000,000,of which £247,000,000 is out of revenue and £342,000,000 is to be borrowed.

The figures in the Financial Statement are truly astronomical. Over £1,200,000,000 altogether are comprised in the Budget, and when one works out the rate of expenditure per minute, the figures are alarming. There is a total expenditure of over £2,444 per minute. Of that, over £1,600per minute goes in paying for past wars and preparations for future wars. Less than £40 per minute goes for health, housing, physical training training and recreation. The last figure which I quote in this connection relates to the Special Areas and the unemployed. I want hon. Members to contrast this figure with the amount which we are spending on arms—as I have said on past wars and on preparations for future wars. For the Special Areas and the unemployed, the amount that we spend per minute is only £14. Contrast that with the £1,600 per minute spent on arms and we realise why the Budget figures are so large.

Much of this money has to be borrowed and in my opinion borrowing on such a huge scale is unjustifiable, because this money is to be spent on present defence and not to defend posterity. When their day comes, posterity will have to preserve the national interest out of their own finances. Each generation ought to pay for the defence necessary to enable it to hand on an unimpaired realm. If succeeding generations are to mortgage the future by bequeathing legacies of debt to their successors, the time will arrive when the inherited obligations will be unbearable. It will not be possible then to meet the cost of current defence. Posterity will not be able to pay, because posterity will be busy paying off the mortgages which have been left to them by their predecessors. In the bankruptcy which ensues, the nation will have to go undefended.

We to-day are paying for the now obsolete armaments of the last War. Indeed, although it is not quite the case that we are still paying for the halberds of Hastings, I think it is true to say that we are still contributing towards the cost of the Crimean muskets. Yet the interest on the National Debt during the last 20 years has amounted to £5,000,000,000. The only merit of borrowing for Defence is the safeguarding of the existence of the realm for the future, and I confess that it is a merit of substance. But the inheritance may be so heavily laden, that the legacy will prove to be an intolerable liability. The question which we have to ask ourselves is: Are we meeting as large a share of the expense for present safety and future security, as this generation ought to bear, or are we saving our own purses at the expense of the purses of posterity? I consider it financial folly to neglect to face this alarming and colossal National Debt. There must arise some time a Chancellor and a Government who will bring forward a measure of levy on capital. Only by so doing will part of this financial mill-stone in the shape of interest on inherited debt be eliminated from future Budgets.

The National Government do not hesitate now to place a 100 per cent. levy on the lives of the people, as we have been told to-day. Why not a 100 per cent. levy on all incomes above the old age pensions scale? Then the Members of this Committee would have some idea of what these old age pensioners are undergoing. Taxation on the wealthy is heavy. It ought to be in comparison with the worth of their belongings. Then these wealthy people have something worth defending. The statistics in the Inland Revenue Reports show quite a number of people who will be a long long time before they find themselves in the queue for unemployment assistance. Taxation on the poor ought to be based on the same consideration, namely, the worth of their possessions. In their case, they have not much to defend. I know it will be said, "What of their freedom?" Well, the freedom of the poor is a very limited thing. The larger liberty belongs to the well-to-do. What real liberty has an old age pensioner, or a widow with 10s. a week? What real liberty has an orphan who has to be kept on 5s. a week, or an unemployed man with only 16s. a week with a child to be kept on a miserable pittance of 3s. a week? I regret that these unfortunates are not recognised as worthy of a greater share of this Budget expenditure. These people are limited not only in their liberty; they are limited in the clothing that they wear, and because they are poorly clad they are despised and called shirkers. Their shortcomings become magnified to people who ought to know better. As King Lear said: Through tatter'd clothes small vices do appear; Robes and furred gowns hide all. He had some experience of the furred gowns as well as of the rags and tatters.

These unfortunate people are limited in their food. In my county, Durham, there was recently an investigation into the conditions of the children of the unemployed and it was discovered that 12,000 children were definitely suffering from malnutrition. I wish the research had gone further and that the mothers had been examined. If the children were suffering from malnutrition it is almost certain, as anyone who knows the unemployed will agree, that the mothers were suffering from malnutrition also, because they do not hesitate to neglect themselves in the care of their bairns. These people do not have the necessities which Nature and man's skill make possible, and it is true of them what Milton wrote in "Comus," that they live like Nature's bastards, not her sons. It ought to be the heritage of these people to have a much freer life, but shortage of food makes them lack another liberty, that which comes from joyous health. Let any hon. Member go into the Special Areas and see the decayed physique of men who ought to be in their prime. Instead of that, 50 per cent. of the men in my area were rejected for the Army. Long unemployment and an inadequate income have sapped their sinews and they can say, as Othello declared: For since these arms of mine had seven years pith. Till now some nine months wasted, only in this case many of the unemployed have been wasting the pith of their sinews not for nine months but for something like nine years.

This Budget ought to do something for them. Steeped me in poverty to the very lips, is the reproach they hurl at the National Government. They have made and are making their sacrifices and the national balance sheet ought to show signs of giving them work. They are called the hard core of unemployment, but the same men were the hard core of the defence of this country 20 years ago. They were the very backbone of the defence; they are the same men now, and they still have the same courage, loyalty and fortitude. They exhibit it in the way in which they are undergoing their very hard conditions at the present time. When at work they created property which fell to somebody else, and in war they protected that property which belonged to somebody else. They came back, not to property but to poverty, shame and ostracism. They fought for liberty which is now on a very short lease. The one thing that they are losing is their self-respect.

This Budget neglects them and leaves them to lose that sublime self-respect which had always been their pride. Having sacrificed so much they are now asked to deny themselves still further, as part of their solace of a smoke must be yielded in the smaller quantity of tobacco they can buy. They have to sacrifice in their sugar, which is part of the food of the poor. The bairns of the unemployed will now have to be satisfied with fewer sweets. What are the well-to-do proposing to sacrifice in comparison with those sacrifices? I wish that some part of this Budget had increased pensions, found work for the workers, and brought some joy to these deserving people. Like Samson of old they have been shorn of some of their strength, but they have no desire, as Milton made Samson say: To sit idle on the household hearth A burdensome drone; to visitants a gaze Or pitied object. … And with Samson they may also say: Here rather let me drudge and earn my bread. That is all these people are asking for, the chance to drudge and the chance to earn their bread.

Yesterday the Chancellor of the Exchequer said that Budgets were conditioned by defence programmes, and he stopped there. It would have been more fundamental to go deeper to the real basic question, which is, What conditions a defence programme? Is it not foreign policy which decides defence proposals? If the foreign policy of the National Government had loyally adhered to collective security the defence programme would have resulted in a vastly different Budget from this one, but step by step the Government have built up this formidable financial obligation. The rape of Austria, the betrayal of Czecho-Slovakia, the abandonment of Albania and even the gloomy expectation of the speech of a dictator have all added their quota to the expenditure of the British Budget. The path of appeasement has proved and is proving a costly one. It has produced this financial statement, which is a summing up of items which are catalogued in the Budget, and it is a memorial to the National Government for their blunders.

6.38 p.m.

Sir Alan Anderson

In the speech to which we have just listened there was much with which I disagreed. I do not believe at all that the poor people have lost their self-respect or have lost the great value that they place upon their liberty.

Mr. Sexton

I did not say that they had.

Sir A. Anderson

There was one point in the speech of the hon. Member on which I would comment in particular. He holds the view that the borrowing of this large sum is unjustified because of the burden which we pass to our successors and because we leave them a heavily mortgaged estate. Of course, that is the risk we all want to avoid, but I submit that the risk has to be run if we incur the expense, and that the question is not whether we should borrow or raise the money from taxes; we are forced, I believe, to incur this enormous expense. The burden has to be borne and the Chancellor of the Exchequer has had to sit down and think how best to distribute the burden upon the very strong and the very willing shoulders of the taxpayers of this country. In my view he has decided that question with wisdom, but it is a terribly difficult question to answer and a terrible burden which is not lessened by our borrowing. We have to pay back what we borrow.

To anyone engaged in enterprise here or abroad the British Budget is a focal point of the year. It affects only the makers of patent medicines who escape this year or the tobacco and the motor-car men who pay more. All those engaged in enterprise know well that everything they do during the year will be affected by what is done in the Budget. Curiously enough we are all taking this Budget of superlatives in a rather apathetic way. It is the biggest load that has every been put upon us; it is distributed, let us say, with the best balance that could be conceived; our community is better able to bear such a burden than the communities of most States. Although this Budget stands out among Budgets we did not show much excitement about it, and I think the Leader of the Opposition gave the reason when he said that we must think of the actualities behind the figures. That is precisely what we are doing. We are not paying to-day nearly as much attention to figures as we normally do because there are grim facts showing themselves through the figures. Can we bear this heavy burden? The Leader of the Opposition said: One effect [of the enormous borrowing] will undoubtedly be inflation."— [OFFICIAL REPORT, 25th April, 1939; cols.998–9, Vol. 346.] One of my hon. Friends objected to the word "inflation" and I do not like it much. It is a code word of which one does not understand the exact meaning. I suppose that inflation is the creation of imaginary money so that you pay your debt with the imaginary money and not with real money. If that is so, I do not think we are running that risk in this Budget at the present time. The test is whether the National savings amount to such a sum that we can borrow those savings, and if that is so I do not think our borrowing can be called inflation. If the nation is not saving as individuals anything approaching that sum or will not lend it, may be that is inflation, but I do not think the present position is inflation.

Indeed, I believe that in our present position the first risk is scarcity not of money but of men and machines, and I think we have arrived at that point. I join with a good deal that has been said, therefore, about the need for more urgent measures to make sure that we bring all our energies to the critical point at the critical moment. Whether this is or is not the best way—I believe it is—to meet this very hard financial problem, we are faced with the recurrent problem of meeting the interest and depreciation on these sums and with the enormous expense of keeping up these vast armaments. I do not think that we are on the slope of destruction, going down into the pit, but I beg hon. Members to remember that we are perilously near the edge and that the edge is slippery where a nation gets near to the point that it cannot pay its way. I would remind any hon. Members who may doubt the importance of good credit that world movements are set in motion by an impression. In the last few years we have seen enormous movements of capital across the Atlantic, due not to any special apprehension about this country or coming from this country, but due to apprehension no doubt about Europe. During the last four years, £1,200,000,000 of gold have gone to the United States. That is more than the total world production of gold. I suppose it is partly trade balance, but it is very largely due to feelings and prognostications of people all over the world. We want to keep our credit high with everyone at home and abroad and to keep as far away from that slope as we can.

Can we carry the burden? The answer is, "Better than most countries." But for how long can we carry it? Is it not rather like asking your doctor before a race, "Have I the physical strength to undertake this great strain?" The doctor tests you and says, "Your heart and lungs are all right and you are properly trained and can stand the strain." Then you ask, "Shall I shorten my life? Shall I not use up my store of energy? "The doctor says," Of course you will use up stores of energy from the past and have to make them good in future, but if you are careful there is no reason why you should not live your normal life and become a judge or a bishop or possibly even a Member for the City of London." We have to make this strain as short as we can. We have to simplify our task now and keep down expenses by using everything to the best advantage in order to shorten and reduce the strain. That is the enormous task before us, quite apart from this crisis.

I would like to say something about a tendency I have noticed for years. The tendency has been growing all my life of putting on to the taxes expenses which in earlier days used to be borne by enterprise itself. There was an old maxim, "Let every tub stand on its own bottom." If we look back into the history of our enterprise that maxim was followed at great inconvenience to everybody. When we started the coaches the roads were made by private enterprise. We got tired of the toll gates and took over the roads, which went on the rates and taxes. When the railways came the people who travelled paid indirectly for the cost of the land on which the iron road went and for all the people who worked on the railways. When we come to this century we have the commercial motor cars on the road, which is an enormous advantage to us all, but they do not pay for the roads. They pay only something towards the roads. There is a most enlightening statement issued by the London Passenger Transport Board, who are dispassionate because they are concerned in both forms of traffic. That statement appears to me to emphasise the fact that rail transport is burdened very heavily in comparison with road transport by all the expenses they have incurred in buying the land and making the railway from which their competitor is spared. The reason is, of course, that the railway was started in the old days when every tub had to stand on its own bottom and they had a monopoly of enormous value which they have now lost. The other form of transport came in newer days when we had different views.

Then we went into the air and made the same sort of effort in rather a feeble way with Imperial Airways. We said we would endeavour to make Imperial Airways pay for its own flying, but they were accused even in this House of being the laughing-stock of the world, and we rapidly reverted and said that the balance of the cost which could not be collected from their customers should come on the taxpayer. That is happening all over the world. I dare say we can stand it better than most, but all over the world the enormous enterprise of the air is being thrown on to the taxpayers instead of coming, as the other enterprises did in the past, on those who use it. And take an even more modern example. We are now under the dark cloud of risk of attack from the air. It threatens all our property and our houses. Let us hope we shall never have a war in our lifetime and that with unity and strength here we shall bring the world back to a sane way of thinking. But we have lost for ever that insular safety in which we can build our houses and not be in danger from a bomb. In the old days that new risk would have been covered in advance by contributions from the people concerned by some form of insurance. I hope we shall do that now, but what has been understood up to the moment is that the Government will compensate in a rather indeterminate way. I submit that that announcement suffers from two major defects. It is inadequate in that it does not give people the insurance they want and it is very expensive because it throws the whole cost on the taxpayer and collects nothing in advance from the people.

I offer to the Chancellor my respectful congratulations on his Budget. It was a horrible task. It is a horrible burden now for all of us, but I believe my right hon. Friend has framed this Budget to place this burden on our shoulders as well as it could be done. I beg that everything may be done in his sphere of action to reduce the continuing burdens that are put on to the taxpayer. As a suitable method of payment the right hon. Gentleman the Member for East Edinburgh (Mr. Pethick-Lawrence) spoke of a recurrent capital levy. I agree that a capital levy is always possible. It has its advantages, but it has grave disadvantages. I sat on the Colwyn Committee, which looked into this question for many months, and I do not think there was any dissent. We all looked at the capital levy and saw its advantages, but we thought it had even graver disadvantages. My own feeling is that it is not a happy way out at all. I believe that the way to seek to get out of our difficulties is to keep down our expenses in these difficult times as much as we can and prevent fresh expenses being loaded on to the taxpayer by making enterprise as far as possible pay for itself, and, above all things, by unity and strength at home to ease this terrible problem abroad and also by strength and sympathy and friendliness, as far as we are allowed to be friendly in our approach to our neighbours abroad, to give them the same message.

6.54 p.m.

Mr. Richards

We always listen with great interest to the speeches delivered by the hon. Member for the City of London (Sir A. Anderson), because we all know of his considerable experience of these difficult questions. I am afraid I was unable to follow him in the earlier part of his speech, when he referred to the question of inflation. He rather suggested that borrowing did not of necessity involve inflation. It seems to be a well-established fact, however, that borrowing by Governments, in the past at any rate, has almost inevitably led to a degree of inflation. The Chancellor on the present occasion is borrowing £380,000,000, and as is pointed out in some of the City papers this morning, it is doubtful whether the City could really carry a loan much bigger than that. It is bound to lead to a degree of inflation because the question simply is, how is the money to be found? There is no doubt that it will be found by the bankers. They will increase their deposits, and whenever they do that and lend it to the Government or anybody else, there is an increase in the amount of money in currency. There is to that extent—it is difficult to measure —a degree of inflation possibly, almost inevitably, whenever there is any borrowing on the part of the Government or any big association or combination.

We all feel that the Chancellor yesterday was faced by a formidable task. I was interested to reflect that the Chancellor has spent most of his life in trying to persuade people to speak the truth, the whole truth and nothing but the truth. I felt that yesterday he himself was in the box and that we could acquit him of counts one and three. I am rather impressed by the fact, however, that he did not reveal the whole truth. I would like to call attention to some of the facts that were conveniently slurred over by the Chancellor in his speech. For example, he treated the Budget as if it dealt with an ordinary revenue of £927,000,000 and an expenditure of £928,000,000. The true balance sheet will be found on page 4 of the White Paper. That shows that the figures are really in the neighbourhood of £1,200,000,000. The actual figure given on page 4 is £1,204,770,000. I take it that that is really the crucial figure which we have to consider. It is true that the Chancellor emphasised that we were making a special effort, and that effort naturally enough has distorted the Budget considerably. I was interested to see that he kept that as much as he could in the background. Of course, he knew that that was the skeleton in the cupboard, and occasionally it threatened to come out, but it very often disappeared again. A reference to the Chancellor's speech will show that I am not exaggerating what he said. He said: I have got so far, therefore, an expenditure of £922,500,000 and an estimated revenue of £918,300,000. If it were not for the necessity of providing for the large increases in Defence which have been decided on since the Defence Estimates were presented"— this is the skeleton threatening to appear— the Budget problem would be a simple one for the estimated revenue is within some £4,000,000 of the rest of the estimated expenditure."— [OFFICIAL REPORT, 25th April, 1939; col. 986, Vol. 346.] The question he then poses—and he poses it in an interesting fashion— is this: How far can £918,500,000 estimated revenue meet the expenditure as we know it at the present time? He pointed out that the expenditure includes, of course, the Fixed Debt Charge, which is £247,000,000, and the Civil Votes, £447,500,000, giving a total expenditure of £694,000,000. That leaves rather a decent balance, a balance of £223,000,000, to meet the defence expenditure; and, as he points out, that is within £4,000,000 of the £227,000,000 or £230,000,000 that he estimated earlier in the year. Earlier in the year the Chancellor estimated that the new expenditure on defence would be £580,000,000, and of that he proposed to borrow £350,000,000 and to get the rest, £230,000,000, by means of taxation. To meet the £230,000,000, or the new figure he gave yesterday, £227,000,000, he would have a balance of £223,000,000, leaving a very small margin of only £4,000,000 to be found by extra taxation. But he goes on to point out that that is not the full story, that the new estimate of extra expenditure on defence now amounts to £630,000,000, that is to say, an extra £50,000,000; and he proposes to meet that, as we heard yesterday, by borrowing £30,000,000, and by raising the other £20,000,000 by means of taxation. And that brings us to this point, that now he has got an estimated deficit of £24,500,000.

There is another standpoint, too, from which we might approach this question. Let us take his figures again. We have the following figures: Service of the Debt, £247,000,000, Civil Votes £447,000,000, the new rearmament Estimate £630,000,000. That gives a total Budget of £1,324,500,000, and I think we really ought to face this very serious position that we are in. If you estimate the difference in prices, this is by far the biggest Budget that has ever been introduced into this House. There is one bigger figure, the figure for 1920, but when you remember that prices were then soaring in the neighbourhood of 150, whereas now they are only 55, I think we can all realise that this year's Budget of £1,324,500,000 is a much more considerable Budget than a Budget of £1,425,000,000 at a time when the prices were more than three times as much as they are to-day. Well, that is the real burden. I think we are too much given to talk figures, as the right hon. Gentleman said. We ought to get at the back of the Budget and to see the sacrifices that are involved in these figures; and I venture to suggest that the sacrifice that is called for from all of us is much greater than any similar sacrifice that has been called for by any previous Budget in the history of this country.

There is another point. I am not going to enter into the difficult question of the advantages or disadvantages of borrowing, but I have already indicated that borrowing always means inflation, and inflation always means rising prices, and that means for the people who have fixed incomes a decline in their standard of living. As was pointed out by the Leader of the Opposition yesterday, that is one of the unseen burdens that the ordinary people of this country will have to bear because a portion of this expenditure will have to be borrowed by the Chancellor. And, as the right hon. Gentleman pointed out, we are only postponing the difficulty. The money will have to be repaid, and in the meantime we shall have to pay interest on it, and I believe that I pointed out before that it will not be any easier—I think it will be more difficult—for posterity to face the burden than it would be for us to face it today, because all signs are pointing to a decline in population, a decline in the industrial supremacy of this country, and a greater real difficulty in finding the money than we are even experiencing to-day. I was astounded, to, to find that the National Debt is growing at a tremendous rate. I think the Chancellor just referred to it yesterday and gave us the figure, which stands now at £8,163,000,000, a figure greater than any figure that was attained even during the War, if we again correct it—as we ought to correct it—for the differences in prices.

There are one or two other points I would just like to refer to, and one is the very serious decline in the Revenue. I do not know whether sufficient attention has been paid to this question or not, but we shall find that the total receipts from taxes have declined by roughly £20,000,000. That is not the final figure, I admit, because the Chancellor, as he said, was fortunate in having increases from Miscellaneous Taxation Items of various kinds of £2,500,000; but the deficit at the end, as far as Inland Revenue is concerned, is £17,500,000. If we analyse that, we find that the decline is in Income Tax, in stamps—I am not taking Estate Duties because, as the Chancellor quite rightly pointed out, it is a very uncertain item—and Customs and Excise, all of them an indication of the state of industry and trade in this country. The decline in those three, particularly stamps and Customs and Excise, and to a lesser extent Income Tax, is an infallible indication that the industry of this country is not in the good position that we are sometimes asked to believe. And an indication of that is given by the fact that the Chancellor in his Budget this year has only estimated that next year's return will be equal to what he is getting this year. That is to say, he rather takes it for granted, I presume, that the yield of taxation next year will be stabilised very largely at the present position. I venture to think that possibly it will be at a lower level still, and that is a very serious question for any Chancellor. Is the Revenue that this country is getting in face of the mounting expenditure really declining? This is a fundamental question, and I would like to know the views of the Treasury in regard to it.

I do not know that we can say much perhaps in criticism of the Chancellor's very natural attempt to fill the gap of £24,000,000. Obviously he was quite determined that he would not increase the Income Tax. There is possibly something to be said from the point of view of struggling industry in favour of that decision, but I would just like to call attention to the Motor Car Tax, because I feel—and I believe that the Leader of the Opposition pointed this out yesterday—that it is unduly hard upon the owners of the smaller cars, and I was interested to try and work out one or two figures. For example, if you take a motorist who has one of the smaller cars, an eight horse power, he is paying at present £6 in taxation; under the new tax he will be paying £10. If you take a more powerful car, a 40 horse power, the owner is now paying £30, and he will be paying an extra £20. That is to say, both of them will be paying an increased taxation of exactly the same size proportionately. Their taxation in both cases will be increased relatively by just two-thirds.

But that is not a fair way of looking at it. If you take the same eight horse power car and estimate its cost at £150 the increased taxation on it is £4, that is to say, an increase of £2 13s. 4d. per cent. of the cost of the car. If you take, on the other hand, a £3,000 Rolls-Royce, the increase is £20, £30 or £50, but in that case the increase on the value is only 13s. 4d. per £100. The smaller man is paying £2 13s. 4d. per cent. and the richer man is paying only 13s. 4d. per cent. and letting the poor man pay the other £2. It is a principle of taxation in this country that taxation ought to be borne by people in proportion to the amount of wealth that they have. We do not tax the poor, those who have an income limit below a certain standard, and I think that that principle ought to be carried right through, because it is eminently unfair that the man who has a small car should be paying more per cent. on the value of his car than the very rich man who can afford a luxurious car.

Taxation is mounting up at a very rapid rate. We all regret the necessity of it, and there is one point which I think ought to disturb us very considerably. Taxation now is taking such a slice of the national wealth, of the amount of wealth that we produce every year, that it is bound to leave us all a great deal poorer than we were before. It has been pointed out by some of my hon. Friends that the proportion of that that goes to improve the standard of life of the people is very small indeed. The result is that this increased taxation is bound to have an adverse effect on the standard of life of the community generally, and I think that if we translate the figures into actual cost to the individuals who have to pay, and if we realise that such a large proportion is eaten up by taxation, I think we are driven to the conclusion that the standard of life of the people of this country sooner or later is going to show a very serious decline.

7.15 P.m.

Mr. Harold Macmillan

The interesting speech to which the Committee has just listened has given us some very valuable information and has pointed out important aspects of this immense problem with which we are faced. This Budget represents another stage in the journey we have been travelling over several years from optimistic fantasy to a cold and realistic appreciation of the true facts of the modern world. The last time I ventured to address the House was on the Second Reading of the Bill to grant £20,000,000 or £30,000,000 to the people of Czecho-Slovakia. Fortunately, the Chancellor of the Exchequer was able to save most of that expenditure by reason of events which have taken place since—fortunately for him, but unfortunately from another point of view. That thought passing through one's mind makes one realise that we are really to-day discussing a war Budget, and the function of Government in war is to organise and direct the national effort in such a way as to achieve the maximum use of our resources. The Budget expresses in terms of finance the policy by which that end is to be achieved. The reality behind is the physical capacity of the nation and the manner in which that capacity can be fully utilised.

In 1914 we entered a War unprepared in almost every economic sphere for the tremendous strain that it made upon the economic life of the nation, and we had the experience then of an inflationary boom which raised prices by 150 per cent., before the War was over, in spite of the efforts made to control prices. We had gained experience by the end of the War of the Ministry of Munitions. We built up, or should have built up, an enormous volume of experience which ought now to be drawn upon to avoid the mistakes which we inevitably made then in our inexperience. Before the last War the total defence expenditures of Britain, France and Germany was less than 5 per cent. of their respective national incomes. We have seen a yearly rise of our expenditure on armaments from the comparatively small sum of £107,000,000 in 1933 to £384,000000 in 1938–39. In Germany the rise has been much more spectacular, from £180,000,000 in 1933 to what, I think, the best expert opinion would agree to be the conservative figure of something near to £1,500,000,000 in 1938–39.

This extraordinary expenditure is partly accounted for by expenditure on military rearmament, and partly by the accumulation of very large stocks of finished products of all kinds. Anyone who has followed the purchases of different products, especially those essential for armaments, by Germany during recent months and years will, I think, come to that conclusion. In order to do this they have employed not only heavy taxation but the direct control—the autocratic, the central control—of incomes, prices, investments and international trade. The proportion of national man-power and capital resources which were expended upon military armaments and the like in this country I estimate to have been about 8 per cent. last year. In Germany I estimate it to have been about 25 per cent. of the total man-power and plant power of that country. This is commonly supposed to represent an intolerable strain upon the German economy, and many people looked rather hopefully for signs of collapse, but what they forget, of course, is that there is no unemployment in Germany, because the 5,000,000 people who were unemployed when the present regime there came into power are now fully employed, and, indeed, there is such a shortage of labour that hours of work have been extended in almost every industry. In June, 1933, there were in Germany 13,300,000 employed workers, and in January of this year there were 21,000,000, an increase of 7,000,000 in the number of employed workers in the Reich between those years. That is, shortly put, the explanation of how this immense expansion of production has taken place.

Mr. Duncan

Is the hon. Member including Austria?

Mr. Macmillan: The last figures included Austria. They were the figures for January, before the final seizure of Czecho-Slovakia but after Austria had been incorporated.

Mr. George Griffiths: How much would Austria account for?

Mr. Macmillan

About an additional 1,500,000. The original 5,000,000 unemployed have been re-employed and there has been the addition following the conquest of Austria. There is, of course, the additional conquest of Czecho-Slovakia, which I have not taken into account in these figures. We here are trying to carry a similar strain, to compete in this immense race—with, of course, a much smaller population—with 1,750,000 people not producing, which imposes an immense additional burden upon us. We have also people wrongly employed because of unnecessary competition in certain industries and the misdirection in time of war—because we are practically in a time of war —of effort into luxury and unnecessary production. I think the position could not be better summed up than it was in the "Times" leading article two days ago when they said: The truth is that the Government's most important economic and financial tasks lie outside the Budget. The planning and execution of a successful loan programme is of much greater importance than the assessment of a prospective technical deficit or the choice of taxes to bridge it. Many people will have read with a good deal of interest in the last few days some views on these matters expressed by a very distinguished economist, Mr. May-nard Keynes. He wrote two articles in the "Times" with which the Committee are no doubt familiar. He estimated that the economic consequences of this loan expenditure ought to be work for upwards of 1,000,000 men now unemployed and the bringing about of conditions of full employment. I think it has been too readily assumed by those who have read those articles without great care that that result would follow automatically the spending of this money. That is a dangerous fallacy. "Full employment" is an economist's term which may mean any one of a variety of things. By mere spending we shall not bring about the "full employment" of all our resources, but the full employment of a small minority of skilled workers directly affected by armaments expenditure, while a large number of workers who are not so affected remain unemployed.

The "inflationary spiral" will then begin because of competition for workers, materials and plant in a limited field. It is true that as costs, prices and profits begin to rise in these particular industries capital and labour will be attracted to them from other occupations, and the consequences will then spread right through the economy. We shall have embarked upon a kind of lop-sided boom and shall have brought upon ourselves all the difficulties of inflationary tendencies long before we have brought into employment all the resources of capital and labour that remain in the country. The loan expenditure cannot achieve full employment as a kind of automatic and effortless result. We have about to come upon us all the labour problems that we were confronted with in the War—the question of Government priorities, an acute shortage of skilled labour, trade union restrictions, the task of shifting workers to districts where demand is greatest, the curtailment of unessential services. All these problems of the last War are, to quote Mr. Keynes, "round the corner" and I warn the Committee that it is only if and when we have solved these and other problems that we shall draw into rational and economic use the resources of capital and labour that are now available.

It is worth while also reminding the Committee of some of the governing conditions which Mr. Keynes and other economists agree are necessary if even the most optimistic result of his conclusions can be reached. The first is that the handling of foreign trade should be organised upon a wholly different basis from that upon which it is at present carried out. No one has given a greater lead towards that than the present head of the Department of Overseas Trade, who has clearly seen the kind of problem in which we have to use our export trade as an instrument for building up and maintaining our power, and not merely as an instrument for the benefit of mere entrepreneurs. It is also a condition that there should be a control of the power to export capital. It is an essential condition that the liberty of the capitalist to export capital, to take financial resources into other countries, should be controlled; in other words, that there should be national service for capital as well as for men. That is essential. Thirdly we have to organise the whole industrial power of the country—the plant, the machinery, the men available—in order to make the greatest use of it for the purposes we have in mind, for rearmament, without starting an inflationary demand for labour which will merely lead to all the same mistakes which we made during the last War.

Curiously enough, I have been trying, rather unsuccessfully perhaps, for some years to promote many of these policies by speeches in this House and writings outside for a different purpose, namely, to cure the problems of poverty, but we shall have to use them now in order to solve the problems of rearmament. This same machinery which I have longed for in order to raise to the highest possible standards the general conditions of our people, these technical methods—the control of capital, the organisation of foreign trade, the general planning of the community and its efforts—are much more necessary to-day, and it is perhaps an ironic thought that they will be employed, and are being employed, one after another, by the Government not, as I once hoped, for the purposes of peace, but in order to take the essential steps necessary to prepare our defence. The Ministry of Supply will deal with one aspect of this matter, but all the proposals yet made do not, in my opinion, cover anything like wide enough ground to achieve the full purpose.

I should like to refer again to an article in the "Times" which pointed out that the industrial problem does not end with the establishment of legal priority for Defence supplies, but covers many other subjects which must be considered. The article mentions: compulsory powers with regard to extension and adaptation of plant, limiting the freedom of capital funds, a plan for the limitation of prices and profits in time of war. There is much, the writer says, which cannot be decided or undertaken without a census of productive capacity as well as of man-power. In my opinion, the census of productive capacity; that national register, ought to have been started long before. That is just as important as the national register of individual man-power.

There are one or two things which I would like again to put before the Committee. Twelve per cent. of all the insured workers of the country are unemployed—that is a total of 1,788,000 people—but the distribution of this unemployment is what it is vitally important to consider in relation to these problems. The groups in which we have come nearest to full employment, in which we have practically full employment— because there must always be some little margin of unemployment through men going in and out of work on any given day—are in those of chemicals, in which there are only 6 per cent. unemployed, in the explosives part of chemical production, in which there are 4 per cent. unemployed, in engineering, with only 7 per cent., in construction and repair of vehicles, with only 4 per cent., in other metal industries, with 9 per cent.; and, to take things like scientific instrument makers, with only 4 per cent. Now turn by contrast to what makes up this average of 12 per cent., and you find in shipbuilding 23 per cent.; in building and contracting, 20 percent.; in docks, harbours and railways, 27 per cent.; and in cotton textiles, 17 per cent. Therefore, unless we can augment the supply of, or economise the demand for, skilled labour in the occupations in which it is already scarce, we shall inevitably reach the period of soaring costs and prices in those particular industries connected with rearmament, and this will mark, as I have said, the beginning of an inflationary trend which may affect the whole economic life of the community.

The right hon. Gentleman the Leader of the Opposition, in my opinion, was incorrect in saying that the danger of inflation arises from the mere act of borrowing. I am quite convinced that the Chancellor is right in thinking that the total volume of savings is adequate to meet the demands he wants to make upon it. Therefore, on general financial grounds, I think he is right in his decision to use the savings of the nation for this purpose. The danger of inflation will arise, not from borrowing, but from the manner of spending, and the vitally important thing is that we should not only increase our demands upon industry, but face up to the technical difficulties of increasing the supply to meet those particular demands. Government priorities in themselves are not sufficient. They merely take plant and capital and make priorities in a particular class of production, but they may set up a shortage of another set of goods and, therefore, a rising price level, and the temptation of workers away by higher wages, thus creating an artificial shortage by the very priority given. A very much wider scheme than mere priorities on armament work is necessary. We must remember that there are these bottle-necks which are likely to cause an inflation of the limited supply of labour and of plant, particularly of machine tools, available for rearmament purposes, and that the only possible solution is to limit the use of this labour and those tools on other commodities not connected with rearmament.

The error into which we may fall is that of considering this question of loans in terms of the old unemployment Debates. It is perfectly true that in the old Debates we used to have upon borrowing to help unemployment, it was held that a programme of public works could achieve the bringing of men directly into employment because, under a programme of public works, you chose the work to suit the labour. You chose a kind of public work into which you could rapidly bring men. The difficulty is that in armaments you have a strictly limited supply of labour for a particular kind of work, and, therefore, the arguments that used to be urged to prove that loan expenditure would automatically bring about employment, when we could suit the kind of work to the kind of unemployed men, do not apply to the problems that we have before us to-day. These wider questions which will come up when we debate things like the Ministry of Supply and into what that Ministry might be turned to try and organ- ise the whole economic effort of the nation in these anxious months and years. The narrower question, which is more strictly relevant to the Budget Resolutions to-day, is how a solution might be found by Budgetary control, and I think that there are two things that can be done.

We can try to recruit the right kind of labour, that part of the unemployed labour which can be brought into these new industries. That will do something. We can remember that it is just as effective to use an unemployed man to make goods which we can export abroad, and as the result of that policy to purchase armaments from abroad, as to employ him directly on armament production at home. In other words, if we could put Lancashire into work to make cotton goods and sell them at some price in order to obtain a fixed amount of foreign exchange, we might be doing better to give a subsidy to exports where the great unemployment lies rather than trying to do what we cannot do, namely, to adapt textile factories for the making of armaments. It is just as important to use the export trade as part of the mechanism for purchasing our necessary supplies from abroad as it is to organise their production at home.

Lastly, we can do what, I think, the Chancellor has partly and rightly, if I may say so, meant to do by Budgetary control such as is done in a small way by the motor car tax. And no doubt one of the reasons which led him to impose that tax, apart from merely fortifying the revenue, was to achieve a diversion of labour into other spheres. I think that is a very proper aim, but, of course, he may find that he has, instead of diverting workers from motors into armament construction, diverted them from making large cars into making small cars —I do not know; we shall see—but I think it would be more effective to take in all that range of industries which enter into direct competition, as regards man-power, with armaments, to institute a wider range of Budgetary control such as in a small way, in a cruder way, we did in the War through the McKenna Duties, in order definitely to prevent the expansion, and to encourage the reduction of those commodities which compete with armaments for workers.

It would be possible to do that either by the increase at the same time of Excise and Customs duties or, since that would involve us perhaps in difficulties with our trade agreements, by the imposition of a sales tax with a drawback. It seems to me that that it what we shall very soon have to come to. We have a situation to-day where very soon the whole capacity in the production of, say, pig iron and steel, of this nation will be at work, and it will be fantastic to allow a bidding-up of the price of steel between the relative claims of armament production and, say, of building hotels in London. We shall soon have to have a rationing arrangement, and the simplest that the Chancellor could in fact make, instead of the machinery of complete control of all production such as they have in Germany, would be, through the Budget and through a sales tax, with the proper drawbacks for approved schemes, to discourage the use of plant and men where they enter into direct competition with the necessities of the armament programme.

I venture to raise these points, because I think we shall probably all agree that one of the things that we most want to avoid is what I have called a kind of lopsided inflation, an inflation caused by only part of the economic power of the nation which is used in particular spheres and activities, with prices and wages bidding up, with their reverberating effects over the whole of the rest of the economy. Just as deflation is unfair to one set of people, so is inflation unfair to another, and these classes are not divided as between rich and poor. The interests cut right across any class distinctions. There is the pensioner, the man with a fixed income, fixed rent, and so on, and he suffers, although he may get increased wages, by inflation of prices through all the claims, the long-term commitments, which he has. I believe that the Government will find that as this question proceeds they will not be able, as it were, to think of a Budget merely from the accountancy point of view, merely from the figures point of view, but that they will have to go right back to the realities, and the realities now are that in this nation, large in population, but still only half of that of one of the great Powers, we cannot put out of our mind when we are discussing these matters that we must ensure whether partly by the instrument of the Budget or partly by the instrument of the other mechanisms of government—the Ministry of Supply and all the rest of it which we are setting up—we must ensure that two things happen, namely, that all the potential power to produce, plant and men, is brought into effective production, and at the same time that we do not allow a competitive bidding for one class, the demand of one class of labour and goods against another, to make such an inflationary spiral of prices as will destroy the general settled life of the whole communuity.

Those seem to me to be the problems which are raised by this Budget. I think the Chancellor of the Exchequer himself recognises, and I am sure the Government must be conscious of them. On how they are handled in the next few months depends whether we are to look back upon these decisions as the beginning of a terrible series of mistakes similar to those which we made 20 years ago, or whether we shall learn the lessons of that last experience and use them to avoid the same mistakes, now unnecessary, and, I would say, now unpardonable.

7.44 p.m.

Mr. T. Smith

I could not help thinking yesterday, while the Chancellor of the Exchequer was delivering his speech, how changed things are as compared with seven or eight years ago. When we had, for the second time in the history of this country, a Labour Chancellor of the Exchequer and he presented a Budget to this House, in about 1930 or 1931, which showed an excess of expenditure over income, this House was packed almost to suffocation, the atmosphere was electrical, and every conceivable kind of prophecy was made by hon. Members who now sit opposite about industry and everything else in general being ruined. In 1931, when we had that largely manipulated and grossly exaggerated financial crisis, we were told that if Labour were returned to power, the pound note would be equal to what the mark in Germany was 12 and 15 years ago. Yesterday we had a Budget in which the expenditure exceeds by far the Amendment that is going to be obtained in revenue, and I could not help thinking that the Chancellor was not too happy when he was delivering his speech. I think he recognises that from 1932, when he was at the Foreign Office, to 1939 when he is Chancellor of the Exchequer, he has been to some extent responsible for the change in international affairs. The hard fact is—it is not merely a coincidence—that the change in international affairs took place at about the time when the right hon. Gentleman went to Geneva to deal with the Sino-Japanese situation. Whatever the cause, we are faced with a Budget which, to a large extent, can be described as a war Budget, and we must have some regard to the effect of this weight of expenditure upon large classes of the population.

I heard the Chancellor talk about equality of sacrifice. May I suggest that there is no such thing as equality of sacrifice, particularly in the financial sense? If a man has a fairly large estate and a fairly large income, even though he may be taxed fairly heavily, his position largely depends on what he has left after he has paid his taxation; and when one compares the position of those who have a good deal of material wealth with that of large masses of the population, while the taxation on the richest section of the community may perhaps for the time being cause some little disturbance of their plans and aims in the purchasing sense, they have a better chance of recovering their position than have the large masses of the population who are on a fixed wage.

One is somewhat perturbed about the effect of this indirect taxation on the cost of living. The cost of living, as regards certain essential commodities, is on the increase. If anyone doubts that statement, never mind the Ministry of Labour's index figure, let them read the very interesting report of the Food Council issued through the Stationery Office last Friday. There they will find that certain essential commodities are 90 and 100 percent. above their pre-war prices. This constant increase of indirect taxation is causing hardship among large sections of the population, and is something about which we have to be concerned. We on this side of the House have always believed in the general principle that taxation should be according to the ability to pay, and were I to quote some of the right hon. Gentleman's own speeches in the days when he was attached to another political party, I could give the Committee some very excellent quotations. Probably he will himself recollect some of those speeches.

If I had my way, I would educate the ordinary indirect taxpayer a little, by let- ting the housewife know, when she goes into the store, exactly what she is paying in indirect taxation when she is purchasing different commodities. If, for example, there were a ticket saying that so much taxation is being paid per pound of a particular commodity, the housewife would appreciate a little more than perhaps she does now what she has to pay. With regard to the tax on tobacco, the ordinary smoker will grumble a little, and some of them will say they will never smoke again, but it costs the average man a matter of 6d. per week. That in itself is a hardship. With regard to the taxation on motors, while it may help the manufacturers of light cars, there are many thousands of people in this country, like the better-paid artisans, who purchase a light car and use it, sometimes in the evening, but mostly at week-ends, and who have a job to maintain that light car even now. This extra burden of £5 per annum will certainly be an additional hardship to them.

I wonder, too, why we are coming down to such pettifogging taxation as taxing the amateur photographer. Since my early days, when we used to use the stand camera, which was a very heavy burden to carry about, there have been big developments in amateur photography, and it is far easier than it used to be when we had to develop our own negatives and do our own printing. This question of an extra 1d. or 2d. is going to cause some little hardship among the youth of the country, who like to go out at week-ends with a little camera and take whatever snaps they can. We have to recognise, however that we are living in exceptional times, and all of us believe that, in this imperfect world, we have to have adequate defence forces. I will concede that straight away. If we have to have adequate defence forces, we have to find ways and means of paying for them, although I think the Chancellor will agree with me that, if only the world could return to sanity and we could liberate these hundreds of millions of pounds for things that go to make life sweet, there would be a far different civilisation from that in which we are living at the present time.

When we are discussing the question of war atmosphere, I hope the advice that has been given by the hon. Member for Stockton-on-Tees (Mr. Harold Macmillan), about the mistakes of 1914–18, will be borne in mind. Some of us were fairly close to the coal mining industry in that period; we were fairly close to the coal control, and fairly close to the industrial side; and we were always chasing prices. I remember a statement made very early in the War by Mr. Asquith, who was then Prime Minister, and who, when questioned about the cost of living, said that what the workers had to do was to get increased wages. But from 1914 and 1915 right up to the end we were always chasing prices and never catching up with them, and on many occasions, when prices were rising and colliery managers were not prepared to yield to negotiations, we almost had to threaten strikes to enable the ordinary mine-worker to buy necessary commodities.

I hope that even in the export trade the same mistakes will not be made. I listened this afternoon to a very interesting speech from an hon. Member opposite, who said that in the next war if it should come, which God forbid, the rich people of this country would be prepared to pool their resources for the common good. He went on to comment on the statement of the Prime Minister about limiting profits. I wish I could believe that statement, because from 1914 to 1918 some terrible things were done by men who called themselves patriotic. There were shipping companies, which have been referred to during the past week or two, which made tremendous fortunes out of tramp steamers by doing nothing more or less than taking coal from the ports to the Navy in the North Sea. Even though the coal industry of this country was controlled, there were ships carrying coal from the North-Eastern ports to Italy and charging more than £5 a ton for doing so. There were business men who told me themselves in Geneva that they had to pay as much as £20 a ton for British coal at that time.

As a result of the mistakes made in the export trade, the right hon. Gentleman the Member for Carnarvon Boroughs (Mr. Lloyd George) decided in 1921, and announced in this House, that the mines were to be controlled six months before the Act of Parliament said they should be controlled. Then we had a period of deflation, we had a lock-out for 13 weeks, and the wages of the ordinary skilled collier tumbled down from£7 to £3 2s. 6d. a week. We on this side are as anxious as anyone else to avoid the mistakes of 1914–18. There is one thought that ought to be put forward. In this country there are not large numbers of workers whose wages are determined by any cost-of-living figure, nor have we, as they have in New Zealand and Australia, any machinery for fixing the minimum basic wage for adults. We have large numbers of people whose only means of obtaining an improvement in their conditions is either by negotiation or by the pressure of their industrial trade unions. I wish we had some machinery in this country which would guarantee to every worker in industry at least a reasonable minimum wage.

I listened with great interest yesterday to that part of the right hon. Gentleman's speech in which he referred to the saving of £5,750,000 on unemployment assistance. I am rather sorry that that saving has been made. The long-term unemployed in this country, many of whom went through the last War, many of whom are skilled craftsmen, many of whom have spent the best years of their lives in industry; are now living in a kind of stabilised poverty. Whatever they do, they cannot improve their present position. They have in their homes large numbers of young men of the age that we heard of this afternoon, who are going to be compelled to do national service, and there are a good many young men who in the ordinary course of things are not bitter, but who feel that they are not being treated properly when, if they happen to earn 10s., 12s. or 15s. a week more by working harder on the piece-work system, by the mere fact of their being in the household if their father is out of work simply means reducing the father's allowance and they are no better off. I wish some portion of that £5,750,000 had been used to modify somewhat the present household means test. I think the effect would be such as to make it worth while.

I supposed that before Budget day the Chancellor must receive suggestions by the thousand for improving revenue. I could suggest one or two. I do not mind saying to the Chancellor that I would rather tax certain forms of newspaper advertising than some of the things that he is now taxing, because modem advertising is tantamount to getting money under false pretences. What is the ten- dency in modern advertising?— "He won the fight the night before by drinking a glass of somebody's malted milk." I suppose that if they had both had a glass it would have been a draw. Then you get advertisements for cosmetics—"Before using your particular face cream I could not get a husband—a 2s. 6d. tube, and I have married a millionaire." That sort of thing is in the newspapers every day. The you get society ladies who, by nature, are beautiful, allowing their photographs to appear in the Press, giving the factory girl the impression that if she used somebody's cream she would be as beautiful as the society lady—though everybody knows that is not true. There are more ways of getting revenue than the Chancellor has adopted.

I wish the hon. Member for Oxford University (Mr. A. Herbert) had been present. He mentioned last night the question of a tax on betting. I do not think the Chancellor will accept that suggestion. I remember the tax in 1928. I know that there was no tax more easily evaded. I can give the Chancellor a good deal of information on that point. I want to see a revision of the betting laws from an entirely different angle. I want to see them revised because they are not only out of date, but full of anomalies. Had the hon. Member for Oxford University been present I should have liked to have crossed swords with him about that. In South Australia I examined their legalised system of ready money betting. I spent days with Members of Parliament and talking with members of the Betting Control Board to find out what was the effect in the social sense, the effect on the revenue, and so on. I was told a thousand times that in this country we would not legalise betting, or tax betting, or have a lottery.

There is one thing which has to be examined sooner or later, on which I know the Chancellor has a good deal of knowledge. That is the position of the landlord in this country. A good many of the landowners in this country have done very well in the post-war years. We hear a good deal about big estates being cut up and being unable to afford Death Duties, but there is a good deal of agricultural land sold both to the Government and local authorities at very enhanced prices—sometimes hundreds of pounds per acre. Who created the value of that land? In many cases, not the landowner but the community. I spent a good many years on an assessment committee. If we sent an assistant overseer in the old days to value an area of land, the land agent said, "It is worth practically nothing; it is bringing in only£5 a year." Therefore, it was rated at a very low figure indeed. But when the local authority wanted to build baths or undertake some other form of municipal enterprise on the land four or five years afterwards, and the land had to be purchased they sent the town clerk down to see the agent—not the assistant overseer this time—and the agent said, in effect, "You know this is the most valuable piece of land in the city." When it had been acquired—sometimes even when it was compulsorily acquired—there was quite a large sum to be paid. Sooner or later, we shall have to pay some regard to the question of taxing land values.

I know the Chancellor will agree when I say that many things have been done to-day, even by a National Government, that 10 years ago would have been thought impossible. For example, we own the mineral wealth of the country. There is no Conservative on those benches who 10 years ago would have thought that he would have lived to see a National Government acquiring mineral royalties. Necessity compelled it. The time will come when necessity will compel us to tax land values. It is estimated that 2s. in the £ on annual values would bring in £50,000,000 annually. I think it would be much fairer to collect £50,000,000 in that way than by taxing every conceivable kind of luxury and every conceivable kind of entertainment. I hope that we shall have some indication at the end of this Debate of the Government's attitude with regard to the taxation of land values. I know we shall not get a very definite statement. Much as we disagree with this Government and the way in which this money is being acquired, all of us must hope that we shall see a change for the better in international affairs, less money being spent for purposes of destruction and more being spent on essential social reforms which will make the condition of the people of this country better than it is at the present time.

8.9 p.m.

Mr. Duncan

The hon. Member for Normanton (Mr. T. Smith) expressed the hope that things would be better in future, so that we could devote our time, money and energy to improving the social conditions of the people instead of spending these vast sums on armaments, and I heartily agree with him. My purpose in rising is to congratulate my right hon. Friend the Chancellor on the admirable manner in which he opened his Budget. I do not suppose, however, that he will want me to congratulate him on the astronomical sums of which he had to speak. The hon. Member for Normanton called it a war Budget. It seems an extraordinary position that, while we are at peace, we should be talking in terms of war Budgets. It seems to me that to coin a phrase, this is not a peace Budget or a war Budget, but a purgatory one. We may end upwards or downwards as a result of going through our period of purgatory, but we have to go through it.

The point I really wanted to raise this evening was the question of what is the strain which we are imposing on the country this year; how can we stand it, and how can we stand it in comparison with the other countries? Undoubtedly, in this Budget we are really beginning to take the strain of this world madness of the past few years. I think everybody will agree that in the United States there are vast reserves of latent strength that could be called upon to maintain a war for many years. In spite of the increased taxation, in spite of the enormous national debt, which is due to the New Deal, there are still vast reserves in the United States, which would probably emerge from a war still the richest country in the world. France, apparently, has settled down to work. The franc has been for some time more or less fixed at a level which it is possible to maintain, at about 175 to the £, and judging from the way in which France is working to-day, she must be saving up in the old way—a little stocking perhaps in the bottom drawer, or a little peasant hoard buried in the back garden. With that, in addition to the central banking reserve, I believe that France is for us a strong ally, who can stand a tremendous strain. I say very little about Russia, because I know very little. Intrinsically, the country is very rich. It has vast gold reserves, great resources of men, material and munitions. The question that arises in my mind is as to whether they can be mobilised, especially after the recent purges, to stand the abnormal strain of a war. I say no more about Russia than that. Other hon. Members on both sides may know more about Russia than I do. I just express a doubt as to whether the organisation may not break down in spite of the intrinsic reserves.

What about Germany? Germany, I think, must be in a very much weaker position than any other country I have mentioned. The economic system seems to me to be essentially unsound. The shortage of raw materials and foodstuffs, the fall in real wages—although nominal wages are rising—an exorbitant increase in taxation— they must all contribute to a weakening of the country. There is also the tremendous strain that has been already placed on plant in the last five years, quite apart from the strain on men; with blast furnaces, for instance, going at full pressure over the whole of that time. This threatens to cause them to break sooner than we shall. Finally, there are the constantly rising deficits in the budgets of Germany. The figure that I have had given to me is that during the last six years Germany has spent on armaments £9,500,000,000—a colossal figure—which must be in itself a tremendous strain on German economy. There are also the beginnings of inflation. I hesitate to use the word "inflation" because it has been bandied about in this Debate already, but what I mean by inflation is when the expenditure of the Government exceeds the savings of the people. One way in which this is being done in Germany is that, instead of being paid in cash, the manufacturers are being paid with taxed receipt bills, and my information, which I have only seen in the Press like anybody else, is that in some cases only 60 percent. is paid in cash and the other 40 percent. is paid in bills. These bills are marketable and freely interchangeable with notes, and must therefore result in an increase in the note circulation. This increase is disguised to the people, and, therefore, they do not realise that it is inflation, but it must be inflation because it is an alternative to the printing of more notes. The Germans realised very well what inflation meant in 1921, and I believe it is feared more than anything else in Germany today. It is because of the disguised method of inflation that is going on today that the German people do not realise that it is inflation. If that is the beginning of inflation, it may well be that it will not be possible to disguise it very much longer.

There is also the question of the strain on men which already exists. I heard an item of news in the broadcast last night which stated that miners who were on pension in the Saar district, but who were under 65, had been called up to work on fortifications, and that they were working 15 hours a day. That must be a strain on men, who in the normal course of events had retired from work but who happened to be under 65, and presumably between 55 and 65, called up at the end of their working life and compelled to work for 15 hours a day. Therefore, the strain on men, on plant and on the economic structure of Germany must be very great to-day, and they cannot have sufficient reserves available if there should happen to be a war. As I have already said, our allies are in a very much stronger position.

Italy has been trying to finance autarchy, which is a system of being completely financially and economically independent. It has been extremely successful so far. I have in my hands a report of the speech of the Governor of the Bank of Italy delivered at the annual meeting on 30th March, and it seems to me, after reading that speech very carefully, that in normal, peaceful times the Italians have really been marvellous in the way that they have been able successfully to finance autarchy. It had always been a mystery to me, and I am not quite sure that I understand it now, but I believe it is done in this way. One has to look at Italy before the era of Fascism as being more or less an undeveloped colony. People were very poor, there was little industrial development and very little was done for the workers. I am not speaking for a moment in favour of Fascism, but in these days of difficulty one ought to realise the immense strides that have been made in Italy in developing the country as a colony. Roads, electricity, hospitals, industry, and finally, and very important, land settlement, have been developed in the most magnificent way. New towns have been built. There is a town called Carbonia, in Sardinia, where coal-mining, which had never existed in Italy before, is being developed, and it is a little unfortunate from the point of view of South Wales that that should be so. It is because of autarchy and of the necessity of being independent that all this has been done. A mine has also been opened at Calabria in Southern Italy. Electricity development has been magnificent. there are very fine electric trains, and great success has attended land settlement. It is because of the increased wealth that has been produced by a policy of colonial development that Italy has not only been able to raise the extra capital for Government purposes but able also to finance private businesses. The Governor of the Bank of Italy in his report says: Can Italian savings meet the demands of the self-sufficiency program? Experience of recent years during which the Government has been able to draw so largely on savings to cover emergency expenditure, would indicate that the new savings which will accumulate in the next few years will suffice, an impression confirmed by the fact that during the first stage in the execution of the plans savings have accumulated in a measure equal to the demands of industry. It is of interest to add this further passage: It is worthy of note that price and cost of living index numbers show that the purchasing power of the lira on the home markets is now much the same as it was ten years ago notwithstanding the larger note circulation. Against that there is an enormously increased annual National Debt. I have not yet been able to discover the total National Debt, but I believe that the interest on it amounts to three-and-one-third million lire annually, and that annual debt is increasing as the development takes place. Italy is lamentably deficient in the raw materials necessary to carry on a war. My conclusion, therefore, from Italy is that there is not such a tremendous strain there as in Germany but that, on the other hand, their weakness is so great in reserves of raw materials that, although capable of carrying on for a time, they will not be able to stand the strain long, because they have not the raw material and cannot obtain it except from Germany if war breaks out.

What about ourselves? This is the biggest Budget of history. It is imposing a tremendous strain on every class of taxpayer. The hon. Member for Wrexham (Mr. Richards) made the point that it is the biggest Budget in history, making allowance for the fact that there is a difference in the price of money be- tween now and 1920. The Super-tax payer, the Income Tax payer, are paying heavily, and the Death Duties are very high. Indirect taxation also is high. I do not say that we could not increase the yield from Income Tax in the event of war, and I do not say that we could not increase the yield from indirect taxation in one or other of the ways that have been suggested in this Debate, or by any other methods; but it seems to me that we are not in the happy position that we were in in 1914 of having the vast reserves that we could mobilise in order to make us last out if war should arise. We have great resources of capital and we could draw reserves probably from the Empire, as no other people could, but it must be realised that we are not in nearly such a strong position to stand a long war as we were in 1914.

The conclusion at which I arrive is that we must be more than ever prepared to stand the first tremendous shock that an enemy could impose upon us, more than ever strong enough to counter attack, so as to finish the war more quickly than before. Nevertheless, I think if we can stand that first shock from possible enemies—we have to talk to-day in terms of enemies and friends—they are far more likely to crack up before us. But it is not going to be nearly as easy, however difficult it may have been in 1917–18, to stand the strain next time. Therefore, we must be as strong as we possibly can to stand the first shock, and counter attack at the earliest possible opportunity.

The Budget has been criticised because it is not what the right hon. Member the Leader of the Opposition called a planned Budget. How can we plan? Are we not standing at the cross roads between peace and war? War may break out in the middle of the night. On the other hand, if things go well, peace may come through those windows quite as stealthily as war may come. As far as I can see, we cannot plan years ahead for what may never occur. We must try to maintain as far as we can an equilibrium, to be firm in our strength and to prepare for the worst while hoping for the best.

8.29 p.m.

Mr. David Adams

I should like, first, to offer my personal and strictly non- party congratulations to the Chancellor of the Exchequer for his interesting and historic statement. It was worthy of the occasion. He displayed a clarity, a precision and a degree of information in a condensed form that has rarely if ever been exceeded in any Budget statement that I have heard or read. We have expected from the Chancellor of the Exchequer pearls of speech, which commanded in other days a high price, and thus there was nothing redundant in the observations that he made.

It must have been with feelings of a mixed character that hon. Members on the Government Benches recollected—the recollection is probably permanently with them— that it is the policy of the National Government since 1931 that has been largely responsible for the large Budget with which we are now confronted. The commentary may also justly be made that it is only in the face of extreme peril that we find them moving back to the principles of collective defence from which in the interests of the State they should never have receded. The statement of the Prime Minister to-day made it clear that the whole community of these islands is to be asked to defend the land we live in. It would have been a magnificent gesture if in anticipation of this demand the Government had nationalised the land of this country, which would then have become the people's land, in precisely the same way as they nationalised the mining royalties, in my judgment very largely in the interests of the mining royalty owners of that time.

The Chancellor of the Exchequer is very conservative in his estimate of future revenue. He has treated the future as though it would be very largely similar to the present year. In reality I am certain that we are moving out of the relative depression in most industries into what may be an unprecedented boom. Mr. Keynes makes the remark-able prophecy, and most of his prophecies have been singularly accurate, that at the end of 12 months from this date we may have our unemployed reduced to the low figure of three-quarters of a million. Certainly, there will be most astounding changes due to the unexampled Government expenditure in the course of the next 12 months. One thing is certain, and that is that we shall be confronted with rising prices and a higher cost of living, synchronising with rising profits in industry. The consumption of the masses of the people will undoubtedly be lower by reason of the rising costs and the inevitable inflation due to this heavy expenditure and heavy borrowing. The masses of the country must look forward in future days to a large part of the national income being mortgaged for payment to the richer classes holding Government bonds.

Budgets may be instruments of oppression or of benefaction, and I think I am justified, speaking for my constituents, almost the whole of whom are very humble people living largely on the borders of the poverty-line, in saying that there is nothing in this Budget in the form of relief for that class. It is true that the Chancellor of the Exchequer has given relief in the way of the Medicine Stamp Duty. Why that was done he did not explain, and it has not yet been explained. In regard to the Entertainment Duty I was glad to note a reduction in the charges on films. Are not the working classes of the country, who are enjoying so limited a share of the national income, not entitled to some consideration? I should have thought that in these times, when we are anxious to obtain the good will of the industrial community, we might well have obtained some improvement in the scales of National Health Insurance, in pensions, and even some rate relief to the Special Areas, and certainly we might have expected with some justice the lowering of indirect taxation instead of an increase.

The Chancellor of the Exchequer called for equality of sacrifice. I remember him using the same expression in the Budget of last year when he proposed an increase in the Tea Duty. I suppose it is the same sort of equality of sacrifice which is indicated in the new taxes, which will be borne largely by the working classes. If we are to have equality of sacrifice, it must be on an equitable basis as between the different classes in the State. Mass poverty, therefore, which exists today must first of all be eliminated. Until this is done no case exists for indirect taxation upon those who are the majority of my constituents, and indeed the great mass of the industrial workers of the country—the poor. The research department of the Fabian Society have issued a most interesting publication. They have been examining the standards of exist- ence among the working classes of this country who are to be asked to make this additional sacrifice, and after close reasoning and full and unchallengeable details they come to the conclusion that the weekly income of not less than 40 percent. of the adult population is insufficient to provide the barest needs of a family with three dependent children. That is a situation to which the Chancellor of the Exchequer might direct his attention.

In the matter of the defence of the State, we shall have to look at the question of the declining population as well as that other question to which our attention has been directed, the physical fitness of all. I say that I am justified, in a Budget Debate, in saying that it is the duty of a Government when considering the imposition of taxation, to raise the income to the level which the Fabian Society has declared to be necessary; that is 53s. 5d. per week as a minimum. I am confident that industry can do this without injury. The history of rises in the standards of life among the workers is that where they have been raised there has been an increase in the prosperity of the concerns which have so raised the standard. I asked a question in the House as to the number of old age pensioners who were in receipt of Poor Law relief. Very startling figures were given me; they are an excellent searchlight upon the general condition of our workers. There are 2,380,000 in England and Wales—why Scotland was left out of the answer I do not know, I hope they have none—who are in receipt of old age pensions, and of these, on the 1st January this year, no fewer than 250,000 were in receipt of Poor Law relief, that is 10 percent. of the total. That is to say, they are living on their families, and receiving other forms of charity; and the additional rate charge—a most unjust burden in my opinion, for pensions should be a matter for State contribution and not for rate contribution—is no less than £4,500,000 per annum.

It is this form of democracy which we are to defend, a democracy which is kept to the poverty-line, and the sooner the industrial workers recognise the enormous power they possess and ask for this state of affairs to be ended, the better. Low wages prevent an individual from pulling his weight in the community in the way we all desire to see at the present moment. We have had a great number of details as to how Germany is utilising her population, but I take it that the German worker is sufficiently paid, and that he is not prevented by social conditions from pulling his weight in the community. The lack of opportunity in a constant struggle for subsistence in the case of many of the adult workers of this country, at a period when they ought to be making themselves independent, is an impossible situation. Therefore, I contend that a proportion of the wealth of the country, even in a Budget of this character, might well have been directed to the relief of a situation which is altogether reprehensible so far as the creation of a sound democracy is concerned or the creation of a sound population capable of playing its part in the event of the distress, dangers and difficulties of war.

So far as new taxation is concerned, the Tobacco Duty will bring in in a full year a sum of £8,000,000, and the increase in the Sugar Duty will bring in £4,500,000, making a total of £12,500,000 in a full year. It is a significant coincidence that the National Defence Contribution, the purpose of which is to give to the State some adequate return from the war profits that are made as a result of the great, unavoidable national expenditure on armaments, is only double that amount. Therefore, we have the situation that out of the huge profits, certainly amounting to some hundreds of millions of pounds, that are made as a result of the national expenditure on armaments, the paltry sum of £25,000,000 is to be taken, whereas the Chancellor of the Exchequer has the audacity to place upon the backs of the industrial workers very largely the sum of £12,500,000. One class is being presented by the community, out of its need, with huge amounts of wealth, and the other class, which, owing to inevitable rises in the cost of living, is becoming poorer, is called upon to pay an amount equal to half of that which the war profiteers have to pay.

The Tobacco Duty is a tax upon one of the few luxuries of the industrial workers. Certainly, it ought to be untaxed. The increase of¼d. a 1b. in the Sugar Duty is worse than would be an increase of 1d. a 1b. on tea, for necessarily much more sugar is used by the industrial workers. I hope the workers will see that the important fact that stands out is that the war profiteer is virtually released from his obligation to the community, whereas the poverty-stricken masses of the country have to find an amount equal to half of that which the war profiteers have to find. As to the horse-power tax, in my opinion it ought to be graded. In this case, again, the pockets of the rich are being spared. I will not say anything as to whether the tax is too severe or not. There are many who think that it is, and that it will have a detrimental effect on the motor industry. That remains to be seen. If it affects exports, then it will be a tax upon trade and commerce, and I believe that it will restrict business in ways that cannot be estimated.

We have been apprised by the Prime Minister that there is to be a restriction of war profits. I remember hearing a statement of that sort from the Minister for the Co-ordination of Defence, who told us that there was to be an excellent new costing system which would give to the Government an opportunity which they so ardently sought of tracing undue profits and restricting them. If my information is correct, the average profit which the Government permit to be taken is 25 percent. I am referring to the profits which the merchants are permitted to take. I have it on good authority that in the case of certain articles required in the production of armaments, there are between the producer and the user no less than five merchants' profits. Is that a situation which the country can afford? I shall look forward to seeing what result the Prime Minister's latest statement will have upon the war profits of a most gross character that are being made at the present time.

In a recent Debate, it was stated that certain aeroplane firms manufacturing for the Government were making profits ranging from 15 percent. to 32 percent. I suppose that they would come within the Prime Minister's net and would be dealt with summarily. As the Chancellor has informed us that in cases of tax evasion the provisions are retrospective, it might be interesting if, in the case of the excess profits that have been earned, there were some system of retrospective examination with a view to the reimbursement of the community of the undue profits that have been taken. The National Defence Contribution is an unjust tax, because it is spread over the whole of the traders in the country and not restricted to war profiteers. When I stated that the war profiteers were paying £25,000,000, I was overlooking the fact that a large number of industries that are in no way connected with the production of instruments of war are called upon to pay the National Defence Contribution, and the Chancellor himself has made no justification for its falling upon the Co-operative movement.

I must congratulate the Chancellor upon the increases in the Surtax and the Death Duties. That is a direction in which he might have travelled with a little more confidence. There is a very wide field of endeavour available to future Chancellors in this respect. Why were the Income Tax payers spared when the poorest sections of the community are called upon to bear a burden? It would have been more equitable and just, I think in the opinion of the Income Tax payers themselves, if there had been some increase in that popular tax. With regard to tax avoidance and tax evasion, there have been National Government Chancellors of the Exchequer since 1932, and they have had control of our financial destiny Can the present Chancellor or any Member of the Government inform us why they are only now dealing with tax avoidance and tax evasion? In the Debates last year, it was pointed out that this was a relatively general thing and that many millions of pounds a year— it was stated that the amount was from £50,000,000 to £100,000,000— were being lost to the Chancellor as a result of tax avoidance and tax evasion.

We who must perforce, leave ourselves in the hands of the Chancellor and the Government, want to know why the members of the community who are called upon to pay their taxes, with regularity and without any possibility of avoidance, should have to suffer these losses, which are due to the apathy or the neglect, or the ignorance of previous National Government Chancellors of the Exchequer. They permitted this avoidance and evasion to continue. If the right hon. Gentleman thinks he will recover much by making these provisions retrospective, he is under a delusion. These moneys change hands with great rapidity and I know how difficult it has been, in certain cases which have come to my notice, to trace after the passage of 12 months, let alone several years, moneys which have been wrongly dealt with. The Chancellor might easily have turned his attention in another direction. Some ridicule has been poured on the idea of the taxation of ground values. There never was and there never will be a more equitable tax. The increases in ground values which amount to many millions sterling, are due not to the actions of any private individuals. They are due to the presence, the necessities and the expenditure of the community. Therefore in elementary justice the benefits of these ground values ought to pass to the community. It has been said that no less a sum than £100,000,000 could be raised from this source.

Mr. Stokes

£500,000,000 free of tax.

Mr. Adams

I am told that it is actually £500,000,000. Whatever the amount, it could be raised not only without injury to the community, but with enormous benefit in the tendency towards cheapening and making a fuller use of the land. There is also a wide field in connection with Death Duties. My right hon. Friend the Member for East Edinburgh (Mr. Pethick-Lawrence) has pointed out that the total wealth of this country amounts to the phenomenal sum of £25,000,000,000. If that be a relatively correct estimate, there is an unfailing source of revenue. A capital levy upon fortunes, this year at all events, does not seem out of place. Hon. Members opposite have tabled Motions asking that the man-power and material and financial resources of the country should be utilised in the general interest in this period, which the Prime Minister has described as being virtually a war period. Would it be unjust to suggest that at such a time a small tax of anything from½ percent. to say 2 percent. should be imposed upon the capital of a relatively few very fortunate individuals in the State? That, we are told, would bring in from £200,000,000 to £300,000,000 per annum. In a period of war emergency extraordinary things occur. The most virile section of the community is asked to offer life and limb. Others, as we have seen, even the poverty-stricken section of the community, are asked to pay their meed of taxation, directly and indirectly. Surely it is not unreasonable in these parlous times, when the country may find itself pitted against the most powerful nations in the world, to ask that those who have large fortunes and who have enjoyed the protection of the community and the safety and well-being which a strong State can give, should also pay their meed under a capital levy on the lines which I have indicated.

9.3 p.m.

Mr. Higgs

The hon. Member for Stockton-on-Tees (Mr. Macmillan), in common with other hon. Members, has referred to the economic conditions in Germany and has explained why Germany was in a position to rearm. References in the same sense have also been made to Italy. One factor has, I think, been omitted in those references, and that is that in 1924, Germany repudiated all her debt. Consequently she was able to start off from scratch. She had not to pay interest on a war debt such as this country has honoured all the way through. The same remark practically applies also to Italy, because she repudiated her debt and reduced the value of her currency by four-fifths. The hon. Member for Consett (Mr. David Adams) referred to the capital value of this country as £25,000,000,000. But as he must realise, even if that figure be correct, that value cannot be liquidated, and only a small portion of it could be made to change hands.

I should like to compliment the Chancellor of the Exchequer, generally, on his Budget. I have one point of difference with him to which I shall refer later. But I recognise that he had to contend with a most difficult problem. It has been said by several speakers that this is the greatest Budget ever presented to the House of Commons. We have also to remember that the nation to-day is capable of producing wealth at a greater rate than ever before in its history. There is a National Debt of £8,000,000,000 which, unfortunately, is increasing, and I am afraid we shall have it with us for ever. The suggestion has been made that it may be paid off some day, but no nation ever pays off its National Debt. No nation has ever done so. A nation always gets rid of its debt by some other means. The extra expenditure which we are adding to the National Debt is, unfortunately, a wasting asset. The result is that we have to find the interest on the debt in the time to come, which may, ultimately, be a breaking strain unless our power of production continues to increase.

I am very pleased to hear that the Chancellor is going to assist the living artist. We have not got all that we want in this direction, but we certainly have got consideration. The Entertainments Tax is a tax on turnover, and I think the living theatre should have greater consideration than the automatic theatre. The West End theatres are receiving now no more per seat than they were in 1914, and it should be remembered that the living theatre is the show that provides artists for the mechanical theatre. The Chancellor of the Exchequer has done right in increasing the Surtax. We must remember, however, that the payment of Income Tax and Surtax is now approaching three-quarters of one's income at the maximum limit—in other words, 14s. 6d. in the£ —and those incomes are only obtained by wealthy men, but in my opinion millionaires are no liability to the Government, and it is a pity we have not more of them, because then we should have a greater revenue from their income. A millionaire, a man worth £1,000,000, has already paid £1,000,000 to the Exchequer, and then, with the new Death Duties, approximately 50 percent. of his capital goes again to the Exchequer. The great fallacy about men of great wealth, in the view of some people, is that one man's gain is another man's loss. It is not so. When two men went hunting, provided there was sufficient game, if one man got two or three head while the other got one, the man who got the two or three head worked harder than the other man. Take the case of tilling the soil. If two men have land, and one man tills his land better than the other, that man gets a greater return from it.

Mr. MacLaren

And the landlord gets a greater rent.

Mr. Higgs

According to certain economists, rent is no charge on the cost of production. The fellow who gets the greater return works harder. With economic conditions as they are, the production of wealth is unlimited, and therefore the fellow who works hard usually gets a just return for his labour. It has been said several times during this Debate that we should conscript wealth and put wealth into a common pool. If we do that we shall have to put effort, knowledge, and skill into that common pool. Does the Committee realise that there is only 20 percent. of the population above the Income Tax limit, and, more than that, that there is only 8 or 9 percent. of the population paying Income Tax at all? Surely it is a case of the richest paying. I agree that they should pay, but I do not appreciate the remarks from the other side that the rich man is not paying and that he ought to pay 100 percent. of his income. Income Tax is not increased in this Budget and I am very delighted that the Chancellor has not increased it, as it would have adversely affected industry.

The right hon. Member for East Edinburgh (Mr. Pethick-Lawrence) suggested a capital levy. I would not say that that is an impossible proposition, but we have to consider whether or not the result would ultimately be beneficial to the country, and any money taken out of industry by way of taxation reduces the employing power of that industry. I am not suggesting that in the present critical times we do not require very heavy taxation, but at the present time a quarter of our national income is being spent by the Government. The Prime Minister referred to the limitation of armament profits, and an hon. Member opposite said that that proposal ought to have been carried out two years ago, when it was suggested by his party. But when we started rearmament in the way it was done two years ago, if there had not been some incentive to get on with the job, we should not have had the productive capacity that we have to-day. I agree that the time has now arrived when a different attitude should be taken towards these profits. On the other hand, we had to get the machine going. The direct taxpayer has contributed three-quarters of the additional revenue required for rearmament.

We have heard quite a lot during the Debate about this £350,000,000 and the employment that is likely to follow, but there is no doubt about it—I agree here with an hon. Member who spoke an hour ago—that it will be unbalanced, that the demand for the labour will come in particular lines, and that there will be a shortage of labour in particular industries, but it will not put into employment the number of people that Mr. Keynes says it will, and afterwards, if there is no war, there will be a serious reaction to this unbalanced boom. There is another thing, a point that has not been raised, that will reduce the amount of labour available in particular industries unless care is taken and that is the demand for the conscript about which we have heard to-day.

Old age pensions have been mentioned during the Debate, and I am one of those Members who support an increase of the old age pension. At the same time one has to understand how the matter can be financed, and it would be exceedingly difficult at the present time, when the cost of old age pensions falls primarily on the State. Is it impossible for the Chancellor to devise some system of contributions by the insured and by the employer as well? Why should it fall entirely on the State? Why not pay 30 percent. each? I think that may be a possible solution of that very pressing problem.

One matter on which I differ from the Chancellor is in regard to the increase in the tax on the horse-power of motor cars. I can never understand why this particular transport industry is picked out to carry such an enormous amount of taxation. It is easy to collect. The motor car was originally a luxury, but it is not a luxury to-day, when quite a large percentage of the cars on the road are not only used by people to transport them to and from their business, but are also used by them in their business. Road transport contributes something like £90,000,000 per annum, and there is another £10,000,000 income from rates on private garages, so that the industry is carrying an unfair share of the burden of taxation. There are 132 countries which tax road vehicles, but there are only 10 which tax them solely on horse-power. As a result, this country, the second largest manufacturing country of automobiles, has a distorted engine design. The disadvantage is that our car is of little use in undeveloped countries overseas, and as long as we continue to saddle this industry with a horse-power tax we shall have this distorted design. The normal car wanted in undeveloped countries develops 30 horse-power, and that is one of the great reasons we are not extending our export trade in the motor industry. Some hon. Members will say that the increased tax will prevent the importation of large American cars, but our losses from producing an unnatural car are far greater than our gains would be by stopping importation. We have to remember that on our automobile industry depends the machnie tool industry, which is so necessary for producing weapons of defence. A sales tax has been proposed, and if we have to increase taxation on cars I do not think it would be a bad idea. Germany was alive to the necessity of reducing taxation on cars, and in 1924 took off the tax, with the result that her industry was stimulated and she has benefited very much from it. I know that the tax is not the sole cost of the car, but it has a considerable psychological effect on the buyer. If the Chancellor cannot see his way clear—and I do not expect he will—to modify this tax, it is worth consideration that the tax should be modified as the car gets older and to reduce the taxation as the car increases in age. It would complicate the matter, but our taxation is now by no means a simple problem. That slight modification would be beneficial to people who own older cars and would not seriously affect the return.

One or two hon. Members have referred to sources of taxation which have not been touched, and I consider that the Chancellor should have considered some other taxation instead of increasing the car tax. Advertisements of cosmetics have been referredto, but why not tax the cosmetics? We have taken some of the tax off the living theatre; why not add it on to cosmetics? A betting tax has been discussed, and I cannot understand why the Chancellor overlooked the football pools. A tax on that form of betting would be easy to collect compared with other betting taxes which have been considered from time to time. I understand that the turnover is about £50,000,000 per annum, and the betting mind, being what it is, would not stop functioning if 20 or 25 percent. of that turnover were taken. I agree that it is a new principle, but we are regularly applying new principles nowadays. There is also the pedal cycle, and a tax on it would have been no worse than increasing the taxes on tobacco and sugar. I am not suggesting that the taxes which the Chancellor has suggested are un- desirable; I am only suggesting these as alternative and additional taxes in case of necessity. The hon. Member for Nelson and Colne (Mr. Silverman) referred yesterday to the losses of bankruptcy. He ought to have been in Germany in 1924 when the mark was being reduced to nil. The people who were the real losers, the poor, were the sufferers. The rate of wages did not increase at the rate at which the mark was depreciating, and the ultimate result was that wealth was still unevenly distributed although it changed hands.

The hon. Member for Walsall (Sir G. Schuster) suggested control over private and Government work. I am in favour of that, but it is very difficult to differentiate between what is Government work and what is private work, and what is rearmament and what is not. I was pleased to hear the hon. Member for the City of London (Sir A. Anderson) refer to air-raid insurance. I do not know how it is to be done by insurance as we know it to-day, but surely there could be some pooling of industrial profits if it is not possible to do it by premiums. There would thus be in a common pool those who are willing to pay into it, and in the case of destruction of property each one would contribute to the loss. The hopes are that if we are unfortunate enough to have a terrible war the whole of property will not be destroyed, and if there is a loss the whole of it will not fall on the individual. I again express my appreciation of the Budget. The Chancellor has made the best of a difficult task. I hope, however, that he will see his way clear somehow to modify the tax he is imposing on motorists.

9.24 p.m.

Mr. Stokes

The hon. Member for West Birmingham (Mr. Higgs) has made a speech which bristled with certain economic heresies, some of which I cannot possibly allow to pass in a Budget Debate. On the other hand, I cannot deal with all of them. I feel that I must ask him, who produces the millionaires' wealth? Surely it is the workers of the world as a whole. When he says that one man's gain is not necessarily another man's loss I agree to a certain extent, but surely it is right that we should give all an equal opportunity. When he states that leading economists say that rent is not a charge on cost of production, I agree, but it should be appropriated in the interests of all in the first place, and not taken by the landlords. Turning to the Budget, I do not feel so full of congratulation to the Chancellor for what he has done, for I cannot see that there is any particular merit in this Budget. It is certainly larger than any other, but it does not seem to be any better or any worse than any previous budget of recent times. They have all been bad and have been getting steadily further into the mire. To call it, as so many Members of the Committee have, a balanced Budget, seems to me to indicate that words have surely lost their meaning.

During the Debate yesterday, and again to-day, much was said about' the motor car tax. Surely it would have been far preferable to put a further tax on petrol. The only point that I think I agreed with in the speech which the hon. Member opposite has just made was that in which he spoke about the export trade in motor cars. I agree that to increase the horsepower tax will completely kill our export trade in motor cars. It may be, as some have said, that the prime object of the Chancellor in putting on this tax was to transfer skilled workers from what have been termed luxury products to work of national necessity. On that I should like to say a word in a minute. What I would like to ask the Chancellor is this: In that transfer there is bound to be a certain dislocation of industry, and what does he propose to do to guarantee to the skilled worker and the semi-skilled worker that they shall not be put on short time or be without employment during the transfer? It is within my own knowledge that a great number of the engineering factories of this country are not by any means overloaded with work owing to the rearmament programme; and if the Chancellor has that problem in mind, then I can advise him to look no further a field than my own constituency, where I think I am right in saying we have no rearmament contracts at all worthy of the name, although we are full of engineering works and paying off skilled men.

With regard to the tax on sugar, I think it is a deplorable thing, but as sugar is virtually a monopoly it seems to me the best thing the Chancellor could do would be to nationalise the sugar industry. The hon. Member for East Aberdeen (Mr. Boothby) seemed very much perturbed yesterday about the cost of Government loans. I think he said he would urge the Chancellor that Government borrowings should not be at a rate higher than 2½ percent. I do not pose as a financial pundit, but I would like to ask the Chancellor this question that is constantly put to me: Why is it necessary for the Government to pay any interest at all when borrowing for a national emergency? I know that the question reeks with what the orthodox people would call heresy, and it really comes down to the battle between the social creditor and the banker. I have struggled with this problem for some time, but while the social creditor is willing to go into the arena, the banker will never enter the other side of the ring to meet him, and I have never found a solution. Presumably the Chancellor is an expert on both of these matters, and it would be a satisfaction to a great many of my constituents who are constantly teasing me, if he would explain why it is necessary that at a time of national necessity so much interest should have to be paid to moneylenders.

The hon. Member for East Aberdeen also dealt to a certain extent with the export trade, and emphasised the important bearing which that has on the Budget as a revenue producer. He urged that further and larger loans should be made available to help the manufacturer and exporter in this trade. I for one do-not agree with that for a moment, and I have just come from a country to which we have made a very large loan. The people there are finding themselves in this position, that because we do not take-their goods they cannot find any way of using the loan, and all they will have to do in the end is to borrow more money from us whereby to pay the interest on the loan we made to them. I urge the Chancellor to realise that loans alone will not get us anywhere, and it is on the free exchange of goods between countries that the whole of our export trade depends.

As most of the money required for this Budget is wanted for armaments, I make no apology for referring once more to the question of the control of armaments profits. I am not going to bother the Committee with a lot of details, a great many of which I have given before, but it is still within my knowledge that in the case of two of the purchasing Departments, at any rate, the Air Ministry and the War Office, profits are still not controlled in the way that they should be, and I have no doubt myself that the Admiralty are just as bad, although I have no direct evidence. I say that because the general reputation that the Admiralty have is of being more extravagant in their ideas than anybody else. I should not like to exclude from this indictment the Air-Raid Precautions Department, because we have the ridiculous position that tin shelters are being retailed for about £8 10s. when they certainly should not have cost more than about £ 4.

I am tempted with regard to this matter to emulate the example yesterday set by the hon. Member for Oxford University (Mr. A. Herbert), whose speech I regret I did not have the privilege of hearing, when he suggested that he might be appointed agent to the Government on the introduction of a betting tax, by saying that I personally would gladly undertake the work of saving £300,000,000 on the rearmament programme if the Government would only allow me to put the restraints and restrictions which are necessary to take the proper control of profits by correct and regular auditing. I know that in the last Budget Debate the Chancellor promised me that he would investigate the matter. It would not be proper in this Debate for me to refer in detail to the meeting which I subsequently had with the Chancellor, but I feel I must tell the Committee that that meeting left me with a profound sense of dissatisfaction at the way in which the matter was being handled. I say this with no disrespect to the Chancellor, because neither he nor his Financial Secretary has been brought up to the highly technical matter of reconciling the costs with the profits of a business. I hope, however, that something will be done about it in the near future.

I wish now to say something on two points which affect, the welfare of the people—first of all old age pensions. I join with all those who have urged that a greater allowance should be given to some of our old age pensioners. To my mind the whole scheme of old age pensions is wrong, and would be unnecessary if society was arranged rightly. As it is not arranged rightly, surely these old people have a claim on us to see that they do not suffer want owing to the irregular and unjust system under which they are forced to live. Secondly—and this is very appropriate in view of what I believe is imminent, conscription-—there are many soldiers of the last War who are not receiving a square deal. I have a number in my constituency for whom I have entirely failed to obtain satisfaction. It seems a perfect scandal that the old soldiers of the last War should, for one reason or another, not be provided with adequate means wherewith to live.

With regard to tariffs—because there, again, so much of the Chancellor's revenue is affected—I would urge the right hon. Gentleman to abolish the Ottawa Agreements. They have done more to bring about the distressing state of affairs in Europe than anything else could possibly have done. The German problem is a straightforward economic one, and I would limit my remarks to saying—what I have probably said before in this House —that if goods cannot cross frontiers, armies sooner or later will. The hon. Member for Normanton (Mr. T. Smith) raised the question of a tax on site values. I cannot for the life of me understand how any self-respecting intelligent Chancellor can ignore this immense source of revenue. As the hon. Member for Normanton said, 2s. in the £ on the annual value would yield £50,000,000 a year. The tax would not only be a just one, but it would do an immense service to the community in setting the national resources free, and would make entirely unnecessary this extra direct and indirect taxation which the Chancellor proposes. I should like to quote two examples of what the Chancellor himself has said on this matter, so that perhaps he may see his way not to go on sinning against the light. At Manchester on 27th June, 1914, he was heckled with the question, "What is the difference between taxing land and taxing boots?" and he replied: If you tax such a thing as boots you make boots more expensive, because the more we tax boots the fewer boots will be produced, fewer people are able to buy them and fewer people will be employed to make them; but if my friend will think this over for only one minute, he will see that you can tax land until you are black in the face and you cannot make the land any less than before. Again, in this House on 15th April, 1924, the Chancellor of the Exchequer, when introducing his Rating of Land Values Bill, said: We who support this Bill believe it is unjust that these values, which are not due to the efforts or expenditure of any individual but are: due to the activities and the expenditure of" the community, should escape, in whole or in part the burden of the rates which falls on other property." — [Official Report, 15th April, 1924; col. 1138, Vol. 172.] I hope that the Chancellor—I am sorry he is not here—will recollect those observations, and perhaps it will help him out of the ironical position into which he has got himself of having to be Chancellor at a time when he has to meet the dreadful burdens which have largely been caused by his own misdeeds when Foreign Secretary.

A great deal has been said about one of our leading mumbo-jumbo economists, Mr. Maynard Keynes, and his discovery that as a result of this expenditure unemployment will come down, and that this is going to be dreadful because there will only be 750,000 people left on whom we can draw, and most of them probably will be unskilled. It is perfectly disgraceful that that number of 750,000 should not be completely obliterated. We on this side know that it could be done if the problem were tackled in the right way, but I would put this point to the Chancellor, because he is concerned with getting revenue and with these people in employment there will be a greater demand for consumers' goods: Who is it that creates demand? The answer, surely, is that it is the workers themselves, and if he wants to solve this great problem of unemployment, as we on this side all sincerely do, and think it can be done, all he has to do is to equate that vast army of unemployed with the national resources and see that these are used in the interests of all and not in the selfish interests of the few.

To talk of conscription would not be right in this Debate, though a great number of Members have mentioned it, but I would point out that the Chancellor has not provided for this contingency in his Budget, and I would throw out three points to him which may be of some help. In the first place, I join with all those who have said that if conscription is to come it should be conscription of wealth first. Secondly, I say with feeling, with no sense of levity at all, that I should like to see the men of over 40 conscripted first, because theirs is the responsibility for the dreadful state of things which exists in the world to-day. Finally, may I voice the hope, already expressed, that, whether war comes or not, the disgraceful condition that exists here in regard to the disparity between wealth and poverty will be readjusted, and that want arising from enforced idleness shall be driven from the land for ever. The only obstacle to the abolition of poverty at the present time is the selfishness and stupidity of the governing classes.

9.40 p.m.

Sir Robert Tasker

The hon. Member for Ipswich (Mr. Stokes) has stolen all the thunder from my hon. Friend the Member for Burslem (Mr. MacLaren), and I cannot indulge in a dissertation on the taxation of land values, but will try to stick to the Budget. There was employed yesterday a phrase which I hope may be eliminated from these Debates, and that is "soaking the rich." Instead of using a phrase like that, I will give an example of taxation as it existed before the bringing in of the Budget yesterday. I take the case of a man who is paying the maximum amount of Income Tax, 13s. 9d. in the£.

Lieut.-Colonel the Marquess of Tichfield

Does that include local rates?

Sir R. Tasker

No, it is Income Tax and Surtax. If he earns a fee of 10,000 guineas the Government will take from that sum £7,219 in taxation, which leaves him with £3,281. If he invests that in 2£ percent. National Defence Bonds it will produce £82 per annum, less Income Tax and Surtax at 13s. 9d. in the £, amounting to £56. Deduct that from the £82 and he is left with the princely sum of £26 a year, which is just equivalent to the amount of an old age pension. And then we talk about "soaking the rich."

Reference has been made to old age pensions, a subject with which the Budget should be concerned, and it is a matter of regret to me that more provision was not made in the Budget for the case of old age pensioners, because I think an adequate sum could be paid to them without its costing the country a penny more than to-day. Those who have taken part in debating old age pensions have not exhibited a very clear conception either of the working of the law or how it is administered. There are old age pension committees and they have their inspectors. It is common knowledge that no man or woman can live on a pension of 10s. a week, and those without other resources have to apply to public assistance committees, and I suggest that the old age pension committees should have power to supplement the pensions. These old people find it exceedingly trying to be questioned and cross-questioned about their means. It is all very well for Members of this House who are accustomed to addressing audiences to be examined and cross-examined, but the position is entirely different for old men and old women, and those who have been engaged in administrative work for many years must realise that. When these old people have gone through all that to secure their old age pension of 10s. a week or less, they have to endure the same process all over again at the hands of the officials of the public assistance committees. I can see no reason why the sum they require to maintain them should not be made a national charge. In that case the one examination would suffice and we should be able to dispense with all the officials employed by the public assistance committees to find out whether the applicants are entitled to 10s., 7s. 6d., or whatever the sum may be.

I was very disappointed, after reading the financial statement in regard to the old age pension, to hear it stated that the country could not afford it. I submit that it would not cost the country one penny more and that it all depends upon the form in which it is given. It should be a national charge. I know that I shall receive support from those who hope to see a reduction in the rates. There has been a certain amount of vulgar political racketing and many hon. Members have spoken on this subject as though they have had no experience of old age pensions but have been spurred on by their local authorities to see whether they could help to transfer part of the rate burden to the national Exchequer.

More than once reference has been made to the argument that there is no equality of sacrifice. Those who volunteered for service in the dark days of 1899 and continued their service until 1920 are quite conscious that there was no equality of sacrifice. My comrades were supposed to be receiving is. per day, whilst others at home who were employed in munition factories or mines were not content even with £1 per day. That was not equality of sacrifice. I hear talk about taxation being governed by ability to pay; is not that the principle which governs taxation? I was engaged during two whole days last week visiting large mansions with a view to getting disabled ex-service men away from London in case of emergency, and I assure the Committee that mansions and grounds have been offered to me for one-tenth of what they cost. That is one of the effects of excestive taxation. Like others, I do not want to avoid my share of taxation. I realise that if war comes all classes of people of all ages will be the victims.

I would sum up this Budget in a very few words: It is better to spend British money than to spend British blood. That idea, repulsive as it may be, not only to those who have had experience of the War but to those who have only listened to the talk of their parents, is forced upon us by the necessity which faces us of arming ourselves against possible aggression by foreign Powers. Patriotism in this country is not dead. My experience is that patriotism springs up in every part of it, and those of us who are no longer of an age to serve in the combatant Services have to do our best, and cheerfully, to ensure the preservation of the freedom that was handed on to us by our forefathers.

9-51 P.m.

Mr. Leonard

Many remarks have been made in the course of this Debate upon the details of the Chancellor of the Exchequer's Budget statement. I noticed that he accompanied his statement with an observation which I believe has accompanied many if not all of the Budget statements in recent years, namely, that the Budget was framed in order to allow every member of the nation to bear his or her due share of the burden. I cannot see that the structure of this Budget will do so. The attention which I have been able to give to the report of the Inland Revenue Commissioners from time to time shows clearly to me that there is a section of the community which receives great benefits as the result of being members of this nation and that benefits are being added unto them; whereas the great mass of the people of the nation are still on the basis of being able only to exist and not being able to gain the advantages to which they are entitled on account of the increased production that is everywhere in evidence. I never at any time expected to listen in this House, as I did to the hon. Member for West Birmingham (Mr. Higgs), to anyone pleading for more millionaires, on the ground that the more millionaires we had the more men we should have to pay the taxes required from the country. My conception of the general well-being is that it: is much better for £10,000 of taxation to be paid by 1,000 people than for £10,000 to be paid by one individual. I am, therefore, extremely surprised at that suggestion. In talking with people I have always noticed that everybody is urged to base his life on the idea of paying as you go, but, strange to say, that great doctrine of paying your way as you go is apparently deemed not capable of application to the affairs of the State. The State is not content to make any endeavour to pay as it goes but indulges in bonds, and the only time those bonds are paid off is when new bonds are issued to pay for the old bonds. The amount of obligation built up by that method will some day be disposed of.

The hon. Member told us that nations in the past had disposed of their debt burdens by one of two methods; some of them had had revolutions and others much nearer to us had adopted different attitudes but had got clear of their debts because the burden had become intolerable. I cannot understand how in this country, creditors and debtors can expect their and our children to continue 30 years or 40 years after them to pay for the stupidity of the present generation. I think forces will make themselves evident in this country that will demand that that method is not allowed to continue very much longer. I see ourselves running into the same methods of finance that obtained during the last War. I remember that in the streets of Glasgow tanks were placed, and the citizens were urged to participate in the purchase of 15s. certificates, which meant that they could not otherwise expend this sum. But, according to the report of a Committee appointed by the Government—I think it was the Macmillan Committee—there was evidence that persons with houses worth, say, £8,000 obtained from the bank, on the security of one of those houses, a loan of £7,000, and in course of time presented the script for £7,000 and received one for £6,000 or £5,000. That was shown to have been continued two or three times over, until they held script in excess of the value of the house upon which the whole thing was based.

The City of Glasgow did exactly the same thing, taking up, on the urge of the Scottish banks, £4,000,000 of War Loan, all of which money except £200,000 was provided for them by the banks who incidentally had been bankrupt at the beginning of the War. The City of Glasgow sold their holding a year or two afterwards and made a profit of about £16,000. I cannot ascertain what real, tangible help was given through transactions of that kind, and because of that I am not prepared to condone a continuation of taxation to meet such bonds. I regret that nothing has been done to relieve the indirect taxation especially upon food. I feel that the consumptive power of the people of this country is not being met, and that their standard of life is not capable of producing the type of men and women that we require, especially in the circumstances of today. One of the difficulties with regard to recruiting has been the low standard of physique of the young men who present themselves, and that has rendered it necessary to establish special schools with special diets in order to build up the physique and stamina of young men joining the army. I have here a typical day's menu at one of these Army schools. Young men coming from working-class districts had so low a standard of physique that this menu had to be provided for them in order to bring them up to the requirements of the Army: Early morning: Tea. barley sugar and biscuits. Breakfast: Porridge and hot milk; liver and onion stew; bread, butter and marmalade. Between breakfast and dinner: Milk and apple, and soup every other day. Dinner: Meat pie, cabbage, mashed potatoes, stewed figs and custard. Tea: Bread, butter and cheese. Supper: Fish and chipped potatoes, tea, bread and margarine. This was given to them because of the deficient conditions of their own lives. I suggest that it would be better and more honourable, and more for the general well-being, if sections of the working people were not allowed to get into this physical state and force the country to create special schools of this kind. I have given an undertaking to sit down at a certain time, in order to conform with the arrangements which have been made, and therefore must pass over some other points with which I had intended to deal. Finally, I would refer to a point which has been brought already to the attention of the Chancellor of the Exchequer with regard to the relief that is to be given to what is called the living theatre. The Government have in the past made extensive use of the cinema on behalf of the Defence Departments and for their general requirements, and I think they might give some recognition of the services that have been rendered by that industry. At the present time, seats up to 6d. are free of tax, but the 9d. seats bear a tax of 1½d. On this account the trade regards seats at this price as not being a good business proposition, and there is a possibility of their gradually being relegated to a secondary position. If that happens, it is obvious that the Chancellor will not only place obstacles in the way of people who desire a type of seat a little better than the 6d. seat, but the income that he will receive from the taxation on cinema seats will be considerably reduced. I trust that he will give some attention to the representations which have been made on this point, not from the point of view of the interests of the cinema owners, but from the point of view of the need for reasonable prices and accommodation on the part of those who have to go to this form of theatre.

10.0 p.m.

Mr. Lees-Smith

In the first place, I should like to tender my congratulations to the new Financial Secretary, who will be making his maiden speech in that capacity to-night. His career in the House has been followed with good will by Members on both sides. The Debate has covered a great many subjects—the Ottawa Agreements, land taxes, German methods of rearmament, a Ministry of Supply, and methods of war finance—but I wish to come back to the purely budgetary discussion which was opened by my right hon. Friend the Member for East Edinburgh (Mr. Pethick-Lawrence). There have been in past years a good many estimates of what our expenditure was likely to be, even after the rearmament programme had come to an end—estimates of the extra payments that would have to be made on account of the borrowings that are now taking place, the extra maintenance charges for armaments on the new scale, and other estimates into which I do not now wish to go. Three years ago I said I did not see how we were ever going to balance our Budget any more on the accepted methods. I will not deal further with that matter now, but would call attention to the remarks of the Prime Minister on the subject when he was speaking on the Defence Loans Resolution on 21st February: I cannot help looking even further than that, because, when this process of the expansion of our defence forces has been fully completed, we shall not only have to look forward to the finding of the interest and sinking fund upon the amount which we have borrowed, but we shall also have to look forward to the annual cost of the maintenance of those increased forces." — [OFFICIAL REPORT, 21st February, 1939; col. 232, Vol. 344.] The Prime Minister left it at that but no Minister is entitled to say that it will not be possible to balance the Budget in the future and leave it at that. Indeed, the Prime Minister on another occasion uttered some very wise advise on this very subject, when he pointed out that the strongest system that had ever been invented, or had ever existed in the world, could not withstand indefinitely a process in which national expenditure was in excess of national income. This remonstrance was, of course, addressed to a Labour Administration, but even a National Government must some day, I presume, balance the Budget. Therefore, my right hon. Friend the Member for East Edinburgh did very rightly in discussing the methods by which it could conceivably be balanced in the future. He suggested some very drastic proposals proposals which, as he said, would not be received with enthusiasm by the other side of the Committee, but which it is perfectly clear will have to be accepted by both sides when we have finally to settle the problem.

I come to the question, how is all this going to end? Behind this Budget and behind all this financing of our rearmament there lies the very simple, the very stark, and the very brutal issue, as to whether, in the end, this rearmament is going to be paid for by the wealthier classes, by taxation, or by the poorer classes, by curtailment of the progress of the social services in future. This Budget is balanced by borrowing £380,000,000, and the borrowing of that sum of money means that, to that extent, the wealthier classes are shifting the burden forward on to the poorer classes by sacrificing the social services of the future. That is inevitable. I do not think it can be denied, but I will give my reasons for saying that. If we leave out expenditure on armaments, there are two main rivals for expenditure in this country now: interest on the National Debt and the social services, and the amount of expenditure on each is very much the same. If you, by borrowing, increase the amount of interest that has to be paid in future on the National Debt, by that process you cut down the amount that you can spend in future on the social services.

The Chancellor yesterday warned us that borrowing throws the burden forward on to the future. But it does more than that; it alters the whole distribution of expenditure between the rich and the poor, and weights it against the poor. That is the whole experience of our war finance. We have paid for it ever since. Hon. Members have mentioned in this Debate that in the last War life was conscripted but wealth was borrowed at a very high rate of interest; and the consequence is that every Budget since, even before the rearmament expenditure began, was lopsided, because there had to be a first charge, equivalent to between 4s. and 5s. on the Income Tax, for interest on the War Debt before a penny could be spent on social services or any other purpose. The Prime Minister's speech this afternoon made clear what the country thinks of that. He, at any rate, expressed the opinion of the country that if we face the calamity of war this injustice will not be repeated—and it was an injustice, because, undoubtedly, the poor have paid for the last War and the richer classes have simply obtained a larger interest on their capital than they could have obtained in time of peace. If the Prime Minister now holds that that is unjust in time of war, it is also unjust when we are preparing, as we are now, against the contingency of war.

Therefore, I hold that this Budget, as my right hon. Friend said, must be regarded as one of a continuing series. We cannot prevent what has been done, but future Budgets ought to redress this unjust balance of the present time. The Chancellor simply does not see this, as I can perceive. I have said this before, but it has made no impression on him, as I can see by his remarks about the Sugar Duty. That may be a small tax, but there is no vestige of justification for it. The poor are being made to pay twice already. They are going to pay through the curtailment of the future progress of social services, and they are going to pay through the rise in prices which this Budget will almost certainly produce. It really shows the perverted mentality of the Chancellor on this kind of subject, that he says it is necessary to make them pay a third time through a tax on one of the necessities of health and of life.

I say that the Budget must be balanced by taxation on the more comfortably placed classes of the community, and the method by which that can be done was indicated by my right hon. Friend the Member for East Edinburgh. He made a proposal and gave an exposition of it which on any other occasion—if we were not, so to speak, acting with the curtain down, as we are at the moment—would have been regarded as highly important, coming from a Member in his position. It would have been discussed and its significance recognised by a very much larger Committee than is assembled here this afternoon. He made it clear that there is no further need for ever borrowing for a Budget in future, even a Budget on the scale of the present one. If there is going to be a further gap between expenditure and revenue that can be met by a defence tax on wealth of broadly the kind that my right hon. Friend described.

I welcome this proposal, and I am prepared to argue it out, firstly, on these grounds, that I think a tax on wealth would correct what is a very great defect in our whole system of taxation; that it does not sufficiently distinguish between income from earnings and income from unearned sources. Take earned income, for example. We are moving in the wrong direction. When I first paid Income Tax I had a small earned income, and I was allowed, because it was an earned income, to deduct one-third of my income before I paid Income Tax. A man with the same income to-day can deduct only one-fifth. We have moved in the wrong direction, with the result that if you look at the scale in the White Paper, it will be found that there is only a difference of a few pounds in the proportion of taxation paid on earned and unearned income. Unearned income pays a lower proportion of taxation of the whole Income Tax to-day than it did in 1921. The reason why we are moving in the wrong direction is that a tax on earned income is a tax on effort and on work, and, therefore, in the present economic order, there is a limit to which it can be raised. But the taxation of incomes from unearned sources and of wealth, including the Death Duties, is taxation of the inactive and the passive factors of production, and therefore, can with perfect safety be put at a far higher level than the taxation of earned income. That is, really one of the principles upon which the right hon. Gentleman's proposal is based. You can without any danger put special taxation on incomes derived from passive sources or from wealth itself.

The answer which has been given to-day has been given over and over again. It is that a tax on wealth is a tax on savings, although more than half of the capital of this country is inherited, and that if you tax savings you penalise an element which is as necessary to production as labour itself. That is the only argument that has been used, and it has been used in this House for generations. I do not think that the argument is correct. I did think so at one time, but on reflection over several years I do not now think that it is correct. My view now is that, if there are savings in any year greater than the industrialists use as capital, those surplus savings create unemployment, trade depression and lower the national income. I remember that when I first took an interest in politics many years ago, this was a very favourite argument of Socialist speakers at street corners. They always used to say that the difficulty was that those who had the money did not spend it, and that those who needed to spend it had not got it. That is why there is this constant unused purchasing power, unemployment and trade depression. That argument has been proved to be true, and I have called attention to it because it is now the modern scientific argument which is associated with the name of that financial authority who has been quoted by every Conservative speaker in this Debate—Mr. Keynes. It has been for years accepted in the financial columns of the "Daily Herald," and I am now very interested to see that it is accepted 100 percent. by the financial editor of the "Times" and used as the main argument in sup port of the right hon. Gentleman and his borrowing policy.

I want to point out what I read in the "Times" from its City Editor. The argument is that manufacturers, managers, capitalists are the people who determine broadly what new capital shall be used in business, and they do so on the basis of what profits they are likely to earn; but they do not take into account, because they do not know, how much the annual savings of the community may be in that year. If the annual savings are greater than they think it profitable to use, then those persons who have saved them are to that extent reducing their purchasing power, and as it is not being transferred, or used or taken up by the capitalists, it represents simply unemployment, depression and the lowering of national income. Therefore, the view expressed is that one of the problems in future will be to try to estimate what will be the unused savings for the year and for the Government, either by borrowing or taxation, to see that those savings, are spent so that this great volume of unused purchasing power shall not burden the economy of the country.

That is how the City Editor of the "Times" defends the right hon. Gentleman. This is how they calculate it. They calculate that there is this year, or there will be, surplus savings of £350,000,000, and it is argued that the Chancellor of the Exchequer is doing a good service in taking this £350,000,000, by borrowing, and using it for expenditure, and that as a result he will bring down unemployment, he will prevent depression and he will increase the national income. They then go further, and I note that this was accepted by the hon. Member for Walsall (Sir G. Schuster), and say that by increasing the national income he will increase the margin for saving in years to-come. I accept that argument, but we cannot borrow every year, and if these results are produced by borrowings exactly the same results would be produced by a tax on wealth of the kind suggested by my right hon. Friend. The proposal is economically and financially perfectly defensible and sound, but the objection to it undoubtedly will be that it will effect in a generation or so, or less, than a generation, an immense redistribution of the national wealth. My hon. Friends and myself would welcome that. I cannot believe that on consideration that result would be opposed. If a tax could be justified financially and economically, it would be a shocking thing if any quarter of the House opposed it because one of its ultimate and indirect results would be a more even distribution of those good things which we are all now being asked in common to defend.

When the Prime Minister this afternoon spoke of the conscription of life as a token to other countries, he was not entitled to ignore the fact that the willing acceptance of this tax on wealth by the possessing owners would make an enormous impression on foreign nations throughout Europe. My right hon. Friend expressed the great concern at the financial record of the Government, and, indeed, we must recognise that some day their financial record will have to come up for justification before the country. What their financial record is has now become simple and clear. They came into office because there was a deficit on the Budget, because there was an adverse balance of trade, because the Unemployment Fund was indebted to the Post Office for over £50,000,000. They have now a deficit of £350,000,000, the figure of income is more adverse than it has been ever since the gold standard was abandoned, and the debt of the Unemployment Fund to the Post Office is still over £50,000,000. If this had been a Labour Administration we should have been hounded out of office. This Government have two great advantages which we did not possess; they have practically an almost united newspaper support, and they have a far less unscrupulous opposition.

10.28 p.m.

The Financial Secretary to the Treasury (Captain Crookshank)

I am very much obliged to the right hon. Gentleman for the kind words he used in opening his speech, and I certainly do feel at this moment in the position of requiring some sympathy in my emergence from the Mines Department to take part in a discussion of the problems which the Committee have been considering to-day. It is a tradition that as soon as one enters the front door of a Department one is invested with the accumulated knowledge that is there; but that tradition has been broken in my case. However, I will try my best to deal with some of the points which have been made in the Debate bearing in mind that this is not its conclusion, and that under present arrangements my right hon. Friend the Chancellor of the Exchequer will be speaking again on his Budget which he opened so brilliantly yesterday.

I cannot, however, even begin to say what I want to say without joining with the right hon. Gentleman the Member for East Edinburgh (Mr. Pethick-Lawrence) and the Leader of the Liberal party in the remarks they made of regret which we all feel that Mr. Morgan Jones cannot take part in our Debates this year. It is a coincidence, perhaps, but last year on the corresponding occasion he wound up for the Opposition before the then Financial Secretary to the Treasury spoke. I have, moreover, a personal reason for speaking of him, as for three years I served as a colleague of his on the Public Accounts Committee, which is one of those groups of Members which do so much in the interest of all hon. Members of this House. In taking leave of Mr. Morgan Jones, perhaps we may like to think that he may be still amongst us in spirit.

Last night precedents were broken and the Committee sat rather later than is usual on the day on which the Budget is opened. I do not know whether or not that was a little celebration as a compliment to me, but it was not uninteresting, because one was able to hear the first reactions of a great number of hon. Members opposite, which may or may not be confirmed by subsequent Debates. Yesterday—and it is still true of to-day's Debate—there were comparatively few references to the Budget. A great many most interesting topics were raised, and undoubtedly the prize must be awarded to the hon. Member for Ipswich (Mr. Stokes) for his suggestion that the first people to be conscripted in the event of any military requirements of the State in that form should be those over 40. The Official Report does not tell us on which side of the dividing line the hon. Member is —

Mr. Stokes

Forty-two.

Captain Crookshank

I was not sure whether the hon. Member was offering himself and myself as the first candidates. I do not mind, and I am sure he does not, but I hope he will reflect that it will not necessarily make a frightfully efficient army. I think that probably a great many hon. Members, when they heard my right hon. Friend open the Budget and announce the increases which unfortunately he has to place upon the duties upon tobacco and sugar, thought that this matter would at any rate be discussed and possibly even adversely criticised by hon. Members opposite. We heard eight speeches from them last night, and not one of them mentioned tobacco. The hon. Member for Leigh (Mr. Tinker), quite in a passing reference, said that my right hon. Friend could have left out sugar—of course, he could have left out anything—but that was all; and it was not until a quarter to nine to-night that the hon. Member for Consett (Mr. David Adams) actually attacked those two increases. I make that point for this reason, that I think it is a recognition by every hon. Member that this is, in to-day's circumstances, a reasonable series of propositions made by the Chancellor of the Exchequer. Probably, having had their attention called to this, hon. Members will take a different line when they resume the Debate, but nothing can alter what has been left unsaid to-day and yesterday.

As the right hon. Gentleman opposite said, it has been a curious scene for the Budget discussions. I do not suppose that there has ever been a year in which there have been fewer anticipatory excitements in the Press. I do not know whether the right hon. Gentleman contributed his forecast, which frequently in the past he has made, as to what the Chancellor would do, but in any case there were far fewer of those suggestions, intelligent or otherwise, as to what my right hon. Friend was going to do, and to-day, of course, there have been preoccupations which have kept a great number of hon. Members elsewhere; but I think that my right hon. Friend can indeed be satisfied with the reception which his proposals have had from the Committee. There has been hardly a word of criticism of the Budget itself.

Let me remind the Committee of all the different epithets which were used regarding it last night—"fair," "reasonable," "good," "sound," "honest," "equitable," "most admirable," "lucid," "orthodox." I really think my right hon. Friend can derive some satisfaction from one or all of those adjectives. The only exception was the Leader of the Liberal party who, for some reason best known to himself, called my right hon. Friend's Budget statement "unimaginative and pedestrian."But the hon. Member for Gateshead (Mr. Magnay) was quite right in his comment upon that remark when he said: I thought he gave it the best recommendation it was possible to give it. It is a pedestrian's Budget; both feet are on the ground." — [OFFICIAL REPORT, 25th April, 1939; col- 1080, Vol. 346.] If one has to deal with astronomical figures, it is better to have one's feet on the ground than to be floating about in the stratosphere. Another curious thing is that no one, at least in my hearing, has criticised or indeed commented upon the estimates which my right hon. Friend made of the receipts which he hopes to get from various taxes during the coming year. I have frequently, on other occasions, heard people saying that the Chancellor had estimated too much for this and too little for that, but during to-day and yesterday I do not think anybody has mentioned that aspect of the question. May I sum that up by saying that I think my right hon. Friend has every reason to be satisfied with the reception, so far, of his proposals?

I turn to one or two comments which were made by the Leader of the Opposition and the right hon. Gentleman who spoke first to-day. Both complained that there was no real planning for the future in this Budget. I think that particular criticism has been heard on various occasions about various matters, but I submit that it is a little difficult for any man just at this particular moment to lay down a plan which he is quite certain will be carried into effect. We are living in abnormal times, as is agreed on all sides. The right hon. Gentleman the Member for East Edinburgh did, at any rate, say, though he commented on the absence of a plan, that my right hon. Friend had provided for the economic situation as it is, and I do not think anybody could have expected him to go very much further than that. Certainly he could not have been expected to embark on what seems to have been suggested up to a point, namely, grandiose arrangements to cover a period of future years. No one—and this is particularly relevant at the moment —can be absolutely sure of what situation is likely to develop in the next few months, either for good or for bad.

The right hon. Gentleman, however, produced a plan of his own which has been supported by the right hon. Gentleman the Member for Keighley (Mr. Lees-Smith). His plan, of course, must be accepted by the Committee and the country as a very important statement, coming from one of his position and authority in the Labour party, and I accept is as such. It is a plan for the conscription or mobilisation, or whatever the word may be, of wealth. It was not made quite clear whether it was intended to be applied as a matter of principle, whether there was an emergency or not, or whether it was only an emergency suggestion, but it is based on the idea that wealth must be conscripted. But surely he is leaving a little out of account the fact—though hon. Members opposite may not like me to say so—that up to a point there is conscription of wealth at present.

Hon. Members opposite never look at it in that way, but the fact remains that wealth is conscripted and that such conscription is being increased by this Budget. There is a graduated scale of Income Tax which rises to a peak figure of 14s. 6d. in the £. Somebody last night said that it is not what is taken away, but what is left that matters. Using that argument, out of every pound of income of the highest range the income-receiver is left only 5s. 6d. Whilst the number of pounds may be very great, the actual amount left per £ is not so large. Let hon. Members opposite also remember that my right hon. Friend is putting up the death duties and that now, on the higher estates, they rise to 55 percent. Therefore, in one case it is over half the capital which is conscripted at death, and in the other it is very nearly three-quarters of the income in the higher ranges which is conscripted during lifetime. If hon. Members compare that with what it was some years ago, after the War, they will find that the graduated Income Tax did not then go beyond 10s. 6d., and I think I am right in saying that the death duties were not much more than a third, at their maximum, of what they are to-day. Of course, it is clear that the payment to be made is one of very considerable proportions. The right hon. Gentleman quoted some cases with regard to tax evasion that he had in mind. I do not expect that he wants me to go into detail about them, except to say that I believe some of them are actually covered by the existing law. He took an extreme case for example, where the line had been drawn by law at 50 percent. and he took a case at 49 percent. That is perhaps an abnormal case. However, I will certainly look into what he had to say. He also raised a question about unit trust companies, and the answer is that Amendments with regard to that were made in what is called the share-pushing Bill, but the matters are still under consideration.

Mr. Pethick-Lawrence

I realised the Amendments made in the share-pushing Bill, but those were not the financial proposals, and it was those to which I was referring to-day.

Captain Crookshank

I am sorry I did not make myself clear, but the matter is still being considered.

Mr. Pethick-Lawrence

Surely it would not be a matter for that Bill in any case, but for the Finance Bill?

Captain Crookshank

I want to deal now with another point. The right hon. Gentleman said that there was nothing in the Budget statement to encourage British export trade, but I should have thought that one of the most constituent and important parts of the Budget statement was that there was no increase in the standard rate of Income Tax, and while that may not be a direct incentive to export or any other trade, certainly if the reverse procedure had been adopted and the standard rate had been increased, it would have been a distinct discouragement to our export trade. I think that when he comes to look back on this Budget he will find that the fact that my right hon. Friend adopted that method of not increasing the standard rate was one of the most important decisions which he took.

The question was asked why it was, if one of the objects of the Anglo-American Treaty was the hope that we might increase trade between the two countries, my right hon. Friend had said that, owing to that Treaty, there would be a reduction in revenue. The right hon. Gentleman, when making that point, had, I am sure temporarily, forgotten that this loss of revenue would result largely from the repeal of the duties on, in particular, wheat and lard, under this Agreement.

The hon. Member who spoke for the Opposition Liberal party said that his party were very anxious about the Ministry of Supply and they hoped it would be possible to extend its scope; he spoke of the danger of bottle-necks in supply, and hoped there would be better financial control. The hon. Gentleman knows that we are going to discuss the whole question of a Ministry of Supply on a Bill for that purpose, and that will be the more appropriate time for Ministers to deal with the problems which he raised. He also suggested that there should be some sort of Economic General Staff to survey all the social services and to see that we get our money's worth out of them. He must not, however, overlook the functions of the Treasury in this respect, and I am not at all sure that an Economic General Staff would be the perfect method of control.

We also had a very thoughtful speech from the hon. Member for Walsall (Sir G. Schuster), which I am sure the House heard with interest, as they always do, knowing his great experience in these matters. I am not proposing to deal with the fundamental aspects of what he said, but I would like to take the opportunity, of dealing with the horse-power tax. It has been raised by several hon. Members, who have taken exception to my right hon. Friend's proposal that the horsepower tax should go up from 15s. to 25s., and have suggested alternative methods. Some suggested that the Petrol Duty should be raised; I need only say in regard to that, that it would hit industry as well as private motorists and ordinary transport. A good point about this particular proposal—if indeed, as my hon. Friend said over the wireless there can be any good point in an increased tax—is that it has no effect upon industrial transport, whether lorries, buses or anything else. It deals with motor cycles and private motor cars. In a Petrol Duty we cannot distinguish between one and the other, and I think we can put that aside.

Another suggestion was that there should have been instead some sort of graduated sales tax. Perhaps I may give one or two reasons why, in the view of my right hon. Friend that would not have been an effective way of going about the problem which, after all, is intended to bring in £6,500,000 this year. A sales tax would not only have to be graduated according to the kind of car, but would only be payable on the first sale, because by the time one got to third-, fourth- and fifth-hand cars it would be very difficult to get a sales tax out of it. Suppose I am right that the idea is that the tax should be in that form, it would moreover tend to increase the initial cost to the purchaser of the car. It is the view of my right hon. Friend that in buying a car it is much more the initial cost and the cost of petrol which the purchaser has in mind than the horse-power tax. The higher a sales tax was, the smaller would be the car that people would be inclined to buy.

It is interesting in that connection to observe that something like 60 per cent. of the new cars licensed last year were under 10 horse power, and with regard to the cars of 21 horse power and upwards, the proportion that they bear to the total number of cars is extremely small. That means, I imagine, that you would have great difficulty in getting a revenue of £6,500,000 from a graduated sales tax; the tax you would have to apply to the higher groups of cars would be so fantastic that they would really disappear from the market altogether. of course, we shall have other opportunities to discuss both this particular tax and its effect on the export trade. But the study of the figures does show that what really affects the sales of motor cars in this country and in the export market is not so much horse power tax—after all, we have had five years' experience since 1934, when the tax was dropped from £1 to 15s. per horse power—as the general prosperity of trade and industry. Because while it is quite true that after 1934 the sale of cars rose pretty generally, yet last year the drop in the new cars licensed was very considerable, again the proportion of those over 20 horse power dropped last year to only 6.3 per cent. of the new cars, whereas in the year before it had been 8.1 percent.; which seems to suggest that the horse power tax is not the most important consideration for those who purchase cars.

The hon. Member for Consett (Mr. D. Adams) was the only hon. Member who expressed regret that the standard rate of Income Tax had not been raised, and I think from what he said that perhaps he has not quite fully appreciated the effect of the rate of Income Tax on general industrial conditions. I think that when we come back to the Budget as a whole and consider what an enormous undertaking my right hon. Friend has entered into in trying to gauge the revenue this year, we shall see that the adjectives which were used yesterday were fully justified. After all, it is just as well to be reminded once again that the sum is very big—£942,500,000 to be raised from taxpayers this year. Though I have not had the opportunity of checking the statement which was repeated by two hon. Gentlemen, it is probably the highest burden when allowance is made for differences in the value of money that has ever been placed on the taxpayers of this country, at least in a time of peace.

But at the same time that we have this great burden we should bear in mind —because aspersions are from time to time made by hon. Gentlemen opposite— that the total expenditure this year for the Civil Services, as budgeted for in the Estimates excluding £5,000,000 allowed for possible Supplementaries, will be £442,500,000— £12,000,000 more than was provided for those Services last year. And I think it must surprise a great number of Members of this House who first entered it in the 1924 Parliament when it is brought home to them that for those Services (excluding War Pensions) the amount is £186,000,000 more than it was in 1925, the year of the first Budget that they heard. That is on top of this tremendous defence expenditure.

Hon. Members have tried to exercise their ingenuity to discover why exactly it was that the Chancellor arrived at the proportion which he would ask this House to supply from the annual Votes and what amount he would put to the defence loans. In February he made an announcement as to what his proposals then were. After that, as a result of events which are far too well known to hon. Members for me to have to recall them, he decided that a further £50,000,000 this year should be estimated for Defence Services, and out of that he is putting £20,000,000 on the taxpayer and £30,000,000 to the debt. I am not in a position to say what exactly it was that influenced him to decide on those proportions, and I do not know that it is a very useful subject to pursue— perhaps he may himself tell us one day— but the fact remains that we are now considering an expenditure of £630,000,000 on the defence forces for this year, and that last year the figure was £400,000,000 and the year before £265,500,000. That is the measure of the difficulties which obviously must have affected any making of Budgets.

These are really vast figures. This expenditure of £942,500,000 from revenue this year is an indication to the world of our financial strength. It is an indication to the world that, in spite of our terrific armaments burden—which my right hon. Friend said in his broadcast yesterday is not far short of £2,000,000 a day, or £13 per head of the population of the United Kingdom—we are still maintaining services which help the sick, the aged and the out of work, and help to house and to educate so many millions of our people. This is an indication to the world that by budgeting out of loan and revenue for not less than £630,000,000 of expenditure on Defence we are determined, whatever our political party is, to press on with the urgent need of rearmament and of making ourselves safe and strong to enable us to use our full influence for world peace. I am sure that for that purpose not one of our constituents will begrudge either their pennies or their pounds. I am sure that they will pay what is demanded of them, and at the same time they will pray that the sacrifices they have to make will be no more than financial sacrifices, and that the present dark clouds will soon be dispersed as the result of the gigantic efforts which the nation has undertaken and which are reflected in the Budget of my right hon. Friend.

Motion made, and Question, "That the Chairman do report Progress, and ask leave to sit again," put, and agreed to. — [Captain Waterhouse.]

Committee report Progress; to sit again To-morrow.

The remaining Orders were read, and postponed.